[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
FULL COMMITTEE HEARING ON
EXPANDING SMALL BUSINESSES'
ACCESS TO FEDERAL CONTRACTS
=======================================================================
COMMITTEE ON SMALL BUSINESS
UNITED STATES HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
APRIL 19, 2007
__________
Serial Number 110-15
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Printed for the use of the Committee on Small Business
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
JUANITA MILLENDER-McDONALD, STEVE CHABOT, Ohio, Ranking Member
California ROSCOE BARTLETT, Maryland
WILLIAM JEFFERSON, Louisiana SAM GRAVES, Missouri
HEATH SHULER, North Carolina TODD AKIN, Missouri
CHARLIE GONZALEZ, Texas BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington MARILYN MUSGRAVE, Colorado
RAUL GRIJALVA, Arizona STEVE KING, Iowa
MICHAEL MICHAUD, Maine JEFF FORTENBERRY, Nebraska
MELISSA BEAN, Illinois LYNN WESTMORELAND, Georgia
HENRY CUELLAR, Texas LOUIE GOHMERT, Texas
DAN LIPINSKI, Illinois DEAN HELLER, Nevada
GWEN MOORE, Wisconsin DAVID DAVIS, Tennessee
JASON ALTMIRE, Pennsylvania MARY FALLIN, Oklahoma
BRUCE BRALEY, Iowa VERN BUCHANAN, Florida
YVETTE CLARKE, New York JIM JORDAN, Ohio
BRAD ELLSWORTH, Indiana
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
Michael Day, Majority Staff Director
Adam Minehardt, Deputy Staff Director
Tim Slattery, Chief Counsel
Kevin Fitzpatrick, Minority Staff Director
______
STANDING SUBCOMMITTEES
Subcommittee on Finance and Tax
MELISSA BEAN, Illinois, Chairwoman
RAUL GRIJALVA, Arizona DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana STEVE KING, Iowa
HANK JOHNSON, Georgia VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania JIM JORDAN, Ohio
______
Subcommittee on Contracting and Technology
BRUCE BRALEY, IOWA, Chairman
WILLIAM JEFFERSON, Louisiana DAVID DAVIS, Tennessee, Ranking
HENRY CUELLAR, Texas ROSCOE BARTLETT, Maryland
GWEN MOORE, Wisconsin SAM GRAVES, Missouri
YVETTE CLARKE, New York TODD AKIN, Missouri
JOE SESTAK, Pennsylvania MARY FALLIN, Oklahoma
.........................................................
(ii)
?
Subcommittee on Regulations, Health Care and Trade
CHARLES GONZALEZ, Texas, Chairman
WILLIAM JEFFERSON, Louisiana LYNN WESTMORELAND, Georgia,
RICK LARSEN, Washington Ranking
DAN LIPINSKI, Illinois BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois STEVE KING, Iowa
GWEN MOORE, Wisconsin MARILYN MUSGRAVE, Colorado
JASON ALTMIRE, Pennsylvania MARY FALLIN, Oklahoma
JOE SESTAK, Pennsylvania VERN BUCHANAN, Florida
JIM JORDAN, Ohio
______
Subcommittee on Urban and Rural Entrepreneurship
HEATH SHULER, North Carolina, Chairman
RICK LARSEN, Washington JEFF FORTENBERRY, Nebraska,
MICHAEL MICHAUD, Maine Ranking
GWEN MOORE, Wisconsin ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana DEAN HELLER, Nevada
HANK JOHNSON, Georgia DAVID DAVIS, Tennessee
______
Subcommittee on Investigations and Oversight
JASON ALTMIRE, PENNSYLVANIA, Chairman
JUANITA MILLENDER-McDONALD, LOUIE GOHMERT, Texas, Ranking
California LYNN WESTMORELAND, Georgia
CHARLIE GONZALEZ, Texas
RAUL GRIJALVA, Arizona
(iii)
?
C O N T E N T S
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OPENING STATEMENTS
Page
Velazquez, Hon. Nydia M.......................................... 1
Chabot, Hon. Steve............................................... 2
WITNESSES
Hsu, Paul, Associate Administrator for Government Contracting and
Business Development, U.S. Small Business Administration....... 3
Parkinson, Nigel, Associated General Contractors of America...... 5
McCracken, Todd, National Small Business Association............. 7
Murphy, Emily, Miller & Chevalier Chartered...................... 9
Taylor, Grady, Tri-Mega Purchasing Association................... 11
APPENDIX
Prepared Statements:
Velazquez, Hon. Nydia M.......................................... 33
Chabot, Hon. Steve............................................... 35
Altmire, Hon. Jason.............................................. 36
Hsu, Paul, Associate Administrator for Government Contracting and
Business Development, U.S. Small Business Administration....... 37
Parkinson, Nigel, Associated General Contractors of America...... 41
McCracken, Todd, National Small Business Association............. 44
Murphy, Emily, Miller & Chevalier Chartered...................... 49
Taylor, Grady, Tri-Mega Purchasing Association................... 69
(v)
FULL COMMITTEE HEARING ON
EXPANDING SMALL BUSINESSES'
ACCESS TO FEDERAL CONTRACTS
----------
THURSDAY, APRIL 19, 2007
U.S. House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:00 a.m., in Room
2360 Rayburn House Office Building, Hon. Nydia Velazquez
[Chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Jefferson, Moore,
Braley, Ellsworth, Johnson, Sestak, Chabot, Bartlett, Davis,
Fallin, and Buchanan.
OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ
ChairwomanVelazquez. I call this hearing on Expanding Small
Business' Access to Federal Contracts to order. The federal
government is the biggest buyer of goods and services in the
world.
Given the volume of its purchases, $330 billion last year,
and the diversity of its acquisition, it should be easy for the
small business participation goals to be reached.
Unfortunately, as we have seen repeatedly, this is not the
case.
Over the past several years, this Committee has had at
least 15 hearings on agency procurement practices and the
negative effect they have on small companies. Already in the
110th Congress, we have held 2 hearings on this issue. Today we
continue our examination of the key values small businesses
face when accessing federal contracts and legislation offered
by our colleague from Iowa that addresses many of these
programs.
In our work, several failures of the federal government
have been made clear. The entrepreneurial share of the federal
marketplace is sleeping, not expanding, as it should be.
Agencies consistently fail to achieve the minimum small
business goal. And they are counting their accomplishments with
contracts awarded to large corporations, inflating the amount
of contracts that go to small firms.
In today's economy, entrepreneurs are the drivers
representing 99 percent of all firms in this country. Yet, the
federal government continues to fail to meet the 23 percent
government-wide statutory small business goals. When these
goals are not met, it means money out of the pockets of other
small business owners and the loss of job creation in
communities throughout the country.
In our most recent scorecard, we found that small
businesses in general lost $4.5 billion in contracting
opportunities last year because the 23 percent goal was missed.
We found that women-owned businesses lost $5.2 billion because
their 5 percent goal was missed. Minority contractors lost $4.5
billion because their 5 percent goal was not reached.
Over the past couple of years, we have also noted another
disturbing trend. Agencies are counting contract awards to
large companies as small business contracts. In 2005, about $12
billion in contracts were wrongly counted. These false numbers
make it appear agencies are doing more with small businesses
than they really are, which makes the true state of opportunity
even worse.
One of the real problems here is that when agencies believe
they are doing well with the small business measurements, they
are more likely to engage in practices that are harmful to
small businesses. In the last few years, for example, we have
seen substantial increases in contract bundling and limited
contract sourcing.
Contract bundling has been public enemy number one for
small businesses that are trying to penetrate the federal
marketplace. Over the last five years, total government
contracting dollars have increased by almost 60 percent while
the number of contract actions to small businesses decreased or
declined by 55 percent.
Pure contract actions combined with greater procurement
spending is proof of contract bundling. Today's hearing will
allow us to review potential sources to increase access to
government contracts as contained in H.R. 1873, the Small
Business Fairness in Contracting Act, introduced by our
colleague, Representative Braley. I believe this proposal will
provide the tools necessary to create opportunities for
increased small business contracts.
And let me just announce that we are planning to have a
markup on this legislation on Tuesday since the leadership and
I discussed the possibility for the bill to be on for floor
action May 7.
So I look forward to working with my colleagues as we
arrange for our mission of expanding and solidifying the role
of small companies in the federal marketplace.
Let me thank all the witnesses for coming here and sharing
their experiences with us today. And I now would like to
recognize Ranking Member Chabot for his opening statement.
STATEMENT OF MR. CHABOT
Mr.Chabot. Thank you very much. And, first, I would like to
thank Chairwoman Velazquez for holding this very important and
timely hearing to examine the practice of contract bundling and
other federal procurement procedures that deny small business
opportunities to obtain their fair share of government
contracts.
We also will hear testimony from legal experts about the
Small Business Fairness in Contracting Act and strategies for
unbundling the contracts. It is well-known that bundling limits
small businesses from competing for prime federal contracts.
When small businesses are locked out from competing for prime
contracts, the small business community loses business
opportunities. The federal government loses important
suppliers. And ultimately the taxpayer loses because of reduced
competition that so often leads to higher prices.
The availability of federal contracts is at an all-time
high, as the Chairwoman mentioned. Last year federal spending
on government contracts amounted to $340 billion. This
represents an 8 percent increase over the previous year and a
13 percent increase since fiscal year 2004.
Recent events, such as the cleanup from the Gulf Coast
hurricanes and the ongoing war on terror, have created a
growing need for services by government agencies and an
increase in the amount of federal government contracts
available. As the primary engine of innovation and job
creation, small businesses should be receiving a fair
proportion of the total prime contracts for property and
services as required by the Small Business Act. Contract
bundling is a barrier to achieving this goal.
We all look forward to hearing from our witnesses so that
we can all learn more about bundling and strategies for
increasing small business opportunities in the federal
marketplace. This is a very important issue that directly
affects the bottom lines of our nation's small businesses. And
it is one that I am sure this Committee will continue to
examine closely. We need to ensure that small businesses have
and will continue to have a seat at the federal contracting
table.
I yield back the balance of my time, Madam Chair.
ChairwomanVelazquez. Thank you.
