[Senate Hearing 110-335]
[From the U.S. Government Publishing Office]
S. Hrg. 110-335
INCREASING GOVERNMENT ACCOUNTABILTY AND ENSURING FAIRNESS IN SMALL
BUSINESS CONTRACTING
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JULY 18, 2007
__________
Printed for the use of the Committee on Small Business and
Entrepreneurship
Available via the World Wide Web: http://www.access.gpo/gov/congress/
senate
U.S. GOVERNMENT PRINTING OFFICE
40-408 WASHINGTON : 2008
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
JOHN F. KERRY, Massachusetts, Chairman
CARL LEVIN, Michigan OLYMPIA J. SNOWE, Maine,
TOM HARKIN, Iowa CHRISTOPHER S. BOND, Missouri
JOSEPH I. LIEBERMAN, Connecticut NORMAN COLEMAN, Minnesota
MARY LANDRIEU, Louisiana DAVID VITTER, Louisiana
MARIA CANTWELL, Washington ELIZABETH DOLE, North Carolina
EVAN BAYH, Indiana JOHN THUNE, South Dakota
MARK PRYOR, Arkansas BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland MICHAEL B. ENZI, Wyoming
JON TESTER, Montana JOHNNY ISAKSON, Georgia
Naomi Baum, Democratic Staff Director
Wallace Hsueh, Republican Staff Director
C O N T E N T S
----------
Page
Opening Statements
Kerry, The Honorable John F., Chairman, Committee on Small
Business and Entrepreneurship, and a United States Senator from
Massachucetts.................................................. 1
Snowe, The Honorable Olmphia J., a United States Senator from
Maine.......................................................... 3
Dole, The Honorable Elizabeth, a United States Senator from North
Carolina....................................................... 6
Isakson, The Honorable Johnny, a United States Senator from
Georgia........................................................ 7
Testimony
Hsu, Paul, Associate Administrator, Office of Government
Contracting and Business Development, U.S. Small Business
Administration, Washington, DC................................. 8
Martoccia, Anthony, Director, Office of Small Business Programs,
U.S. Department of Defense, Arlington, Virginia................ 15
McCracken, Todd, president, National Small Business Association,
Washington, DC................................................. 36
Rice, Patricia, director, Maine Procurement Technical Assistance
Center, Bangor, Maine.......................................... 45
Silva, Magdalah, chief executive officer, DMS International,
Inc., Silver Spring, Maryland, on behalf of Women Impacting
Public Policy.................................................. 49
Newlan, Ronald, president and chairman, HUBZone Contractors
National Council, Rockville, Maryland.......................... 55
Alphabetical Listing and Appendix Material Submitted
Bond, The Honorable Christopher S.
Prepared statement........................................... 88
Post-hearing questions posed to Ronald Newland and subsequent
responses.................................................. 90
Dole, The Honorable Elizabeth
Opening statement............................................ 6
Hsu, Paul
Testimony.................................................... 8
Prepared statement........................................... 11
Response to post-hearing questions from:
Senator Kerry............................................ 90
Senator Lieberman........................................ 90
Senator Snowe............................................ 91
Isakson, The Honorable Johnny
Opening statement............................................ 7
Kerry, The Honorable John F.
Opening statement............................................ 1
Post-hearing questions posed to Ronald Newland and subsequent
responses.................................................. 90
Post-hearing questions posed to Paul Hsu and subsequent
responses.................................................. 90
Post-hearing questions posed to Anthony Martoccia and
subsequent
responses.................................................. 93
Lieberman, The Honorable Joseph I.
Post-hearing questions posed to Ronald Newland and subsequent
responses.................................................. 90
Post-hearing questions posed to Paul Hsu and subsequent
responses.................................................. 90
Post-hearing questions posed to Anthony Martoccia and
subsequent
responses.................................................. 94
Martoccia, Anthony
Testimony.................................................... 15
Prepared statement........................................... 18
Response to post-hearing questions from:
Senator Kerry............................................ 93
Senator Lieberman........................................ 94
Senator Snowe............................................ 96
McCracken, Todd
Testimony.................................................... 36
Prepared statement........................................... 39
Newlan, Ronald
Testimony.................................................... 55
Prepared statement........................................... 58
Maps depicting HUBZones for various States................... 61
Response to post-hearing questions from Senator Bond......... 90
Rice, Patricia
Testimony.................................................... 45
Prepared statement........................................... 47
Silva, Magdalah
Testimony.................................................... 49
Prepared statement........................................... 51
Snowe, The Honorable Olmphia J.
Opening statement............................................ 3
Post-hearing questions posed to Paul Hsu and subsequent
responses.................................................. 91
Post-hearing questions posed to Anthony Martoccia and
subsequent
responses.................................................. 96
Supplementary charts and graphs:
Small Federal Vendors in FY 2005 (shows at least 6 of the top
30 small vendors as large companies)....................... 99
Complete List of Excluded Items, FY 2005..................... 100
Total Government and Small Business Procurement Without
Exclusions, FY 2006........................................ 101
Exclusions Spending Summary, FY 2006......................... 102
Comments for the Record
Dorfman, Margot, CEO, U.S. Women's Chamber of Commerce........... 104
Young, Cris, president, National Procurement Council............. 106
INCREASING GOVERNMENT ACCOUNTABILITY AND ENSURING FAIRNESS IN SMALL
BUSINESS CONTRACTING
----------
WEDNESDAY, JULY 18, 2007
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The Committee met, pursuant to notice, at 2:08 p.m., in
room 428-A, Russell Senate Office Building, the Honorable John
F. Kerry (Chairman of the Committee) presiding.
Present: Senators Kerry, Snowe, Dole, and Isakson.
OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY, CHAIRMAN,
SENATE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP, AND A
UNITED STATES SENATOR FROM MASSACHUSETTS
Chairman Kerry. We are already in order. The hearing will
be opened. I apologize for being a little late. A lot of things
were running a little late here today, except for Senator
Isakson and Senator Dole.
[Laughter.]
Chairman Kerry. I congratulate them.
Good afternoon and welcome. I know Senator Snowe is out in
the corridor. She will be in in a moment. We appreciate your
attending this hearing today to examine the state of Federal
contracting. All of us know that we have made a long and strong
commitment here in the Congress to try to maximize small
business's ability to access the enormous amount of Federal
dollars that are part of our procurement and contracting
process. We also want to look at the role that small businesses
play and, frankly, look at the Administration's record with
respect to giving small businesses a fair opportunity to
compete for Federal contracts.
I am disappointed that Administrator Preston is not able to
be here today. We consider this a very important topic. We know
he is working hard and we certainly respect a lot of the things
that he is trying to do, but we would like him to be a part of
this dialogue, and while Associate Administrator Hsu is here, I
hope he will let him know that we really do hope that we can
arrange to have him come up here at some time to sort of put
the full imprimatur, if you will, of the Administrator's
approval or disapproval on the things that we are trying to
achieve, and we think that is important. There will be more
hearings on this. I know that he did promise us in the
nominating process to be available and I don't think we have
been excessive in our requests, so I hope that we can make that
happen.
I am also concerned that Ms. Doan of the GSA pulled out of
the hearing at the last minute. I am concerned about that, and
I want to have a chance with Senator Snowe to dialogue and see
how we might get them to participate in a subsequent follow-up.
As we all know, it is repetitive, I suppose, and to the
point of exhaustion that small businesses drive our economy.
There are somewhere between 98 to 99 percent of all the firms
in the country, half of our GDP and two-thirds of all new
American jobs are created by small businesses. So they are very
important to the growth of our economy, to the high-paying jobs
that workers depend on to be able to meet increasing costs of
living, and to take advantage of the better opportunities of
the economy which are in those kinds of new jobs, particularly
important to the new prospects for women and minorities and for
innovative cutting-edge products.
Twenty-three percent of Federal contracting dollars are
supposed to go to small businesses. It is not supposed to go as
a matter of nice, maybe we will do this. It is a matter of the
law. That is what is supposed to be happening. That is
required. But the claims that that goal has been met in most
people's judgment takes pretty creative math and selective
contracting analysis in order to arrive at that conclusion.
According to Eagle Eye publishers, the Federal Government
spent more than $412 billion in 2006. Only 20 percent of that
total, under some calculation, went to small businesses. That
means that more than $12 billion that was supposed to could
have gone to small businesses that didn't, and $12 billion is a
lot of money to small businesses.
Moreover, small businesses are challenged by a maze of
complicated laws, regulations, that many have judged make it
difficult for them to be able to succeed in that arena. Those
barriers include contract bundling, size standards with
loopholes for big businesses, a lack of protections for
subcontractors, and a difficult-to-navigate GSA schedule.
When a Federal agency bundles contracts, it limits a small
business's ability to bid for the contract. It reduces
competition and it leaves the taxpayers to pick up the tab for
the increased costs that occur over time, and they do.
Size standards are also a very important issue. As you all
know, the size standard is, in most cases, the highest gross
income that a business can have and still be considered a small
business. There has been no serious update to size standards in
years. So we need to update them. We can update them, but we
should do it in a way that doesn't harm small businesses.
Moreover, reevaluating size standards is critical as agencies
promote larger and larger contracts. Small businesses shouldn't
be restricted to just subcontracting due to their size, which
is increasingly becoming the case as the contract amounts get
bigger and they are held to their size and the bundling takes
place.
Current regulations allow large businesses to retain small
business contracts. In 2005, 6 clearly-identifiable large
businesses were counted as among the top 30 small businesses in
Federal procurement. How can that work? I know that SBA has
implemented a new rule that will give a business a 5-year grace
period, but why should we allow big businesses to get small
business set-aside contracts for 1 day, let alone for 5 years?
I think that we can do better, and I think the Members of this
Committee believe we can.
I have heard from a number of small business owners that
they have waited many months to get paid after they have
completed their subcontracting work for a prime contractor, so
the prime contractor winds up squeezing them, and the result
is, if you are a small business and you have done a
subcontract, it usually puts you in pretty tough straits.
Many small businesses have also partnered with large
businesses to bid on projects, so they become part of the
empowerment of the large contractor to get the job by being
part of the bid as a small business, and then guess what, they
never hear from the large business again once the contract has
been won. I would like to know where the Administration has
been and why that is going on, because it is a form of sham
transaction. It is fraud and it is inappropriate.
Last but not least, many small business owners have
expressed their frustration that it is tough and expensive to
get on the GSA's schedule, not to mention a nightmare to
navigate for a small firm with very few resources. They are
thrown into a pool with many other businesses, some the largest
in the world, and they are told, you are on your own, and that
has proven to be very difficult for them.
We made a good attempt last year to legislate on a number
of these issues as part of last year's comprehensive small
business reauthorization bill led by Senator Snowe, so this is
not ground that is being tilled because there has been a change
here in the Congress. This is not Democrat or Republican
ground; it is small business interest ground, and it is
bipartisan in the way in which we need to till it.
So although there were many good provisions in that bill
last year, we weren't able to get it through the Senate, so we
are prepared to try to rework it, compromise, do the things
necessary to address concerns, and I hope we can make that bill
move this year.
We are certainly not interested in putting a lot of
provisions in that bill that make people unhappy and then have
a bill that can't get out of the Senate. We are not interested
in wasting the Committee's time or anybody else's. So we hope
to do something that is measured and has a chance to succeed.
It won't be perfect, but I think it can be a good start and
that is why we are here today, to hear from the Administration
and from small business. Tell us what is working, what is not,
and help us to understand how we can deal with these issues.
Senator Snowe.