So we are going to start the hearing. Our first witness is
Mr. Paul Hsu. He is the Associate Administrator for Government
Contracting and Business Development at the United States Small
Business Administration. Mr. Hsu has been in this new position
just a few weeks. So congratulations and welcome.
Mr.Hsu. Thank you.
ChairwomanVelazquez. You have five minutes for making your
testimony.
Mr.Hsu. Thank you. Thank you very much.
STATEMENT OF PAUL HSU, ASSOCIATE ADMINISTRATOR FOR GOVERNMENT
CONTRACTING AND BUSINESS DEVELOPMENT, UNITED STATES SMALL
BUSINESS ADMINISTRATION
Mr.Hsu. Chairwoman Velazquez, Ranking Member Chabot,
distinguished members of the Committee, my name is Paul Hsu. I
am the Associate Administrator for Office of Government
Contracting and Business Development at the U.S. Small Business
Administration. Thank you for inviting me to testify today.
I would like to take this opportunity, Madam Chair, to
share with you and the distinguished members of the Committee
my little experience with SBA's contracting and business
development program, but, most importantly, I want to let you
know that why I personally think that these programs are very
important for small and minority-owned firms and very quickly.
And here is my short personal story.
I was born in Taiwan and came to the United States in 1976.
I was 26 years old and spoke very little English, but I managed
to obtain a Master's degree in industrial management systems
engineering from Central Missouri State University. And I got
married and started having kids. I believe two of them are here
today. And I got a job at the Harris Corporation and moved to
Florida.
Harris was a Fortune 500 aerospace company. Ninety percent
of our divisional revenue came from DOD. I was a chief
engineer. And the life was really perfect until the Berlin Wall
came tumbling down, the Soviet Union disappeared, and the DOD
started reducing their requirements and Harris started laying
off people and the entire facility was closed.
That was 1984, about 23 years ago. And that was the time I
decided, ``I am going to start my first company because I was
so afraid that I might get laid off again.''
But all I had at that time was a dream, a dream of a big
building filled with people overlooking a parking lot with
hundreds of cars and a tall flagpole with a huge American flag
waving under the warm Florida sun.
So to take my dream to reality, the first thing I did, I
sent my wife to work. And she did. She worked as a waitress at
the local Pizza Hut while I was running around and chasing
contracts. And she is very, very special lady.
After I had a contract, I realized that I needed money to
buy parts or the contract itself could not be treated as a
collateral. So after all the banks turned me down, a banker
told me about SBA-guaranteed loan. I got a loan, and I started
learning about SBA.
Soon I got into an 8(a) program. It was a great, great
helping hand. A little later I joined the SBA-sponsored mentor
protege program with Boeing, and I started building avionics,
building radar components, the guiding system and many critical
flight hardwares for the Boeing's fighter jet, including F-15s,
F-18s, T-45s, C-17s, C-130, B-1, B-2, and B-52. I was so
impressed about the mentor protege program I started my own. At
one time I had two proteges: a HUBZone STB and a woman-owned
STB.
Two years ago, my company has been acquired by a big
publicly traded company. But, most of all, Madam Chair, it was
the SBA. The SBA provided me the capital, the training, the
counseling, and the contract opportunity that I desperately
needed to go in my company.
So I can say this. I am the product of SBA and all the
SBA's programs. And I am the living proof that these programs
work. It is absolutely an honor and a privilege for me to serve
an agency that I truly believe in.
I joined SBA on March 19th, exactly one month ago today.
What I bring with me is the entrepreneurial spirit dedicated to
impacting many small businesses as they look forward to achieve
the success in the federal marketplace.
Here are some facts. Government contracting dollars go to
the small businesses have grown significantly since F.Y. 2000.
There were $30.6 billion more of small business contracts in
F.Y. '05 than F.Y. 2000 and supporting an estimated about
235,000 jobs.
SBA recognized the need to improve the government
contracting program and has taken the lead along with Office of
Management and Budget, Office of Federal Procurement Policy to
carry out a number of initiatives, including addressing the
contract bundling and working with agencies to ensure their
reporting is accurate. However, the integrity of the data
reported to Congress and the public is very crucial to provide
the confidence in the federal contracting system. Agencies are
currently in the process of validating their F.Y. '05 and F.Y.
'06 data to identify the reason for coding discrepancies and to
correct any error that may occur.
Additionally, the Administrator had made the contract data
transparency and accuracy a very high priority and taken the
issue very seriously. And we are going to continue to hold the
agency accountable for their progress in meeting the small
business contracting goal.
SBA released SCORE CARD, as you know, along with the F.Y.
'06 contracting report. The SCORE CARD mirrored the President's
management agenda, and it will more aggressively track and
monitor the status of each agency's small business goal
achievement and hold the agency more accountable.
This allowed the public to see clearly the progress in the
level of the effort agencies are making to address their weak
point. For instance, agency would be rated of their
subcontracting achievement in addition to their prime contract.
SBA's F.Y. '08 budget, including a request on $500,000 to
exam how best to serve the 8(a)'s; the HUBZone; the small,
disadvantaged business community; as well as women and the
veterans. We recognize the need to improve in this management
in this important program and will use them, these resources,
to determine how best to serve the community.
As an 8(a) graduate myself, I understand the frustration
that my colleagues in the 8(a) community feel when the
application, the contract approval--
ChairwomanVelazquez. Mr. Hsu? Mr. Hsu?
Mr.Hsu. Yes, ma'am?
ChairwomanVelazquez. The time is expired. If you need like
5 to 10 seconds to summarize?
Mr.Hsu. Okay. Thank you.
On behalf of the administrator, I relay his desire to work
with the Committee to ensure the entrepreneurs will have the
ability to compete with federal contracts and the work agency
and help them to achieve the goal.
So, Madam Chair, that concludes my testimony. Thank you.
[The prepared statement of Mr. Hsu may be found in the
Appendix on page 37.]
ChairwomanVelazquez. Thank you, Mr. Hsu.
Our next witness is Mr. Nigel Parkinson. Mr. Parkinson is
the owner of Parkinson Construction from Brentwood, Maryland.
He is testifying on behalf of the Associated General
Contractors. You will have five minutes.
Mr.Parkinson. Thank you, Madam Chairman.
STATEMENT OF NIGEL PARKINSON, OWNER, PARKINSON CONSTRUCTION,
BRENTWOOD, MARYLAND, ON BEHALF OF ASSOCIATED GENERAL
CONTRACTORS
Mr.Parkinson. My name is Nigel Parkinson. And I am
testifying on behalf of the Associated General Contractors,
AGC, the nation's largest and oldest construction trade
association. Founded in 1918, our association represents more
than 32,000 construction firms nationwide. I serve as Senior
Vice President of AGC of metropolitan Washington, D.C. And, as
the Chairwoman said, I am also the President of Parkinson
Construction Company.
AGC is pleased to share our thoughts for this year,
upcoming year, of transition of the Small Business Act. I am
going to focus on the changes agency made by recommending for
the impact of contract bundling and the growing concern over
large construction contracts. AGC can be committed for the
opportunity to ally these areas of concern to the construction
industry.
Contract bundling has been a concern in the construction
industry for several years. While there is no clear definition
of bundling, it appears that consolidation of various projects
is occurring more frequently. Small contracts are being bundled
to result in large dollar solicitations that small businesses
are not able to compete for unless they are partners with large
firms.
While on the surface this may not seem harmful, this
practices on the mind's intent of the small business program by
allowing large business to obtain money set aside for smaller
firms. AGC recommends that the federal government annually
reports to Congress on contract bundling so that the magnitude
can be gauged and the trend can be spotted and addressed by
Congress. In addition, Congress should require SBA to monitor
not only total volume of small business contracts, but the
number of total contracts and the size of this contract as
well.
The contract bundling institution is further compounded by
the fact that small business set-asides keep increasing. A now
overwhelming number of special preference programs leaves
little work for small businesses with target preference and
medium-sized businesses able to compete for work.
Right now our federal contracting options are very limited.
We have found it difficult to compete on projects currently
available for building our own backyard here in Washington,
D.C. because absolutely every project because of size has a
preference attached to us. That has excluded us from competing
for the work.
Contract bundling combined with pressure on agencies to mix
your small business charges with different goals is leaving
firms like mine with no opportunity to grow our businesses. As
a result, we are often shut out of the federal market.
Rather than creating a new specialty set-aside goal, the
Congress should, instead, focus on how the existing programs
can be improved to increase opportunities for small firms. As
the Committee moves towards the utilization of the SBA
programs, construction as an industry should be included in any
revised definitions of the contract bundling to ensure that
these consolidations are reviewed for potential negative impact
on existing small businesses.
Additionally, agencies concerned that SBA does not
currently have planning for additional resources devoted to
ensuring that small companies are not economically aggrieved by
contract bundling, there is currently an insufficient number of
procurement censors representative in the SBA to monitor
bundled contracts.
As a small business community, we view the issue of
contract bundling as the time is out to move forward to solve
the problem, the main issue being that contractors need to
experience as prime contractors in order to go.
In the past, increased use of subcontracting has been the
answer to provide small businesses opportunities to work on
federal contracts. In the construction industry, small business
has proven to be an asset. The construction industry has proven
that small businesses can compete as prime contractors on a
relatively level playing field. Working from a prime contractor
opportunity for small to medium-sized businesses should be the
solution the government and the Committee should seek.
Since we are talking about the issue of contract bundling,
I would also like to mention continued concerns by the growing
reliance on the use of Alaskan Native contracting in sea by the
federal agencies as a means to easily attain small business
contracting goals.
A special contract is awarded to an ANC and is available by
the traditional 8(a) program. And we believe that this program
is clearly being used by procurement agency as a tool for
contracting officials to meet their 8(a) goals.
We understand the ANC matter is currently under
consideration by the Committee. And we look forward to working
with the Committee on this particular issue.
[The prepared statement of Mr. Parkinson may be found in
the Appendix on page 41.]
ChairwomanVelazquez. Thank you, Mr. Parkinson.
Our next witness is Mr. Todd McCracken. Mr. McCracken is
the Senior Director of Government Affairs for the National
Small Business Association. Welcome.
Mr.McCracken. Thank you very much, appreciate the
opportunity to be here, Madam Chairwoman.