OPENING STATEMENT OF THE HONORABLE OLYMPIA J. SNOWE, A UNITED
STATES SENATOR FROM MAINE
Senator Snowe. Yes, thank you, Mr. Chairman. I certainly
appreciate your holding today's hearing on such a vital matter
to small business and clearly a contentious issue, one that has
been challenging and difficult. It remains one of the single
greatest impediments for small business, to access Federal
contracts in the Federal agencies. This is a critical hearing
and hopefully, as we have in so many of the other issues and
the disaster-related bill that is on the floor, we can work on
a bipartisan basis to move this forward and to correct many of
the deficiencies and barriers to success for small business in
accessing to the Federal contracting opportunities that exist
government-wide.
I welcome all of our panelists here today, the
Administration officials, from the Small Business
Administration and the Department of Defense. Most especially,
I welcome Patricia Rice, who is testifying today from Bangor,
Maine. Patricia is the director of Maine's Procurement
Technical Assistance Center, which last year assisted Maine's
small businesses to gain more than $123 million in Government
contracts and helped create and sustain more than 2,857 jobs.
So Patricia, I am very pleased that you are able to be here
today and appreciate all that you have done.
As Ranking Member of this Committee, I am dismayed by the
myriad ways that Government agencies have time and again
egregiously failed to meet most of their small business
statutory goaling requirements. This afternoon, I am looking
forward to hearing from the Administration on specific and
realistic solutions for finally achieving contracting goals for
small business. I am alarmed that only one Federal small
business contracting program, the Small and Disadvantaged
Business Program, has met its statutory goal and that the three
other small business goaling programs have all fallen
drastically short.
For example, in fiscal year 2005, women-owned small
business only achieved 3.3 percent, failed to meet its 5
percent small business goal, while the Historically Under-
Utilized Business Zones, the HUBZone Program, met only 1.9
percent of its 3-percent goal. Most troubling of all, our
Nation's service-disabled veteran-owned small businesses
received a government-wide paltry total of only 0.6 percent of
its 3 percent small business goal. Shockingly, the Department
of Defense granted an abysmal 0.49 percent to service-disabled
veteran-owned small businesses. This is no way to treat those
who have given all for their country and who seek to contribute
more through business.
The Federal Government can and must provide more to our
country's small businesses. This afternoon, I intend to explore
what actions Federal agencies are taking to confront contract
bundling, which takes contracting opportunities out of the
hands of small business. Other issues I want to probe include
subcontracting, inaccurate small business size determinations,
flawed reporting data, under-utilization, and the litany goes
on and on.
As the Chairman is well aware, these problems are not new
and this Committee has held countless hearings on various
contracting concerns. Business opportunities through Federal
contracts provide vital economic benefits for small business.
This is why last year, the Small Business Administration
reauthorization bill that the Chairman referred, which to
passed out of this Committee unanimously, contained a robust
package of small business contracting initiatives.
The President's 2002 nine-point anti-bundling initiative
directly addresses the challenges small businesses confront,
but unfortunately for our Nation's small businesses, the
President's initiative has yet to be followed agency-wide. I
would like to ask our panel of Administration witnesses a
simple question. Why? Our Government cannot claim to be serious
about contracting opportunities for small businesses if the
laws are not followed and goaling deficiencies of this
magnitude are allowed to continue. Now is the time for actions,
not words.
That is why, last month, Chairman Kerry and I requested
that the Government Services Administration refrain from
terminating its Office Supply Stock Program, at least until the
Government Accountability Office conducts a report on the
economic impacts that this potential termination will bear on
hundreds of small businesses across this country, and so that
is why I, too, am extremely disappointed that Lurita Doan,
Administrator of the GSA, was unable to testify before the
Committee today. I was looking forward to pressing the
Administrator on why the GSA continues to take actions,
including the bundling of contracts, that are detrimental to
small businesses.
And so I specifically wanted to press the GSA on its
decision last year not to set aside a $500 million government-
wide acquisition contract task order for HUBZone small
businesses. According to SBA and industry estimates, this set-
aside would have created over 3,700 jobs in HUBZones across
this country and over 350 jobs combined in Oxford, Franklin,
Somerset, Piscataquis, Arostook, and Washington counties in my
State of Maine.
And finally, I have been a longstanding champion of small
business programs such as the HUBZone program. In my home State
of Maine, only 118 of 41,026 small businesses are qualified
HUBZone businesses. HUBZones represent a tremendous tool for
replacing lost jobs for our Nation's declining manufacturing
and industrial sectors. Clearly, this program should be better
utilized. And towards that end and earlier this week, I
requested with Senator Bond that the GAO investigate how the
Federal Government can increase the use of the HUBZone
Programs.
Today, I intend to find out again, what can we do to
further increase the use of all small business contracting
programs, including the HUBZone, the women-owned business,
service-disabled veteran-owned small businesses, and, of
course, the small business disadvantaged programs. So I look
forward to working with you, Chairman Kerry, and Members of the
Committee in developing a bipartisan approach to these
contracting programs.
I think it is frustrating, frankly, that we have been
unable to overcome these major handicaps to small business
accessing Federal contracting opportunities when you think of
the more than $300 billion of Federal contracts that are issued
every year. For some reason, Federal agencies are totally
resistant to including small businesses in those prime
opportunities. So hopefully, we can reverse that direction
through the course of legislative initiatives and can build
upon what we did last year and any other ideas. But clearly,
the time has come to address these inequities and deficiencies.
Thank you, Mr. Chairman.
Chairman Kerry. Thank you very much, Senator Snowe, for an
important and candid statement. I hope the record will
adequately be reflected to the Administrator that the Chairman
was easier on you than the Ranking Member.
[Laughter.]
Chairman Kerry. Senator Dole.
OPENING STATEMENT OF THE HORORABLE ELIZABETH DOLE, A UNITED
STATES SENATOR FROM NORTH CAROLINA
Senator Dole. Thank you, Mr. Chairman, Ranking Member
Snowe, for convening this afternoon's hearing on critical
issues of importance facing our small businesses, and thank you
to the panelists for sharing your expertise and time with us.