STATEMENT OF TODD McCRACKEN, PRESIDENT, NATIONAL SMALL BUSINESS
ASSOCIATION
Mr.McCracken. Again, my name is Tom McCracken. I am the
President of the National Small Business Association. We are
the oldest national small business advocacy association, United
States. And I would like to thank you just for the chance to be
here, for the opportunity to comment on H.R. 1873, which we
certainly comment the introduction of, and we are very pleased
to see the progress it would make for small businesses.
Federal procurement is of singular importance to many small
businesses. And small business participation is crucial to
helping the competitive federal procurement process. In other
words, expanding the access of America's small businesses to
federal contracts is beneficial to all involved.
The importance of expanding small business access to
federal contracts is certainly recognized by the membership of
NSBA, which has identified small business contracting as one of
NSBA's top priority issues during our recent biennial small
business congress.
First, I would like to talk a little bit about the small
business contracting goal. We are pleased to see that H.R. 1873
would expand the goal to 30 percent for all federal contracts.
NSBA welcomes the bill's stipulation that each federal agency
would have an annual small business procurement goal not lower
than the government-wide goal because there, as you probably
all know, have been some issues with that in past years.
Further, we are also pleased that the bill would increase
the small business contracting gaol and will be benchmarked in
relation to a more accurate and inclusive federal procurement
tally that finally will incorporate contracts carried out
abroad. The inexplicable exclusion of various kinds of
contracts, such as those carried out overseas, has distorted
the reality of contracts from the government's small business
procurement calculations too frequently. And they have resulted
in escalating exclusions and creative bookkeeping, rather than
increased small business contracting or even accurate data
collection.
Federal contracting is of great importance to small
businesses as well, despite the absence of the government-wide
subcontracting goal. From F.Y. '85 to F.Y. '04, small
businesses received between 34 and 42 percent of all federal
subcontracting, according to a recent working paper produced by
the SBA Office of Advocacy. H.R. 1873 would include the entire
contract award for calculating the percentage of small business
subcontracts awarded and not just those dollars that are
subcontracted.
NSBA also welcomes the subcontracting and enforcement
mechanism in H.R. 1873, under which prime contractors would
receive bonus credits for their next bids upon achieving their
subcontracting goals.
We do continue to advocate, however, for the codification
of payment history in the federal evaluation of all prime
federal contractors as well. In fact, almost 70 percent of the
respondents to a recent procurement survey we conducted
supported including payment history and federal evaluation
process of all prime contractors according to our early
results.
I would also like to bill a little bit on the contract
bundling issue. We think it is really at the center of the
issues that small businesses face in the procurement world. And
we are very supportive of the things that the legislation does.
We think, as I am sure most people in this room probably do
agree, that we need to more, however.
In that same survey I mentioned before, over 30 percent of
the respondents had firsthand personal experience losing out on
a federal contract, specifically because of contract bundling.
And bundling statistics that are out there now that we talk
about are based on a more broad definition of contract
bundling, that currently used by the federal government, the
ones that actually show how bad the problem is because the
federal government lies in our limited definition focused
exclusively on whether one of the contracts was previously
performed by a small business.
This overly narrow definition warps the government's
calculations on the prevalence of contract bundling in the
federal procurement arena. And we have long advocated for the
expansion of the term to include any instance where two more
individual contracts are combined. So NSBA welcomes efforts
such as the one in the bill to enhance the definition of
contract bundling.
And, finally, I have mentioned data. I would like to talk a
little bit about reliable and accurate data because that is a
big problem. Time and again, it has been demonstrated that a
large number of contracts ostensibly awarded to small
businesses actually have been awarded to and carried out by
larger firms. The Office of Advocacy study has found that 44 of
the top 1,000 small business contractors in 2002 were not, in
fact, small businesses.
These exclusions of various kinds of contracts dilute the
actual procurement data. And we continue to support the
improvement in that data, such as what is done by H.R. 1873.
So we think the bill establishes a whole range of
benchmarks that will move us forward on improving the small
business procurement system. And we want to thank you for
introducing the bill. And we want to thank you for giving us
the opportunity to comment upon it. Thank you.
[The prepared statement of Mr. McCracken may be found in
the Appendix on page 44.]
ChairwomanVelazquez. Thank you.
Our net witness is Ms. Emily Murphy. Ms. Murphy is counsel
for Miller and Chevalier, Chartered. Prior to this, she was on
the staff of this Committee under Chairman Jim Talent. Emily
served in the administration of both the SBA and the GSA. We
are happy to welcome you back to the Committee.
Ms.Murphy. Thank you very much.
STATEMENT OF EMILY MURPHY, ATTORNEY, MILLER AND CHEVALIER,
CHARTERED
Ms.Murphy. I am very happy to be here. It really is a
homecoming. I also want to comment you all for taking the time
to study these important, what I consider exciting issues and
introducing the legislation, which is a great step in
addressing a lot of the problems that small businesses are
facing in government contracting.
I am here today even as a lawyer for Miller and Chevalier,
but I am representing myself. I am not speaking on behalf of
any of Miller and Chevalier's clients, whether they be small or
large businesses, or on behalf of the American Bar Association,
for whom I chair their Committee on Small Business and Other
Socioeconomic Programs.
I also just want to say that my written testimony is a
comment on a prior draft of the legislation. So I am hopefully
going to be able to tweak it a little bit here today.
There is so much in this legislation that it is hard to
even figure out how to start and get it done in five minutes.
So let me dive right in.
I want to thank you, first of all, for addressing what I
consider the key questions in government contracting. What kind
of opportunities should be made available for small businesses?
Who is a small business? And how do you make sure that those
two connect, that those opportunities really are going to
legitimate small businesses? I think by addressing contract
bundling, this can be taking an important first step at
recognizing what opportunities should be available to small
businesses.
In the past year, in fiscal year 2006, the federal
procurement data system was only able to identify 43 contracts
over $5 million as having been bundled. And those contracts
totaled over $5 billion. But when you talk to other small
businesses, you will find that there are a lot more than 43
contracts being bundled. And so where is the disconnect?
I think that a lot of that disconnect is in the definition,
which this Committee is addressing. The prior definition that
was put into law in 1997 by this Committee took the first
putting out the primary award for what is contract bundling but
in doing so stated that contract bundling had to have been for
work that was currently being performed by small business or
was suitable for award to small business. So it had to have
been existing requirements.
Contracts evolve over time, and requirements evolve. So
that our changing the definition with H.R. 1873 to include new
requirements, the Committee is bringing in a whole new scope of
contracts review. And that is going to create important
opportunities for small business.
I also want to commend the Committee for looking at the
idea of task orders and including those in the definition of
contract bundling in the review. I would want to argue that
there are different types of task orders and maybe some
distinctions need to be made between those task orders,
specifically that task orders about single award contracts may
not always be appropriate for review; whereas, the prime
contractor in a multiple award contract may need review
depending on whether it is a limited duration contract, but the
task orders always need review.
So if it was possible to address that language, I think
that would help target the limited resources that exist for
ensuring small businesses can compete.
I also want to thank you for taking the time to address
what happens when SBA doesn't get the information on contract
bundling and giving SBA the right to intervene at that point. I
think that is going to give them a lot more fact-finding
ability.
I noted that you have given them ten days to respond. And
my question would be, what happens if those ten days hit the
end of the fiscal year? I would love to see us create a
situation where agencies want SBA to evolve, to get involved
and intervene.
And I would suggest that you might want to look at the
fiscal laws that involve those dollars. If there were some way
to keep those dollars valid and valuable until SBA completed
its review, even if it crossed fiscal years, you might actually
have agencies beginning SBA to intervene.
Also, I know this Committee wanted to address the small
business reserve. And I think that time idea of the small
business reserve as a simplified acquisition threshold makes a
lot of sense.
The small business reserve is currently any contract below
$100,000. The simplified acquisition threshold is in most cases
$100,000. However, the simplified acquisition threshold also
has its minimum, of which the micro-purchase threshold applies.
And that's $3,000 right now. It may make sense to tie the
bottom level of this range to the micro-purchase threshold.
The one question I would like to see the Committee address,
though, is what happens in times of emergencies. In times of
emergencies, the simplified acquisition threshold can currently
be raised to $25,000 for micro-purchases, and up to a million
dollars for the simplified acquisition threshold. The Committee
may want to address what ramifications that would have and
whether added flexibility needs to be incorporated.
Moving on, since I know I am running out of time, when it
comes to recertification, which is really the key question to
address who is a small business, the Committee may want to look
also at the--in H.R. 2802, which I believe that the Chairwoman
cosponsored, the Committee suggested that there be a five-year
review and recertification. And I think that is now in
regulation.
This legislation suggests that there will be an annual
review for companies that are within 80 to 95 percent of the
size standard. This seems a little difficult for those
businesses to have that annual review just at a time that they
are changing their rules. I would suggest that unless they are
exercising an option, that they be allowed to rely on that
initial certification because it is not going to go beyond a
five-year period.
With small businesses who are legitimate small businesses,
when they get a contract, grow because of that contract, you
want to make sure that they have the planning and the time and
place to make that transition seamlessly. And that is something
that I believe that the Committee recognized with 2802 when
they gave the presumption that a business could continue to
remain small, even if it exceeded the size standard? It may be
worth considering some of those provisions going forward as
well.
Finally,--I promise I will wrap up--as the Committee is
looking at certifications and databases and where small
businesses represent themselves, I would hope that they would
also look at the online representations and certifications
application or Section K of any application because that is
where true enforcement can take place. That is where an agency
can say, ``A firm has misrepresented their size status to us,
and we are going to go forward.''
It would be helpful if we could further identify what the
damages are to the agency at that point in time so that they
would have a greater bassi for any legal action they were going
to take. I think that will really help resolve the problems of
inadvertent or intentional misrepresentations.
Thank you so much for this opportunity to testify here
today. And I look forward to answering any questions. I
apologize for going over.
[The prepared statement of Ms. Murphy may be found in the
Appendix on page 49.]
ChairwomanVelazquez. Thank you so very much, an incredible,
incredible testimony. Thank you.
Our next witness is Mr. Grady Taylor. He is the Executive
Vice President of the TriMega Purchasing Association, a 500-
member organization of office products suppliers. Welcome.
Mr.Taylor. Thank you, Chairwoman Velazquez, Ranking Member
Chabot, and the Committee.
STATEMENT OF GRADY TAYLOR, EXECUTIVE VICE PRESIDENT, TRIMEGA
PURCHASING ASSOCIATION
Mr.Taylor. I am pleased to be here today to testify before
your Committee on this very important issue. TriMega Purchasing
Association is a not-for-profit member-owned cooperative
focused on the success of the small and independent office
product dealer. We are the largest such entity in the country.
If you want to buy office products, there are two ways to
do so. You can either buy them from a small, family-owned
company or you can buy them from large, billion-dollar
corporate companies, of which there are four. Regardless of
whom you buy your supplies from, both groups are serviced by
the same wholesalers and manufacturers.
When you purchase office supplies, they are coming from the
same major wholesalers and manufacturers. And, in fact, the
only difference in our industry is size.
Where TriMega comes into play is that we have successfully
negotiated on behalf of our independently owned dealer members
competitive costs of the goods agreements with those same
wholesalers and manufacturers in order to bring parity to the
marketplace.
In spite of that, the office products industry is one, if
not the most, negatively affected by the issues we are here to
discuss today. The reason I say this is that when the federal
government decides to implement a new pilot program that is
supposed to make the purchasing of goods and services more
efficient and cost-effective for the government, they usually
use office products as a first product to test.
For some reason, the myth in the federal government is that
buying office supplies is an easy process, the myth perpetrated
in the '90s by the reinvention of government. I mean no
disrespect to former Vice President Al Gore, who is credited
with the reinvention of government concept as at the time, he
made it look good on paper, but the actual implementation of
the process has been bad for small business, especially those
in the office supply industry.
Streamlining the government to make it more efficient is a
good idea, but what the federal government has failed to do in
its design phase is consider all of the issues that go into the
buying process. It is simply not enough to look at pricing. You
need to consider service; history of a company; capabilities of
the company; and, most importantly, the impacts on the
community your decisions will have if you severely limit the
number of vendors able to sell to the federal government.
Limiting your choices of vendors means lost jobs for small
business, lost tax revenue for the federal government and local
community. And it means the inability of small businesses to
grow and thrive.
Contract bundling has had a negative effect on industry.
When you continue to make contracts larger and larger, new
myths are perpetrated. When it comes to contract bundling, the
myths we still hear from agencies are that independents cannot
service large national contracts because they are not
sophisticated enough.
This is another myth started in the '90s. And,
unfortunately, it continues today. The reality is independent
dealers can service national, large national, contracts. We are
doing it and doing it successfully when given the opportunity
to compete on a level plaything field.
I am still stunned to hear how surprised some agencies are
to learn that independent dealers have Websites, online
ordering capabilities, quality customer service, and the
ability to accept government credit cards. We can do that and
more.
Four years ago, we came to Congress with these concerns.
And we were told it was unlikely Congress would address our
issues. If we hoped to be effective in the government market,
we needed to change our industry. We did just that.
The rules governing how and who does business with the
government were still not in our favor. And it is our hope that
this time Congress will act to level the playing field. Without
your help now, industry faces a greater problem than contract
bundling.
As you know, the administration is in the process of
implementing what it calls strategic sourcing initiative. This
process may be good for industries where subcontracting
opportunities exist, but it could be the program that drives
independent office products dealers from the federal market.
Strategic sourcing is a new contract bundling of our time
and if fully implemented will mean the federal government will
do business with less vendors, it will not get the cost savings
they are seeking due to the lack of competition, keeping
vendors honest. This is neither good for the government nor
small business because the likely winners of these contracts
will be large corporations.
We have witnessed firsthand the effects this program is
having on small businesses through the $100 million award made
to a large corporate entity in our industry by the Department
of Health and Human Services, the first of many contracts to be
awarded as part of the administration's strategic sourcing
initiative.
I would also like to take this opportunity to highlight
another issue facing small businesses that doesn't get much
attention. That is the issue of pass-throughs. Today you have a
lot of large companies using small businesses to gain greater
access to the federal government market.
The way this works is a large company will approach a
legitimate small business and create a relationship they label
as mentoring. There is absolutely no mentoring going on. It is
nothing more than circumvention around the intent of the
statute.
Really, what happens is when a government agency wants to
buy office supplies, they are using the small businesses who
were awarded the contract, but the fulfillment and all of the
work comes from the larger companies. In return for their
willingness to sell their small business status, these dealers
are getting a percentage of the sale but doing nothing. And the
large corporate company continues to build its revenues and
access to the market.
Not only is this abuse bad for the entire independent
community, it is bad for the government. By turning a blind eye
to these abuses, the government is taking credit for small
business purchases that help agencies meet their 23 percent
small business goals, even though these purchases were made
through a large company.
In most cases, the only thing the small business provides
is its Website is a face for these pass-throughs. This practice
helps the agencies build up their small business purchases,
making it look as if they are doing everything they can to meet
the needs of the small business community.
ChairwomanVelazquez. Mr. Taylor?
Mr.Taylor. Yes?
ChairwomanVelazquez. Time expired.
Mr.Taylor. Yes.
ChairwomanVelazquez. Would you summarize, please?
Mr.Taylor. Chairman Velazquez, more can be done. In fact,
more has to be done. Our industry cannot continue to fight an
uphill battle without your help.
Thank you for all of your support. You have been a real
strong advocate on our behalf. And you give us hope that we can
make positive changes to the process. Thank you.
[The prepared statement of Mr. Taylor may be found in the
Appendix on page 69.]
ChairwomanVelazquez. Thank you.
And the Chair now will recognize Representative Braley from
Iowa, who is the main sponsor of the Small Business Fairness in
Contracting Act, H.R. 1873, for an opening statement.
Mr.Braley. Thank you, Madam Chairman. And thank you for
holding this important hearing.
Over the past five years, government agencies have greatly
increased contract bundling, oftentimes combining small
businesses. They are combining work small businesses could
perform into giant packages that exceed small firms' ability to
compete for this work. But during that same 5-year period,
total government contracting has increased by 60 percent while
small business contracts have decreased by 55 percent.
This is unacceptable. That is why on Tuesday evening I
introduced H.R. 1873, the Small Business Fairness in
Contracting Act. This bill will unbundle many of these
contracts and level the playing field for small businesses. The
bill will ensure proper competition among many businesses,
saving taxpayer money and opening up opportunities for
America's small businesses.
By law, federal organizations are required to support small
businesses. However, contract bundling has resulted in less
small business participation in federal contracts. It is
essential to help remove the barriers blocking small businesses
from entering into the nearly $400 billion per year federal
marketplace.
Small businesses are the number one job creators in this
country. And we need to ensure that this engine not only
remains healthy but also has the support that it needs to grow.
Let's make sure small businesses are not shut out of the
federal marketplace.
Unfortunately, my state, Iowa, ranks near the bottom in
terms of government contracting dollars awarded to small
businesses. Small businesses are the backbone of the
communities within my district in Iowa, as they are in most
congressional districts. allowing them a fair opportunity to
bid on federal contracts can bring economic vitality to these
towns and cities.
Today I am hopeful we can begin a discussion that sends a
message to small business owners that they will get a fair
opportunity to compete for and win federal contracts.
Thank you again, Madam Chairwoman, and thank you for the
witnesses who came in today and shared this valuable testimony.
ChairwomanVelazquez. Thank you, Mr. Braley.
And now I would like to address my first question to Mr.
Hsu. Mr. Hsu, I have met with the administrator, Mr. Preston,
on several occasions. And one of the issues that I have been
discussing with him is miscoding.
I know that you have been in your position only four weeks,
but today you are the witness representing SBA on this issue.
So you are sitting in the hot seat.
My question to you is, given the fact that your former
company, MTI, still is being miscoded as a small company, so
you bring a new perspective into your new job and given the
fact that miscoding is a real problem for us, I will ask you
how are you going to approach this issue?
Mr.Hsu. Yes, ma'am. Yes. Miscoding for sure, I agree, is a
very important issue. Speaking for SBA, we are doing something
about it. The new recertification rule will be applied in the
end of June. After simplifying these, there are two things
about this. The small business must recertify after the five
years after long contract, long-term contract.
And, secondly, if the small business gets acquired or are
buying somebody, they have to recertify. So that will ensure--
ChairwomanVelazquez. Now let me just say that the actions
taken by the administrator regarding the miscoding issue only
address 20 percent of the whole problem. So this is why we need
to get this legislation passed.
Mr.Hsu. Yes, ma'am.
ChairwomanVelazquez. Let me talk to you about the fact that
from 2004 through 2006 SBA filed 4 secretarial appeals on
contract bundles. And it seems to me that SBA is like the
Washington Generals. We lost 2,495 straight games to the Harlem
Globetrotters.
(Laughter.)
ChairwomanVelazquez. Since SBA has not been able to win one
of those appeals, how do you think the appeal system is
working?
Mr.Hsu. Madam Chair, SBA as of today, at my office, I have
54 procurement representatives. And they review anywhere
between 50,000 to 60,000 requirements every year. So that's
average about 1,000 review requirements per year.
Yes, we filed the secretarial appeal on the average about
five to ten years, but, again, this is my own philosophy. I
feel like we need to try to work things out with agencies to
secure the small business opportunities before they take the
action a more formal way. Many of our successes occur in this
level.
ChairwomanVelazquez. I hear you. Given the facts of a poor
record of SBA regarding appealing those contract bundles, are
you telling me that how many PCRs are you hiring?
Mr.Hsu. Fifty-four right now.
ChairwomanVelazquez. Does that mean--
Mr.Hsu. We expect to get to 66 by the end of this year.
ChairwomanVelazquez. Do you think that will be enough?
Mr.Hsu. Yes, I do because these are the very experienced
PCRs. They understand the agency's requirements. And also we
are working very hard to provide them with all the training
tools. One of them, for example, is the quick market search.
ChairwomanVelazquez. Sir, the problem that we have is that
SBA is going to have fewer, even of the 54 PCRs that you are
telling me, they are going to have fewer, than the agency had
in 1993, when federal buying was $100 billion less than in F.Y.
2005.