For many folks, starting and growing a business is the
means to achieving the American dream. There are many programs
in place at the Small Business Administration to assist along
the way, such as the special contracting program which affords
small businesses owned by socially- and economically-
disadvantaged individuals, women, and service-disabled veterans
the opportunity to compete for Government contracts.
While all of the groups served by the special contracting
program are well represented in my home State of North
Carolina, I want to focus today on our service-disabled
veterans. Too many of our servicemembers are coming home from
service overseas with a disability, and small business
ownership is a viable option for many of them, especially when
entering the general workforce is not. Federal contracting
opportunities for these individuals' businesses should be
enhanced.
As Ranking Member Snowe noted in her opening remarks, it is
simply unacceptable that in fiscal year 2005, the most recent
numbers available, only 0.6 percent of all Federal contracts
were awarded to service-disabled veterans. In fact, they were
awarded just 0.49 percent of Department of Defense contracts.
When these individuals return to civilian life and take on
the responsibilities and challenges of running their own
business, they certainly deserve every opportunity to succeed.
The Federal goal that at least 3 percent of contracts be
awarded to service-disabled veteran-owned small businesses must
at least be met and should be exceeded.
In North Carolina, SBA's assistance to small businesses
owned by service-disabled veterans is especially important, as
our State has a very large military and veteran presence. In
fact, more than 125,000 men and women are stationed at our
numerous military installations in North Carolina. According to
the SBA, there are approximately 1,000 service-disabled
veteran-owned businesses in North Carolina. This number will
very, very likely continue to increase, given our State's
growing military and veteran population and the rigors of the
ongoing war against terror. I would expect the same could be
said for many other States.
Again, thank you, Mr. Chairman, for holding this important
hearing, and I certainly look forward to working with my
colleagues and the various agencies represented by the panel to
ensure that service-disabled veterans and other special
contractors be given fair opportunities to do business with the
Government. Thank you.
Chairman Kerry. Thank you very much, Senator Dole, and
thank you particularly for that focus on disabled veterans,
which is critical, needless to say, and we appreciate it very
much.
Senator Isakson.
OPENING STATEMENT OF THE HONORABLE JOHNNY ISAKSON, A UNITED
STATES SENATOR FROM GEORGIA
Senator Isakson. Well, thank you very much, Mr. Chairman. I
want to at the outset associate myself with your remarks with
regards to subcontracting and small business by the larger
contractors. The last meeting I had in Atlanta before I left to
come here on Monday was with an award-winning travel agency
subcontractor who had been a part of a bigger contractor's bid
that was procured and the business never materialized. The cost
of meeting the compliance of the larger contractor was greater
than the revenue from the small business contract. So that is a
problem, and Senator Snowe was right on target in terms of the
bundling issue and I associate myself completely with both
those remarks.
I have read some of the testimony which is going to talk
about the importance of transparency of information from the
agencies, and that is important, but it is not only the
transparency of the information, it is that we need better
information.
I have heard horror stories from small businesses who try
to use GSA's Federal Procurement Data System Next Generation.
Many complain of the system producing a ``busy'' error any time
one goes up to access it during the work day, leaving many
small businesses with no choice but to go online on weekends or
late at night. In fact, there are even stories of for-profit
firms actually doing the search and then selling it to the
small business contractors for whom it was originally intended.
My point is, transparency is key, but only if the data is
user-friendly, and I think the Government must be user-friendly
to those small businesses we seek to provide with portions of
these Government contracts. I believe we must make the Next
Generation system far more user-friendly in order to benefit
small business.
And on that subject, I think GSA must also work to keep its
schedule Web site updated. GSA keeps meticulous records on all
purchases made through the Federal Supply Schedule because, as
I understand, that is the way they collect their fee on each
transaction. But you wouldn't know it when you review theie
online records. I have also heard from constituents in Georgia
who complain that there are huge gaps in the posted schedule of
contract awards. This, too, is unacceptable because it prevents
businesses from conducting basic market research and from
finding potential subcontracting opportunities.
As for SBA, I feel it must do a better job in small
business community advocacy. Keep in mind I am not saying SBA
has to build a new Web site, develop a new program, or hire new
personnel, but SBA must simply make better use of its existing
resources. I think SBA's Business Opportunity Specialists
should do more to ask agencies for set-asides once a reasonable
expectation of adequate competition among small businesses has
been determined. Small businesses would get an edge on many
more contracts if the SBA did a better job of implementing its
advocacy on their behalf. A push to be more proactive instead
of reacting could make a huge difference in the number of
contracts awarded to small businesses.
So in conclusion, we must address the current challenges
facing small businesses trying to win contracts by targeting
selected areas and improving on these, making transparency
real, and SBA a user-friendly organization. I once again thank
the Chairman and Ranking Member for making this valuable
hearing available to us today.
Chairman Kerry. Senator, thank you. Thanks for your
participation and contribution.
So we will now hear from our first panel. I ask all the
witnesses if you would summarize your testimony. Your full
testimony will be placed in the record as if read in full. If
you could do the summary within 5 minutes, it would help the
Committee to focus on questions.
First, we'll hear from Mr. Paul Hsu, the Associate
Administrator of the SBA's Office of Government Contracting and
Business Development, and then from Mr. Anthony Martoccia,
Director of the Office of Small Business Programs in the
Department of Defense. Thank you for being here.
STATEMENT OF PAUL HSU, ASSOCIATE ADMINISTRATOR, OFFICE OF
GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, U.S. SMALL
BUSINESS ADMINISTRATION, WASHINGTON, DC
Mr. Hsu. Chairman Kerry, Ranking Member Snowe, and Members
of the Committee, I know Administrator Preston is looking
forward to his testimony next week before this Committee. My
name is Paul Hsu. I am the Associate Administrator for
Government Contracting and Business Development. I appreciate
the opportunity to testify today on behalf of Administrator
Preston regarding the operation and success of SBA's Government
Contracting Program and our continuous effort to ensure greater
transparency and accountability throughout the Federal
Government process, especially in terms of increasing the
opportunity for small businesses.
As a first-generation immigrant myself, in 1984, I started
my first high-tech company. After my company won the first
contract, we needed working capital, money to buy parts and
material. Fortunately, I was able to find the finance I needed
with the help of an SBA loan guarantee, and this was how I
first came to know the agency. Later, my company was certified
to participate in SBA's 8(a) Program. My company is an example
of the power of this program to give businesses opportunity to
grow.
SBA helped me to develop a successful business. It provided
me with the access to capital, training, the development
experience and solid competitive opportunities. Simply put,
without the agency, I could not have come this far. So it is
absolutely an honor and privilege, Mr. Chairman, for me to join
an agency that I truly, truly believe in.
Government contracting dollars to the small business have
grown significantly since fiscal year 2000. There were $30.6
billion more in small business prime contracts in fiscal year
2005 than fiscal year 2000, supporting an estimated 235,000 new
jobs.
SBA recognized the need for improving our Government
Contracting Program and is taking the lead, along with the
Office of Federal Procurement Policy, to carry out a number of
initiatives, including working with agencies to ensure their
reporting is accurate. The integrity of the data reported to
the Congress and the public is crucial to instill the
confidence in the Federal contracting system. Along with the
Administrator of the Office of Federal Procurement Policy,
Administrator Preston issued a memorandum to all Federal
agencies requiring them to review their procurement data and
identify any necessary changes to help resolve the apparent
discrepancy in the Federal Procurement Data System, which is as
we call it FPDS-NG.
Under Administrator Preston's leadership, SBA has taken a
number of steps to make contracting data more transparent and
accurate. Just last month, all Federal agencies completed the
final review of fiscal year 2006 data in the Federal
Procurement Data System. We expect to publish an official Small
Business Goaling Report for fiscal year 2006 very shortly and
also a reissued fiscal year 2005 report. These reports may not
be flawless, but there will be a substantial improvement in the
quality of the small business procurement information.
SBA also will publish the first Small Business Procurement
Scorecard this month. This scorecard is a method of ensuring
the Federal agencies provide the maximum opportunity for small
business in the Federal marketplace. It reflects the current
performance and the progress in improving such performance. The
new scorecard aligned with President Bush's Management Agenda
and the data integrity is the key element of it. The scorecard,
along with the advances made in the FPDS-NG, are a significant
step in adding transparency to the goaling process.
The way to increase competition further is to decrease the
practices like contracting bundling and the long-term sole
source contracting, which can be done with a strong commitment
to procurement planning and changing the way agencies approach
the contracting. The Administration, through the SBA Small
Business Procurement Scorecard, will encourage agencies to meet
all small business goals and give them credit for progress.
Each scorecard will be tailored to individual procurement
characteristics to the agencies and SBA will work with each
agency to establish its milestones and measure it against its
own achievement. We have developed a simple, straightforward,
and measurable criteria for the government-wide small business
procurement scorecard.
Also, SBA is in the process to implement the new size
recertification rules. This regulation requires all small
businesses to recertify their size status on long-term
contracts at the end of the first 5 years and whenever the
contract option is exercised. Recertification is also required
for short-term contracts when a small business is purchased or
merged with another business. This will assure the data is more
accurately reflected and further support our effort to help the
small businesses receive prime contracts throughout the Federal
Government.
Additionally, SBA asked over 1,000 large prime contractors
to review any small business contract they may hold in order to
more accurately report a small business award to Congress. This
is another step to providing more accurate and transparent
contracting data that will lead to more opportunities for small
business to compete in the Federal marketplace.
SBA is also focused on a number of other initiatives within
the Government contracting arena. This includes Administrator
Preston's initiative to expand opportunity for small business
in the under-served markets, such as women-owned small
business, HUBZone certified firms, and service disabled
veteran-owned small businesses.
SBA's fiscal year 2008 budget includes a request for
$500,000 to examine how best to serve the 8(a), HUBZone, and
SDB communities, as well as the women-owned and service
disabled veteran-owned small businesses.
Furthermore, SBA already committed to and is in the process
of bringing on-board additional Procurement Center
Representatives with a proposal in the fiscal year 2008 budget
and requests an additional five PCRs. To better serve small
businesses who do business with the Government, SBA redefined
rules and responsibilities so the PCRs can devote more time to
finding opportunities for small business while the district
offices and the resources partner will be devoting more time
and on getting small business ready to do business.
Mr. Chairman, this concludes my testimony and I am looking
forward to your questions.
[The prepared statement of Mr. Hsu follows:]
[GRAPHIC] [TIFF OMITTED] T0408.001
[GRAPHIC] [TIFF OMITTED] T0408.002
[GRAPHIC] [TIFF OMITTED] T0408.003
[GRAPHIC] [TIFF OMITTED] T0408.004
Chairman Kerry. Thank you very much, Mr. Hsu.
Mr. Martoccia.
STATEMENT OF ANTHONY MARTOCCIA, DIRECTOR, OFFICE OF SMALL
BUSINESS PROGRAMS, U.S. DEPARTMENT OF DEFENSE, ARLINGTON,
VIRGINIA
Mr. Martoccia. Thank you. Good afternoon. Chairman Kerry,
Ranking Member Senator Snowe, distinguished Committee Members,
it is my pleasure to testify before you today about small
business contracting at the Department of Defense. I will read
a condensed version of my written testimony submitted for you.
Small businesses have proven time and again to be a
wellspring of initiative, ingenuity, and tireless dedication to
the mission of the Department. For this and many other reasons,
DOD is a loyal supporter of the small business community. My
testimony today will focus on contract bundling, small business
size standards, subcontracting opportunities, and payments to
small businesses.
In the mid-1990s, Congress passed several statutes
requiring the Government to buy products and services more
efficiently. Federal acquisition professionals became adept at
leveraging the immense buying power of the Government to enable
prudent stewardship of public funds and fewer internal
resources. The consolidation of several requirements into a
single contract to save money and gain other benefits is one
such methodology. Consolidation and bundling may not be used
without first taking into account the effect it may have on
small businesses. Even if bundling and consolidation can be
justified by its anticipated benefits, contracting
professionals must develop acquisition strategies to mitigate
the impact on small businesses.