Mr.Hsu. Well, there are tools available, Madam Chair. The--
ChairwomanVelazquez. I guess those tools are not working,
sir, given the track record and continuing to lose your appeals
to those agencies.
Mr.Hsu. I will take a look on that.
ChairwomanVelazquez. I will recognize Mr. Chabot.
Mr.Chabot. Thank you very much, Madam Chair.
Mr. Taylor and Mr. Hsu, if I could address my first
question to you two? Mr. Taylor, could you briefly describe
what you described before relative to a lot of these office
supply arrangements, where you have a small business who really
is kind of a front man and you have somebody else that is
really getting it and not getting the work?
And if you could listen to this, Mr. Hsu?
Go ahead, Mr. Taylor?
Mr.Taylor. Okay. Thank you.
The situation we have, you know something is not right when
you have a firm that has 3 employees and is doing over a
billion dollars a year in business. Those guys work awfully
hard. And basically what happens is they are approached by one
of the four corporate players we were talking about earlier and
say, ``We can bring this business, but we need to run it
through you. We will pay you a certain percentage.''
Basically you go to their site. The contract is, all the
computer work, the e-commerce is, all put together by the
publicly traded corporation. But, in essence, the agency that
is doing the procurement is getting credit for doing business
with small business. We are saying that is nothing but a
circumvention over what the intent was supposed to happen.
Mr.Chabot. And, again, following up with what the
Chairwoman said, Mr. Hsu, even though you have only been there
four weeks, I am just wondering, do you know if the SBA has
been aware of this information? And is there anything currently
being done to remedy that, do you know?
Mr.Hsu. Yes, sir. As a matter of fact, last week I had a
meeting with the administrator. And we did talk about that. But
my point is this, though.
There are so many different types of small business. The
small business can be manufacturer. The small business can be
dealer. A manufacturer, a three-people company, it is almost
impossible to do one billion dollars. But if this is a
dealership, distributor, that can be possible because they deal
with a big, big, big amount of business as a distributor or
dealership.
And the bundling, sir, if I may, yes, SBA we understand
these are very important issues. And as a small business owner,
I can relate some of my experience in dealing with the
bundling.
Very quickly, back in the early 1990s, I received, as I
recall, anywhere between 2 to 3 a day from the PCRs calling
them breakout specialists because their job is to break a big
contract out to smaller contracts so I can bid on them. And
they require three small businesses per separate contract so
they can do that. And now, like the pendulum shifted the other
way.
But, again, the problem is this, though. I don't think the
definition is the issue. I think the enforcement is the issue.
There are contracts that are suitable for bundling; for
example, like fire control systems. You want one company to
build that.
But, again, the maintenance contract, for example, that is
not a good idea to bundle because that requires some lawn
services, regards some janitorial, regards elevator repair. So
those are not good for bundling. So we need to concentrate on
the enforcement, instead of a definition.
Mr.Chabot. Thank you. I would just say that I think we need
to look closely at what the congressional intent was here
relative to doing what we can to make sure that small
businesses get their fair share of the business nationwide and
what that does to the economy. And there are policy issues.
So I think, you know, it may be necessary for Congress to
look at this issue very closely and make sure that the
administration and the SBA know what the intent is and make
sure that it is ultimately carried back. I appreciate your
comments.
Ms. Murphy, if I could turn to you at this point? I have to
say I was very impressed with your testimony. And, really, all
of the witnesses were very good, but, I mean, you know, you
certainly have a wonderful grasp. I was impressed with you
saying how exciting this issue is, too.
[Laughter.]
Mr.Chabot. I would be interested to see how you would be
under something that really is exciting, not that this isn't,
of course.
[Laughter.]
Mr.Chabot. But if you wouldn't mind--and I think, Mr.
Braley, if I am not mistaken, has this changed a bit, your
bill, or is it evolving somewhat or is it pretty much in its
final form at this point?
Mr.Braley. It was filed yesterday.
Mr.Chabot. It was filed yesterday? Okay. I would be very
interested--and I am supportive of the bill, and I think its
intent is very good. If you wouldn't mind, with your expertise,
having been on this Committee and etcetera, now being in the
private sector, I would be interested to see if you could go
through this and perhaps critique it somewhat and make any
suggestions that you think might be helpful. And then both
sides could take a look at that and see if they are warranted.
Obviously we are not the fawn of all wisdom, nor even that
much of it, to tell you the truth, but we try. And so we may be
able to improve this bill and make sure that it benefits the
small business community even more than its intent is right
now. And I don't know if you would like to comment on that.
Ms.Murphy. Well, I would be thrilled to provide any
assistance I can with this because I know that you were saying
that you would like to see me with something that is even
really exciting, but I spent the last ten years focusing on
this area. And I do think it is exciting.
I think it is a great area where you can figure out how to
make sure that taxpayers get the best value for every dollar
spent and that you are creating jobs and that you are bringing
new technologies to the government and that you are making the
system work. I think it is fun.
So I would love to sit down and talk to you about that or
with anyone who wants to talk to me about it. I have a feeling
I am not getting a lot of offers.
I highlighted a couple of areas where I thought that some
changes might be appropriate, particularly in the area of
recertification and in the area in looking at various types of
indefinite delivery vehicles. And it is a very technical area,
but it could really help better focus where a limited number of
PCRs and the contracting personnel are spending their time.
Two very general comments I would make on it, though, would
be that any regulations that the Committee requires to
implement this, I would strongly suggest that they be put in
place simultaneously with changes to the federal acquisition
regulations.
Most acquisition professionals do not spend a lot of time
reading 13 CFR, the contracting officers on the line day to
day. By having the two occur simultaneously, you end up having
less confusion between the two different sets of rules and
regulations and making it a more consistent process so that it
is implemented uniformly.
I would also suggest that at the same time that the
Committee require that training be provided to contracting
officers and contract specialists across the government, not
just to small business technical advisers, because often
training on small business programs isn't made available as
quickly to contracting officers for the ones who have to
implement the programs. And there is funding through the
acquisition workforce training fund that could easily be tapped
to do that.
I know that one of the issues that the Committee is looking
at is appeals on bundling. And I know that the legislation has
provided to address having that appeal go to the Office of
Federal Procurement Policy. There is currently a statutory
provision, though, in the Office of Federal Procurement Policy
Act that prohibits the administrator from becoming involved in
specific procurements.
And there are some legitimate reasons why you would want to
keep decisions about individual contracts out of a political
office. Depending on which direction the Committee decides to
go, you need to amend the underlying LFPP Act as well or you
may want to consider putting that appeal process someplace
else.
GAO might be a place. Agency IGs might be an interesting
idea as well. I haven't thought this one through completely,
but an agency IG would be better positioned to understand both
the agency's opinion, have expertise and insight into that
agency's contracting programs, and still have independence so
that they could be weighing those decisions. Those are just a
few things that come to mind.
Mr.Chabot. Thank you very much.
Madam Chair, I yield back the balance of my time.
ChairwomanVelazquez. Mr. Jefferson?
Mr.Jefferson. Thank you, Madam Chair.
Mr. Hsu, I have been waiting for you for a long time. The
job that you have has been vacant for 18 months. It is a very,
very important job. As I appreciate it, you are to aggressively
advocate with the 23 or 24 federal agencies that are out there
for them to set aside, if you will, contracts for small
business procurement.
I mean, the job hasn't been done for 18 months. At least it
hasn't been done by anyone who has had the single focus of this
work. What is your plan to contact these agencies? What are you
going to do that will be different and aggressive about getting
this job done that will have the agency setting aside these
opportunities and to look forward to getting them accomplished?
Mr.Hsu. Thank you, sir, for the question. Yes. We are
implementing a program that is called the SCORE CARD. And so I
plan to start visiting the agency. And I just had a wonderful
meeting with the DOD, Linda Oliver. And so by next week, I will
have my first meeting with the Air Force and then the Navy and
the Army and the Marine Corps. I want to attack the DOD first.
Mr.Jefferson. What schedule are you working on to get
through all of these agencies? In three months? In four months?
When do you think you will have contacted all of the agencies
to develop a plan with them?
Mr.Hsu. Well, it depends on how many hours I work, sir. But
I would say probably 9 months I would be able to visit all 24
agencies.
Mr.Jefferson. Well, that is a real long time. It puts down
the road. We have 18 months waiting for you, and we have got 9
months to wait for you to get at least talking to them and
getting some goals set.
Now, we had a meeting down in New Orleans here recently
that the Chair Lady took our Committee down. We dealt with
local contracting issues and the issues of how the agency would
handle emergencies.
That is a real set of questions for us now because we are
in a recovery phase back home; in New Orleans, I should say.
Only 70 percent of the contracts that are being let are local.
How much are you focusing on a place on this issue?
Mr.Hsu. I was mentioning that we have 54 PCRs and in 6
different areas. The New Orleans area, I believe, is area
number five. And that will be the first area that we are going
to implement this quick market search. And we are going to
refocus the PCRs' effort. And, in other words, sir, instead of
letting the PCRs concentrate on the 77 percent of those
unrestricted contracts, we are going to ask them to look at the
23 percent which has already been set aside.
ChairwomanVelazquez. Would the gentleman yield? Sir, we
help Bill in New Orleans. And it is clear there is a problem
with contracting money going to local small businesses, not
only to small businesses but local small businesses. I
understand you have five PCRs assigned to that area.
Mr.Hsu. Right, right.
ChairwomanVelazquez. And, yet, only seven percent of all
contracting dollars have been going to local small businesses.
I instructed the administrator in that hearing to meet with
every agency that is involved in that area and to identify five
prime contracts for small businesses. So, again, I am going to
reinstate and to make it clear to the administration that we
are going to be following it up.
We gave 30 days for the administrator to come back to us
regarding contracting practices in the Gulf Coast. So this is
quite important for this Committee but, more importantly, if
this administration is really concerned and committed with the
rebuilding and revitalization of the Gulf Coast.
Mr.Jefferson. Madam Chair, if I might ask you or as you--
ChairwomanVelazquez. Thank you for yielding.
Mr.Jefferson. Yes, ma'am, but as you are in the process of
trying to figure out the directive, if you will, you want to
give to the agency, one might be to make sure that there is an
accelerated schedule on meeting with these agencies to get some
focus out of them about what they are going to do here. Nine
months isn't a very good plan.