With regard to size standards, the Department is concerned
that unrealistically low small business size standards will
have a negative impact on the Defense small business supplier
base. The Defense Department believes that a number of size
standards representing critical defense industries have not
kept pace with the U.S. economy. For example, the size and
complexity of engineering, professional, and information
technology services within the Department have increased
dramatically over the last decade.
DOD would favor the adjustment of size standards as needed
to keep them in line with the dynamics of the U.S. economy and
the U.S. military. My office has met with representatives of
SBA and the Office of Federal Procurement Policy in March 2007.
All parties agreed that a comprehensive review of the size
standards is needed. Last month, the SBA advised that they
would proceed with the review, focusing on size standards
associated with military systems and engineering services. The
Department is optimistic that resolution of the size standards
issues will enable small businesses to take on an even greater
role in the competitive playing field.
Subcontracting opportunities--military departments and
agencies use various techniques to encourage prime contractors
to subcontract and team with small businesses. Contractual
incentives that reward prime contractors for exceptional
subcontract performance is one technique. In addition, we are
increasingly using proposed subcontracting performance for
small businesses as a source selection factor. When a
contractor fails to make a good faith effort to achieve its
subcontracting goals, contracting officials will note this
information in the contractor's official past performance
record. Past performance information is maintained in the
government-wide Past Performance Information Retrieval System.
One subcontractor initiative that we are using in the
Defense Department is the Comprehensive Subcontracting Plan,
and the purpose of this plan is to determine whether the
negotiation and administration of comprehensive small business
subcontracting plans on a corporate, division, or plant-wide
basis increases subcontracting opportunities for small
businesses while reducing the administrative burdens on
contractors.
Under the Comprehensive Subcontracting Test Program,
eligible contractors establish annual Comprehensive Small
Business Subcontracting Plans that cover their entire business
operation in support of all DOD contracts and subcontracts.
There are currently 14 firms participating in the programs.
And finally, payments to small businesses. It is the
Department's policy to assist small business concerns in
obtaining payments under their prime contracts, late payments,
interest penalties, or information on contractual payment
provisions. With regard to prime contractor payments to their
small business subcontractors, it is the policy of DOD to
ensure that prime contractors establish procedures for the
timely payment of amounts due pursuant to the terms of their
subcontracts.
Although DOD does not have priority of contracts with
subcontractors, a DOD Contracting Officer that determines a
prime contractor's certification of payment to be inaccurate in
any material respect must investigate the matter. Depending on
the contract type, the Contracting Officers will encourage the
prime contractors to make timely payments to subcontractors or
the Contracting Officer may reduce or suspend progress payments
until the contractor applies. Failure of prime contractors to
pay their subcontractors in a timely manner is negative past
performance and will be recorded in their Past Performance
Rating System.
In conclusion, the small business community plays a
prominent role in the acquisition of the materials, supplies,
and services needed by men and women in uniform. DOD is
committed to providing maximum opportunities for small
businesses in both the prime and subcontracting areas. They are
an integral part of the success of the armed forces, and it is
DOD's obligation to afford small businesses every opportunity
for contracting.
Today, I have given a brief overview of our four critical
issues as they relate to small businesses and I look forward to
any questions or comments.
Thank you.
[The prepared statement of Mr. Martoccia follows:]
[GRAPHIC] [TIFF OMITTED] T0408.005
[GRAPHIC] [TIFF OMITTED] T0408.006
[GRAPHIC] [TIFF OMITTED] T0408.007
[GRAPHIC] [TIFF OMITTED] T0408.008
[GRAPHIC] [TIFF OMITTED] T0408.009
[GRAPHIC] [TIFF OMITTED] T0408.010
Chairman Kerry. Thank you very much, Mr. Martoccia.
Let me just raise right off the bat the issue that Senator
Dole raised about disabled veteran contracting. This is
something that the Committee has heard some testimony on
previously. Why is the record of DOD so poor with respect to
its base constituency, its fundamental constituency? It just
seems extraordinary to me, particularly in the time of Iraq and
Afghanistan.
Mr. Martoccia. We agree that it is too low and----
Chairman Kerry. Why is it too low? I am asking you, why?
Mr. Martoccia. Well, the trend has a significant increase,
but we are changing the way we do business with veterans. We
are making it a priority.
Chairman Kerry. Is it safe to say it hasn't been a
priority?
Mr. Martoccia. No, it has been a priority, but it is being
made more of a priority.
Chairman Kerry. Why are you making it a priority? Are you
making it more of a priority?
Mr. Martoccia. That is correct, and we are focusing on
getting the decision makers to look at and conduct sources
sought to find capable veteran disabled-owned companies that
can perform the work.
Chairman Kerry. When you say, to find the capable disabled
veteran company, for a lot of veterans who have been disabled,
they may not know what they are capable of yet. Don't you think
there ought to be a proactive, you can do it, we are going to
help you set up, here is the kind of thing you can do, effort?
Mr. Martoccia. Yes. We have representatives from----
Chairman Kerry. If you just go out and look for people who
have already started a business, you are not going to find a
lot of people, probably.
Mr. Martoccia. Obviously, training, and our PTACs, we have
a representative here from Maine who will be talking about it,
will help small businesses learn about how to do business with
the Government. It is a complicated process and SBA helps in
the training. Our small business specialists, we have many
resources throughout all departments----
Chairman Kerry. Let me stop you there for a minute.
Mr. Martoccia. OK.
Chairman Kerry. Why does it have to be so complicated? What
is inherent about it that makes it so complicated? I mean, this
is what drives citizens crazy, is the notion that you do
business with the Government and it is complicated. It makes
them jump through hoops unlike anything else.
Mr. Martoccia. Obviously, it has to be fair. It has to be
competitive. It has to be fully evaluated. So it does take
time.
Chairman Kerry. Does that, by definition, have to be
complicated?
Mr. Martoccia. Not necessarily, but it does take time. It
does take a lot of resources. It takes a lot of effort by the
companies who put in proposals to the Government to make sure
that they are proper and they address all the issues required
in the solicitation.
Chairman Kerry. But everybody else does that in any normal
set of subcontracting and contracting process. It seems to me
that when a business comes along, if there is work to be done,
you can let it out in the appropriate way. Requests for
proposals go out. You review the proposals and you let the
business. But somehow, it gets super convoluted according to
everybody I talk to.
Mr. Martoccia. Well, I was a Contracting Officer for 30-
some-odd years. It does take effort and they have to learn how
to put a proposal together to address specific Government
requirements, and that is the challenge. They have to have a
financial system that can record costs. That is a governmental
accounting system that is required to make sure the taxpayers'
dollars are spent appropriately. So those are the----
Chairman Kerry. But aren't all of those conditions
precedent to being able to actually apply? I mean, don't you
say that, don't bother applying if you don't have the following
in place, boom, boom, boom, and then they either apply or they
don't. I mean, that is a pretty quick elimination process.
Mr. Martoccia. Correct. Again, the resources have been
reduced over the last 10 years.
Chairman Kerry. Who reduced the resources?
Mr. Martoccia. The agencies reduced the resources in the
1102 Series. We have fewer contracting professionals to conduct
the procurements.
Chairman Kerry. Well, let me ask you about that for a
minute, because Senator Snowe and I have certainly been
fighting that significantly. I think that as of March 2006,
there were only 43 full-time Procurement Center Representatives
and a total of 58 total employees with PCR duties. Mr. Hsu,
this goes to your testimony also. You said that SBA has
requested fiscal year 2008 funding for an additional nine
Procurement Center Representatives.
Mr. Hsu. Yes, sir.
Chairman Kerry. Senator Snowe and I have pushed for 100, so
that is a big difference, a mighty big difference. In 2005, the
Inspector General found that SBA didn't have enough Procurement
Center Representatives to review bundled contracts, with a
survey that SBA had not reviewed 87 percent of bundled
contracts. So how are we possibly supposed to hold out the
promise to people that the system is going to be fair and
accountable and enforced if you are not asking for the right
numbers of people to do the job?
Mr. Hsu. Well, Mr. Chairman, from an SBA point of view,
this is really nothing new to us. Almost a year ago, we
realized the Government has not historically met the social-
economic Government goals, including HUBZone and especially the
service disabled veterans.
The PCRs, we are scheduled to hire five more this year, but
my personal----
Chairman Kerry. How do you say five more? You have only
requested funding for an additional nine, so are you down from
the 43 slots?
Mr. Hsu. Oh, no, no, no. We are going to--I think before
the end of the fiscal year, we are going to hire five more, and
then I think the first part of next year, we are going to hire
four more. So the total will be nine.
We are looking at the PCRs very closely, sir. We refocused
our PCRs to work primarily with the Federal Procurement Office
to help the agency to meet their goal and there are many ways
that we can help the PCRs. The technology is there. We provide
the tools, such as Quick Market Search, to help the agencies to
conduct a market search very quickly, very easily, and----
Chairman Kerry. Let me just interrupt you for a minute.
Mr. Hsu. Yes, sir.
Chairman Kerry. How long have you been over there?
Mr. Hsu. A little over 3 months, sir.
Chairman Kerry. And you are talking about things that you
are going to do. But we are here to look at what has been done
and what you are doing and can do. I mean, I have been through
years and years now of sitting at this table listening to
people say, well, we are going to do this, we are going to do
that, we are going to do this. But it doesn't happen, number
one, and number two, the statutory requirements year after year
don't get met. Now, tell me how nine additional PCRs are going
to review $300 billion worth of contracts.
Mr. Hsu. Well, because we are introducing a lot of high
technology, like a quick market search, sir. That information
is right there. They don't really have to be physically----
Chairman Kerry. Let me--fill that out for me.
Mr. Hsu. OK. The Quick Market Search is a tool that will
provide the agencies or contracting officers, if any new
requirement is happening, this information is right there,
right in front of their screen.
Chairman Kerry. What is? What is right in front of them?
Mr. Hsu. It is the information of the contractors, the
service disabled veterans. How many of them are in your area?
How many of them are in your State? How many of them are in
your region?
Chairman Kerry. I am talking about a bundling of a
contract, the reviewing of a bundled contract. How are you
going to review the bundled contract?
Mr. Hsu. Well, we have--in addition to the PCRs, we have
our field services people. We have----
Chairman Kerry. Why is it not happening today? Why do 87
percent of the contracts go unreviewed? Eighty-seven percent--
that means you are doing about 13 percent. Do you realize the
impact of that and the implications of it?
Mr. Hsu. We do not like the bundling of contracts at all,
sir. We are trying to stop----
Chairman Kerry. I know you don't like it, but how do you
stop it----
Mr. Hsu [continuing]. Each and every one of them.
Chairman Kerry. If you can't review it and you don't review
it----
Mr. Hsu. We are working----
Chairman Kerry. [continuing]. And you don't enforce it?
Mr. Hsu. We are working very closely with the DOD, which is
the primary----
Chairman Kerry. Working very closely----
Mr. Hsu. Because we provide the guidance. We provide even
the oversight about each and every procurement to prevent any
kind of----
Chairman Kerry. What guidance have you provided? Mr.
Martoccia, what guidance have you been provided?
Mr. Martoccia. Well, they have provided guidance to us----
Chairman Kerry. To do what?
Mr. Martoccia. Well, you have to remember, sir, that we do
have in each of the departments the procurement activity
contract specialists that help SBA and the PCRs look at every
requirement, especially the large requirements, the
consolidated, those contracts that are bundled or have been
bundled 20 years ago to see if there are more opportunities
available to small businesses. So there are resources and they
are being utilized and they are being effective in breaking out
some of these large contracts so small businesses can bid on
them.