ChairwomanVelazquez. Well, you know, the duty, the
responsibility of the Committee is not to do the job of the
Small Business Administration. That is their responsibility.
And if there is one thing about this Committee now under my
leadership, it is going to be oversight. So we gave them 30
days. And they will have to come back to--
Mr.Jefferson. I appreciate that. With respect to Mr. Hsu's
answer to my question, it was going to take him nine months to
even talk to the agencies about getting after--
Mr.Hsu. Well, sir, I--
Mr.Jefferson. I hope we can accelerate this. I don't know
what takes nine months to talk to agency heads.
Mr.Hsu. Yes, sir. What I was referring to is to provide all
the training and everything in nine months. But just talking to
them, no, I don't need nine months to do that.
Mr.Jefferson. When you talk to them--
Mr.Hsu. Probably a couple, you know, two, months.
Mr.Jefferson. Yes. I hope you will emphasize the notion of
prime contracts versus subcontracts in your review with them,
the commitment to the goals. I don't know how you feel about
these goals. Do you think these goals that are set in here are
too aggressive? Do you think that they are too aggressive? Do
you think they are just right? Do you think they ought to be
higher? What do you feel about the goals for minorities, for
women, for small business generally, and for the local
participation?
Mr.Hsu. It is a statutory goal. And our job is to implement
it. Yes, I definitely agree because as a former 8(a) business
owner, I am all for that.
Mr.Jefferson. Now, there is definitely a connection between
the bundling and the bonding issues. The larger these contracts
are, the less the bonding authorizations in the statute are of
assistance to small business people.
I don't know if in your experience you have determined
whether these bonding issues are too low. We are trying to
figure out how we can work the bonding a little bit better for
the contract size, the sizes that are coming out now. Tell me
how you feel about that.
Mr.Hsu. Well, my understanding, when I was in the private
sector, I owned a high tech electronic firm. I never had any
kind of a bonding issue. But I do understand there are two
different types of bonds: the performance bond and payment
bond.
I am going to defer to Mr. Parkinson.
Mr.Parkinson. Well, traditionally the bond initiative has
been a problem for small and minority contracts in construction
and that there is a threshold. I don't know what the threshold
is now for bonded projects. I think it is only 1,000-25,000.
But I think that is something that if you want to achieve
the participation in New Orleans and the Gulf Coast, that the
SBA should look closely at that to see how they can assist
small businesses.
ChairwomanVelazquez. Time is expired. I'm sorry. Time is
expired.
Ms. Fallin?
Ms.Fallin. Thank you, Madam Chair. I appreciate it,
Chairwoman.
Mr. Parkinson, can I ask you just a question about the
contract bundling? I think you had said that it was more
prevalent in the construction than any other kinds of
contracts. Can you explain that a little further, please?
Mr.Parkinson. Well, with bonding in construction is that
you have the proliferation of the larger companies who can bond
and a few companies who can bond large size projects. And by
breaking up the project to smaller sizes, you get an increased
number of contractors, medium size and small businesses, who
can be able to participate in those contracting.
And we have found that, even in this area, in the
Washington area, where we operate, that a lot of large
contracts exclude medium-sized companies in the $50 to $25
million to be able to participate and work on this contract and
prime contractors.
As I alluded earlier, traditionally SBA has looked on the
program to assist small businesses through the subcontracting
mechanism. And we feel that after a while, you know, we have to
grow up and develop into being prime contractors and that by
having larger contracts, we cannot be able to develop from the
subcontracting mode to become prime contractors.
Ms.Fallin. All right. Thank you so much.
Mr.Parkinson. Okay. Sure.
Ms.Fallin. And I have another question for Mr. Taylor. You
mentioned in your written testimony the positive experience
your members have experienced in the teaming arrangements,
enabling them to be selected for an award for large bundled
requirements.
Can you explain a little bit further how the process works?
And are there any ways that we could improve that? And should
agencies do more outreach to the vendors and federal
acquisition committees in the teaming arrangements?
Mr.Taylor. Thank you, Congresswoman. I think everything
possible to ensure that small businesses get more business is a
good thing, of course. What we have seen is large companies
basically who have self-certified or actually outgrown their
status continue to utilize the small business status keep
getting the contracts.
I think anything that would make the process more
transparent would be good for the government and for small
business.
Ms.Fallin. And if I can just ask any of you--and, Emily,
you or Mr. McCracken could answer this--I hear back in my home
state in Oklahoma from our small business owners that so many
times they just don't know how to always go about searching out
the government contracts and getting the information. Some do
that have been doing it for a while, but it seems like there is
a population of the small business communities that are
uneducated on this.
Are there any ways that we could improve upon or outreach
to educate the small business owner or the general public about
what is available? What is your best suggestion for us to
continue to reach out to those folks and help them learn how to
work with the federal government on the contracting?
Mr.McCracken. Well, I actually think that the best way is
actually to begin on this path that we are talking about, which
is breaking up a lot of the bundling, because what we have is a
situation where the companies who are able to get these
contracts are the ones who really know how the system works.
They specialize in them. And the typical small business that
might do the occasional government contract is the ones that
are most left out, not exclusively left out, obviously. So I
think that if we can improve the system, I think that is the
most important piece of it.
Outreach is what it is, but certainly being much more
effective, I think, in electronic posting of things, although,
actually, you have to know about them, but there are some
private sector businesses that do a pretty good job of letting
people know about opportunities as well. So the marketplace
does, I think, work in that regard.
Another issue that sort of ties into this that I would just
bring to your attention, we talk to small businesses all the
time because it sort of ties into teaming, although not
exactly. We talk to small businesses all the time who feel like
they were used kind of as a front for coming to get a contract
because they say, ``Well, we are going to partner with this
company.'' And they put them in their bid and they say they are
going to use them, and they never do. In fact, that company
never winds up getting used by the large company who gets the
contract, even though they say they are going to. That is
something that needs to be addressed as well.
Ms.Fallin. Have any of you had any experience with the
Indian tribes? I know I hear a lot about different companies
trying to team up with Indian tribes to help them on getting
federal contracts for small business.
Mr.McCracken. It's not an area where I have a great deal of
expertise. I know Mr. Parkinson mentioned it specifically in
his testimony that it is an issue. It is certainly something
that we have heard about and are looking into, but I couldn't
speak to it specifically.
Ms.Fallin. I think Paul raised his hand there.
Mr.Hsu. Yes, I do. About ten years ago, when I was still in
the private sector, one of my proteges was the tribal-owned
company. The tribe is called the Muscogee Creek Indians. They
are 80 percent the reservation in Alabama, 20 percent in
Florida. So we had a strategic alliance agreement with this
tribal-owned small machine shop. And we grew the company from 5
people to about 150 people, yes, about 4 years after that.
Ms.Fallin. Thanks. Thank you, Ms. Chair.
ChairwomanVelazquez. Mr. Braley? Yes?
Mr.Braley. Thank you.
Mr. Hsu, that hot seat you are sitting in is about to get a
little hotter. You made the comment ``I don't think the
definition is the issue. I think enforcement is the issue.''
And then you said we need to concentrate on enforcement, not
the definition. Yet, at the beginning of your testimony, you
said, ``We are going to continue to hold agencies accountable
for meeting the small business contracting goals.''
I think there are people up here on this panel and a lot of
people back there in the audience who believe your agency has
not been enforcing the existing law, the existing regulations,
and has not been holding agencies accountable for meeting the
23 percent contracting goal.
So what I want to know is how the culture of the Small
Business Administration is going to change under your
leadership to start to meet the goals that Congress has
established to give small businesses their fair share of the
pie?
Mr.Hsu. Well, sir, as a former small business owner, I can
tell you this.
Mr.Braley. No, I don't want to hear your personal
perspective. I want to hear what you are going to do to change
the culture of an agency that, quite frankly, has not been very
favorable towards the businesses it is supposed to be
supporting.
Mr.Hsu. Well, with my limited experience with SBA, that is
quite contrary.
Mr.Braley. Well, that is why we are concerned. You talked
about having 54 PCRs who work under you.
Mr.Hsu. Yes, sir.
Mr.Braley. And, yet, even though my state represents one
percent of the U.S. population and even though this Committee
is fortunate to have two University of Iowa law school
graduates serving as staff counsel, a remarkable achievement,--
[Laughter.]
Mr.Braley. --and considering the advice they provide the
small business owners in the State of Iowa, we have no PCR
serving the small business owners of our state, despite the
fact that they represent an enormous component of the economic
opportunity that businesses provide to the people of my state.
Now, your agency administrator has talked about putting
more PCRs in the field. And I want you to tell me and the
people back in Iowa whether one of them is going to be in my
state.
Mr.Hsu. Well, it is a hot seat.
[Laughter.]
Mr.Braley. I think these are reasonable questions that
taxpayers of this country have a right to know. Shouldn't there
be a PCR in every state in this country? How do we expect to
provide opportunity and access to small business procurement in
federal agencies if we don't have a PCR assisting small
businesses throughout this country?
Mr.Hsu. Yes, sir. To me it's an issue of supply and demand.
Mr.Braley. Well, I don't care about supply and demand. I
care about the small businesses in Iowa or North Dakota.
Mr.Chabot. Madam Chair, sir, if I could ask a procedural
question? Is it the policy of this Committee to allow the
witnesses to answer the questions?
Mr.Braley. I apologize to the ranking member. You are
absolutely correct. And I will certainly give the witness the
opportunity.
Mr.Chabot. And I think the gentleman raises very good
points and points that deserve an answer, but I just think we--
Mr.Braley. I apologize.
Mr.Hsu. If the federal government issued a forecast--and we
all know what the federal government, the DOD, the DOT,
whatever, and they are looking for. And our job is to match the
demand and the supply.
I don't know the situation in Iowa, but I am hoping that
there would be a lot of high tech small companies that can
manufacture the guiding systems, the radar components, you
know, and to supply the Boeing, the Lockheed, the Raytheons,
the tanks, and whatever the government is required. And that is
going to be our job.
If your state has a big demand for those items, yes, we
definitely will take a very hard look on that.
Mr.Braley. But isn't part of the problem that there are
states in this nation who are growing in population and
business opportunity and there are states who aren't? And if we
only tie PCRs and outreach to the states that are growing, we
are going to continue to reinforce existing negative trends
that affect businesses all over this country? Isn't that true?
Mr.Hsu. Yes, sir.
Mr.Braley. Mr. McCracken, I have a question I wanted to ask
you. One of the things that we know is that this 23 percent
contracting goal has been viewed by some agencies as a ceiling,
rather than as a minimal goal.
And one of the things you talked about was partnering
abuse. And I wondered if you could offer some comments on what
type of penalties might be necessary to minimize and eliminate
partnering abuse.
Mr.McCracken. Well, I certainly think that penalties ought
to be relatively stiff for that sort of abuse because often
because you have a small business that I believe is going to
have a certain amount of work that is coming up. There are
things that they have to do to get ready for that, but it winds
up not happening.
I mean, that is just how it affects the individual small
company that is involved in that arrangement. It doesn't speak
to the companies that may not get contracts at all because this
contract went to a certain company because of what the agencies
believed it was or was not going to do with the contract
itself.
So I think the penalties should be relatively stiff, you
know, perhaps including and going beyond losing the contract.
The key is there has to be review. I mean, right now they are
able to get away with this for quite some time before there is
the necessary follow-up on their subcontracting plans.
So that really is the key, but we would favor pretty
substantial penalties.
Mr.Braley. Mr. Parkinson, right now the definition of
bundling excludes certain types of categories. And one of those
categories is construction. We have heard some testimony about
why that has existed in the past and whether it is good or not.
From your perspective, is there any good reason for
including those categories like construction from unbundling
requirements?
Mr.Parkinson. Yes, sir. Because construction is a several
billion-dollar industry. And the participation of small and
medium-sized businesses is critical to that industry. And the
fact that with large contracts, it limits the small and medium-
sized businesses to subcontracting mode.
Now, the SBA should look and the Congress should look at
how we can increase small and medium-sized businesses in
participating on this federal contract as prime contractors.
And by the bundling of these projects or these contracts, that
will facilitate and enable several companies, especially if you
talk about the State of Iowa and other parts of the country,
where you do have large construction companies, most of the
members, I would say that $50 to $75 million range. And so this
would enable them to participate and get more work outside of
the preference program.
And, as I said earlier, if a lot of these programs are put
in--if they are not pretty large, they are put in specific
preference programs. And if you are not in a preference
program, then you are excluded from participating in some of
these contracts.
Mr.Braley. Thank you.
Mr. Hsu, I want to just close by assuring you that my
frustration was not directed at you personally but, rather, at
the agency that you are here to represent today and the fact
that it has had an impact on business owners all over this
country. And I think it is a cumulative frustration. So please
accept my apology in the spirit it was intended.
ChairwomanVelazquez. Well, the frustration--and I just want
to say, look, you are here. You have been in the job only four
weeks, but you are now in a position to say to the
administration that they had better take corrective actions to
deal with this issue. This is an issue that I have been working
the last ten years, like Ms. Murphy said, that she has been
working on, ten years that I have been issuing a scorecard.
In fact, in 2002, I was so excited when I heard President
Bush to issue his small business agenda. And he said that at
the top of that agenda, the number one issue will be contract
bundling.
Well, as a reaction to my excitement to listen to his
commitment to bundled contracts, I put together another report.
And I said, ``Mr. President, here it is. You don't have to
instruct the agency to do any research regarding mega
contracts. Here is the list.''
Do you know how many contracts that were in this list have
been unbundled? Zero. So we are not going to give up. Believe
me that we are not going to give up.
The problem that you have, sir, is that back in 1993, you
had 65 PCRs, 65 PCRs, when the federal buying was $240 billion.
Today, with a federal buying of $340 billion, you only have 54.
So that is the problem.
And now I recognize Ms. Moore.
Ms.Moore. Thank you, Madam Chair. I have to apologize for
being late. Other responsibilities kept me. So I hope I don't
repeat things that have already been asked.
I do have a question for you, Mr. Hsu as it relates to--I
think Mr. Braley and others have brought it up--about your
perception that we don't need to change the definition of
contract bundling. So I guess my question to you would be as we
look at this definition and it says that construction, of
course, is not included and other new work that small
businesses have not been engaged in previously.
So I think of building a bridge or building a hospital or
housing or prosthetics for injured veterans. Almost anything
that I can think of would fall into the category of any new
work that small businesses are not already doing.
So I guess I would like to hear--and hopefully you are not
repeating yourself, for the sake of others here who were on
time. Can you just clarify for me why and how just almost any
work you could think of wouldn't be, you know, a small business
would be excluded?
Mr.Hsu. Yes, ma'am. Maybe I am misspoken about the
definition versus the enforcement. Definition definitely is
important, but I think the enforcement is also important
because the bottom line, there are some contracts that need to
be bundled. And some contracts do not need to be bundled.
Ms.Moore. Okay. I think I heard that. Well, thank you for
that answer. There has been a lot of discussion here today
about the abuse of contracts where larger companies involve
smaller companies in a marginal way and then take all of the
money.
One of the things that distressed me recently, we are
having a Job Corps center built in my district, $28 million
project, which they claim could not be unbundled. And they are
building like dorms, a cafeteria, training center, clearly
three different components of the same project.
So when we asked SBA whether or not we could have a
consortium of small businesses, like an electrical contractor
and carpenters and plumbers, numbers of small businesses get
together, do what they said they couldn't do that either.
So perhaps this is a question for Ms. Murphy and you, too,
Mr. Hsu, or anyone else who would like. I am having a hard time
understanding why we couldn't have consortia, consortia of
small businesses, bid on projects.
Mr.Hsu. If I may, ma'am, the consortium of a small
business, it is a good idea, but the only challenge that we are
facing is that when the agency lets the contract, they have to
look for one, so to speak, belly button to push. There has got
to be a leader, one leader, and as many followers we don't
really care. But there must be one company that has to be the
lead.
Ms.Moore. Well, then that means that it is wired for a
larger company, then.
Mr.Hsu. Responsible.
Ms.Moore. And then everybody else has to be a sub.
Mr.Hsu. If we don't, ma'am, you are dealing with 15-20
smaller companies. And there is no leadership. There is no--
Ms.Moore. Mr. Parkinson, do you have any thoughts on that,
you know, where you could have a consortium, where you could
have a lead worker, like an architect or someone in charge? Can
you comment on that and maybe Ms. Murphy? Okay. Grady wants to
talk about it. Okay. Let me start with Mr. Parkinson.
Mr.Parkinson. Well, I guess the SBA can encourage an agency
to use construction managers. And the construction managers can
break up the work into packages that can allow small and
medium-sized companies to participate as general contractors.
Take, for example, you have a $20 million contract in your
district and you hire a construction manager with a fee. And
then you break the package into mechanical, plumbing,
electrical. And you can allow a $5 million plumbing contractor
or mechanical contractor to bid the job as the prime
contractor. And that is the way you can get around it where you
get as many participation for your local contractors--
Ms.Moore. Did you see that as an ideal situation?
Mr.Parkinson. In a lot of cases, it is because it gets the
medium and small businesses in--
Ms.Moore. Mr. Taylor?
Mr.Taylor. Congresswoman Moore, as Congresswoman Fallin
mentioned a while ago, in a teaming arrangement, we do that
quite often. We have GSA schedule contracts. One of our lead
dealers in Washington, D.C. administers it. And we have about
100 dealers across the country that are all part of that
contract. And it has been very successful.
So I would take exception that it is not a possible
solution as the SBA saying. Frankly, from the SBA perspective,
we have notified them on numerous occasions about what we
consider some of the abuses as an organization.
As independent dealers, we do not feel the SBA is an
advocate for us. In fact, the ultimately irony is SBA buys all
of their office supplies from among those four large corporate
companies we mentioned earlier.
ChairwomanVelazquez. Timing is expired. We just got a
notice from the leadership that there are going to be votes
soon, like in ten minutes. So I would like to recognize Mr.
Johnson.
Ms.Moore. Madam Chair, I realize my time has expired. I
just want to comment on this wonderful legislation. And I just
hope that when it is in its final form, that you will look at
this issue that I just raised, the teaming you called it,--
ChairwomanVelazquez. Yes.
Ms.Moore. --as something that we sort of mandate them to do
if possible.
ChairwomanVelazquez. Thank you.
Ms.Moore. Thank you.
Mr.Johnson. Thank you, Madam Chair. Sorry for being late.
Other responsibilities held me up, but I am glad to be here on
such an important hearing.
I would like to ask a question of Mr. Hsu. Mr. Hsu, in
2004, the SBA proposed to restructure the size standards
governing small business. And, in essence, the proposal would
have collapsed the categories from 37 to 10. And the result
would have been that many large firms would have been defined
or the definition would have included a lot of large firms,
thus excluding a lot of small businesses for the sake of
federal contracts. This proposal was withdrawn after opponents
very vocally voiced their concern with such changes.
Does the SBA still believe that changes must be made to the
size standards?
Mr.Hsu. Yes, sir. We definitely do that. As you know, in
September 2006, the SBA and OPP jointly issued a policy to ask
the small businesses to recertify themselves in the two
different circumstances. What we are really trying to do is to
make sure that we level the playing field.
Mr.Johnson. Any changes in terms of restructuring the size
standards, how do they differ, the current methodology, if you
will, from the 2004 proposed size standard change?
Mr.Hsu. I am really not familiar with that particular
issue, Congressman. I will definitely get back to you on that.
Mr.Johnson. All right. How does the SBA plan to fight
fraudulent identification of small businesses for the sake of
contract awarding?
I know this has been gone over a little previously. I hope
I am not plowing up any ground that has already been plowed
today.
Mr.Hsu. We cannot stop anybody trying to cheat, but there
is a mechanism built in. It is called protest. And so you would
be surprised how well the system really works. So I think the
system will police itself.
Mr.Johnson. So, in other words, there are no plans to fight
fraudulent identification by the SBI,--
Mr.Hsu. Well, no. I--
Mr.Johnson. --no plans to fight fraudulent identification
by businesses parading as small businesses, when, in fact, they
are large businesses? Is that what you are saying?
Mr.Hsu. No. I'm pretty sure they are.
Mr.Johnson. But what is this self-policing mechanism?
Explain that to us.
Mr.Hsu. It is called the protest procedure.
Mr.Johnson. Protest. And who is it that has to protest?
Mr.Hsu. If you don't feel like the winning company who won
the bid has qualified, you know, either their capability or the
size standards, then you definitely have the right to file the
protest to SBA.
Mr.Johnson. And then--
Mr.Hsu. And in SBA, we can also protest the size standard
to the agency.
Mr.Johnson. So, in other words, it would be on the losing
bidder, if you will, to protest to I guess the SBA about the
fraudulent package that was submitted by the winning bidder? Is
that what we are--
Mr.Hsu. If they are not being honest with themselves, then
I think we would definitely have the right to check into it and
to make sure the playing field is level.
Mr.Johnson. All right. Do any of the other panelists have
any comments on this particular issue?
Mr.Taylor. Congressman Johnson, the only problem is it is
very costly for an independent small business owner to run
through the protest procedure with SBA. In essence, if you are
not sure you are going to win, by the time it is all done, you
are out quite a bit of money.
Mr.Johnson. So there really needs to be kind of like a
policing effort by the SBA itself, you would suggest, as
opposed to leaving the onus on the small business person to
contest and then spend money all the way through whatever
channels there are to try to expose the fraud?
Mr.Taylor. Absolutely. We are not the experts. We think
there is somebody else to enforce it for us. We have got to
raise a flag every time.
Mr.Johnson. All right. Yes, ma'am?
Ms.Murphy. I was just going to say that I was really
excited about four weeks ago to see that the Office of Hearings
and Appeals has expanded the period of time that they will
consider a size protest also. They are now allowing challenges
to size, even after a contract was awarded. In the past, once a
contract was awarded, the protest became mooted, for all
intents and purposes. That I think is going to open up a lot
more enforcement possibilities.
Hopefully also there could be a link between the
representations and certifications businesses make to some sort
of consequences. A false representation to the government bears
with it potential False Claims Act issues, but there has never
been a way to define what the harm to the government is. When a
court will look at that, they will say, ``Well, the government
still got the value of the goods and services they were
purchasing.''
Until there is a way to quantify what the harm to the
government is, which could be done legislatively, I don't think
that it is going to be very easy to enforce against bad actors.
Mr.Johnson. Has there ever been a referral to the U.S.
Attorney's Office for criminal prosecution that anyone knows of
the false statements in procuring federal contracts? Would
there be anything that any of you all know about to prevent
that from happening? Are the criminal laws sufficient? Mr. Hsu?
Mr.Hsu. Sir, from the SBA point of view, we protest. We
can, and we will continue to protest to protect the small
business. And the false certification is definitely a problem.
And I guess we are trying to stop it.
Mr.Johnson. Well, I guess we will have to take your word on
that.
[Laughter.]
Mr.Johnson. How does the SBA ensure that it obtains--
ChairwomanVelazquez. Time is expired. I'm sorry, but they
are going to call votes. And I would like to give an
opportunity to Mr. Sestak to make a question.
Mr.Sestak. Thanks. Thanks, Ms. Chairman.
This isn't the question I was going to ask, Ms. Murphy, but
as I was walking back here from the Armed Services Committee, I
understand that you stated that unbundling of already bundled
contracts provides a good opportunity for unbundling, correct?
Ms.Murphy. In my written testimony, I commented on the fact
that all of the efforts to date have been focusing on
preventing bundling.
Mr.Sestak. Right. But there is another opportunity here.
Ms.Murphy. There is another opportunity to look at existing
contracts or contracts going forward that are not being
consolidated and seeing if they could be broken out.
Mr.Sestak. Does SBA have procedures to search for such
contracts or are there tools that we might provide to help move
that process and take advantage of this new opportunity?
Ms.Murphy. SBA actually has specific breakout PCRs as well
as their regular PCRs, who can review any contract that is not
being set aside for small business. There are over eight
million contract actions that are taking place each year. So
that is a lot of contracts for them to be trying to review.
And the tools that they have, there are tools to go in and
protest that, but then there is a question of, how does that
get resolved?
Mr.Sestak. But then what would be the procedures that you
would recommend to take advantage from what I understand is
looking for those that are bundled and unbundling them? I mean,
if I gathered it right, this is an opportunity, but how go
about it?
Ms.Murphy. I think that when you are looking at each
individual contract, one of the parts of the definition that
exists in the Small Business Act refers to a contract. The only
contracts that are reviewed are those that are suitable for
award to small business. The opportunity had to have been
suitable for award to small business in the first place before
it is reviewed for bundling.
If you look at the Armed Services' definition of contract
consolidation, it does not include that clause. So it looked at
any two contracts that are being brought together or any two
requirements and doesn't require that they already be suitable
for small business. So it gives a greater opportunity to look
at the scope of requirements that are out there and see if
things can be broken out for small business.
If the definition of bundling were reconciled with that of
contract consolidation, that might provide additional
opportunities to break out those contracts.
Mr.Sestak. All right. And, Mr. Hsu, one question. And I
know you are relatively new. And I gather this question was
probably asked in some way, but do we actually have any hard
data or is hard data available soon that you think can
demonstrate that there--and potentially you may have answered
this--is a movement to be a decrease in bundling? I mean, is
there a process by which you have been able or is there one
ongoing where they can reach in and demonstrate an actual
decrease?
Mr.Hsu. Well, sir, I think the recertification effort, that
will definitely hep to make sure that the small business is
small business. And to clean up the FPDS-NG file, that also
will be very helpful.
And the bundling issue has a very special place in our
heart. We understand that. The PCR is working on it very hard.
And we review, like I said before, anywhere between 50,000 to
60,000 requirements every year.
Mr.Sestak. But is there a data?
ChairwomanVelazquez. This is what we have. Over the last 5
years, total government contracting dollars have increased by
almost 60 percent while the number of contract actions to small
businesses declined by 55 percent.
Mr.Sestak. Yes. My district gets 6.7 percent, not that it
needs to be equal to everybody else's, and lost 607 small
businesses.
Thank you, sir.
ChairwomanVelazquez. Okay. Mr. Chabot, do you have any
other questions?
Mr.Chabot. I don't have any other questions, Madam Chair,
but I would just want to just note for the record, just make
clear where there have been a lot of questions and a lot of
responses today, I think we agree, both majority and minority,
that there is an issue here, there is a problem that needs to
be dealt with.
We have reviewed pretty thoroughly Mr. Braley's suggestion
and have cosponsored the legislation. And I commend him for
bringing that forward. And I think it is something that this
Committee and the Small Business Committee need to continue a
dialogue and open communications and work on a real fix for
this because I think the small business community; whereas, the
SBA does do considerable good in some areas, I think that this
is an area of demonstrated weakness. And we need to make sure
that small businesses are getting a fair shot at these
government contracts. And I don't think it has been established
that there are at this time. And we need to continue to work, I
think, in a bipartisan manner to improve the track record.
ChairwomanVelazquez. I thank the gentleman. And I really
want to thank you and your staff for working in a bipartisan
manner to address this issue.
But before we adjourn, I have two questions that I want to
make. I want to be helpful in putting the final brushes to the
legislation that we are trying to mark up on Tuesday.
Mr. McCracken, do you think a business and an agency should
both certify that a business is a small business before they
can be counted as fulfilling a contract goal and requirement?
Mr.McCracken. You are saying that the agency that they are
applying for the contract for should certify they are a small
business and they should self-certify they are a small business
as well? In principle, yes. I haven't thought through all the
machinations of how that would work, but in principle, I would
think that would be a good idea.
ChairwomanVelazquez. But let me ask you, do you think it is
really difficult and expensive for a small business who bid in
a federal contract to challenge that contract?
Mr.McCracken. Oh, definitely, absolutely.
ChairwomanVelazquez. Okay. Ms. Murphy, I heard you when you
talk about the OFPP being a mediator on contract bundles, but
let me just share this with you. In March of 2002, the
President charged OMB with developing the plan to address
contract bundling as part of the administration's small
business agenda. That was when he released his small business
agenda.
Section 7 of executive order 13170 states, ``If there is an
irresolvable conflict on a bundled contract, then the SBA or
the department or agency can seek assistance from OMB. OMB was
charged with developing a scorecard to hold agencies
accountable for improving success in achieving small business
goals and the President's contract bundling initiative.''
In August 3rd, 2006, a letter was sent to Senator Snowe,
Clay Johnson, the Deputy Director for Management within OMB,
stating that a senior position in OMB has been designated with
primary responsibility for small business issues, including
contract bundling.
Can you comment on that?
Ms.Murphy. I don't think that what I am suggesting is
actually contrary to what you are noting. OMB does have an
incredibly important, and particularly OFPP has an incredibly
important, role in telling agencies what will be acceptable in
terms of federal contracting practice.
They chair the committee that creates all the regulations
to implement the laws that you all provide us with. However,
the executive order you are referring to designates OMB, not
OFPP. And I think that I was just trying to point out that
there is already provision in statute that says OFPP has to
keep their hands off of this.
And so that any way that you are going to go forward with
it, that it needs to be at least reconciled or addressed.
Whether OFPP is the appropriate place or whether you want them
to be focusing on the policies and the implementation of those
policies is obviously a question for this Committee. I don't
get to make the decisions.
But I was also suggesting that as you are considering that,
there are other alternatives that would leave OFPP in a policy
role and have an independent arbitrator between the two
agencies that helps them resolves that difficulty.
ChairwomanVelazquez. I hear you. I want to thank you. It
has been an incredible session, hearing. And, as we mentioned
before, we intend to mark up this legislation this coming
Tuesday.
Yes, Mr. Braley?
Mr.Braley. Madam Chairwoman, I just want to thank you and
Ranking Member Chabot for cosponsoring this important bill. And
I look forward to working with both of you as we move forward
from this point. I think we have heard today there is a lot of
interest in crafting a bipartisan bill that will really address
this problem. So thank you both.
ChairwomanVelazquez. Small Business Committee hearing
adjourns.
[Whereupon, at 11:50 a.m., the foregoing matter was
concluded.]
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