Chairman Kerry. Do you believe that it is adequate to have
87 percent of bundled contracts not reviewed?
Mr. Martoccia. I don't think that is a correct number
myself. I mean----
Chairman Kerry. Do you have a correct number to offer the
Committee?
Mr. Martoccia. No. I can go by experience, but my
experience says----
Chairman Kerry. I am just going by the numbers that the
Inspector General found. You disagree with the Inspector
General?
Mr. Martoccia. Well, maybe the PCRs have a lower level. But
as I said, there are a number of small business resources that
every department has that will help SBA look at every
requirement for small business opportunities. Now, I don't know
what the----
Chairman Kerry. Honestly, I am not trying to be difficult,
but I honestly don't know what that means in the context of
what I am asking.
Mr. Martoccia. Well, they have expertise in contracting
with small----
Chairman Kerry. Where are they applying it? What are they
doing?
Mr. Martoccia. They are looking at the procurement
requirements. They are looking at the procurement strategies.
They are looking at the forecast. They are working with the
program offices and the contracting officers to look at large
contractors--large contracts that are consolidated, that are
task orders----
Chairman Kerry. Why do you think the Inspector General came
to the conclusion the Inspector General came to? Is the
Inspector General wrong, in your judgment?
Mr. Martoccia. I think he is talking about the PCRs, not
our total small business workforce.
Chairman Kerry. The PCR-reviewed bundled contracts?
Mr. Martoccia. Correct.
Chairman Kerry. As opposed to?
Mr. Martoccia. We have, in the Department of Defense, I
don't know the exact number, but close to 500 part-time or
full-time small business specialists that look----
Chairman Kerry. What percentage of your contracts are
reviewed for the bundling, do you think?
Mr. Martoccia. I would hope all of them.
Chairman Kerry. Now, why should we have--I mean, help me to
understand why I should have confidence in what you are saying
when, in essence, you claim to have met the goal of small
business contracting, correct?
Mr. Martoccia. The latest data is not out.
Chairman Kerry. But previously----
Mr. Martoccia. Right.
Chairman Kerry [continuing]. In the last round of data, you
claim to have met it, I believe with a 24.6 percent claim.
Mr. Martoccia. That is correct.
Chairman Kerry. But you don't include any overseas
contracting.
Mr. Martoccia. That is not in the base, I don't believe.
Chairman Kerry. It is. You don't include overseas
contracting. What percentage is overseas contracting of
Pentagon contracts?
Mr. Martoccia. I would have to get back to you with that
number. I know it is significant.
Chairman Kerry. I know it is very significant, too. So, in
effect, when you include overseas and do the proper math of the
money spent by the Federal Government, you are way below 22
percent. You are not at 24 percent, so it is a false claim.
Mr. Martoccia. But I think the statute is based upon the
available opportunity for small businesses.
Chairman Kerry. And you are saying there is no available
opportunity?
Mr. Martoccia. No, I am not saying that. I am looking----
Chairman Kerry. What is that?
Mr. Martoccia. I am not saying that, sir. I am looking at
the base of those contracts eligible to be set aside for small
businesses. That is what we base our numbers on, and that is--
--
Chairman Kerry. Well, I would sure like to look at that,
and we will look at that. I would like the Committee staff to
take a look at this question of eligibility and see where we
come out on that. And I would be very surprised--I am prepared
to be, but I would be very surprised if it gets you over the
required percentage.
Let me cede to Senator Snowe, if she is ready, and then I
will come back to a couple of other things.
Senator Snowe. Thank you, Mr. Chairman.
If you can sense our frustration, it is only because we
seem to confront repeatedly the same problems, the same
resistance, and the same inability to get these contracting
programs right and administer them on behalf of the small
business community. It is truly a challenging problem and it is
hard to understand why. The Department of Defense obviously is
a major agency when it comes to issuing contracts and the
ability for small business to access many of those procurement
contracts, and yet you fall far short.
We held a hearing in January of this year on the service
disabled veteran-owned small business, and as the Chairman
indicated, we are clearly woefully short of the 3 percent goal.
These businesses receive 0.6 percent out of a 3 percent
statutory goal, and yet the Department of Defense accounts for
more than half of all procurement contracts issued by the
Federal Government and nearly $220 billion were spent in
contracts in fiscal year 2005, but issued less than all the
other agencies government-wide at an egregious 0.4 percent.
So I think the question is why, Mr. Martoccia, as to why
the Department of Defense is woefully deficient when it comes
to ensuring their service disabled-owned small businesses have
the opportunity to have access to these contracting
opportunities. I mean, this isn't the first year. It has just
been going on year after year.
Mr. Martoccia. I understand. I have been in the job 2
months and I can tell you, as----
Chairman Kerry. Is this--can I just interrupt for a minute?
We habitually get people sent up here who have been in a job
for 2 months and 3 months.
Mr. Martoccia. Right.
Chairman Kerry. Is this part of the calculation, or----
[Laughter.]
Mr. Martoccia. I was in Paul's job previously, so I am in
this job, so I do know the program.
Chairman Kerry. What do they do, ask you all to raise your
hand, who has been here the least time?
[Laughter.]
Chairman Kerry. Who has the least answers? We will serve
you up tomorrow to the United States Senate.
[Laughter.]
Mr. Martoccia. But you can be assured, Senator Snowe, that
the Department and Secretary Gates and my boss are totally
committed. I have been there, like I said, a couple of months,
and I have never seen such effort that is being made to make
the opportunities available to service disabled veteran-owned
companies. It is going down from the top to the bottom, and the
decision makers understand the need to improve those numbers.
Senator Snowe. Well, you should have been here for that
hearing in January. It is a sad commentary on our Government,
and most especially the Defense Department, to hear from these
service disabled veterans coming back, struggling to make a
transition after serving our country and sacrificing so much
and the Government lets them down. We heard tragic stories. I
just cannot understand why there is such resistance and
intransigence. Obviously, it is bureaucratic resistance and
intransigence, and it is just stonewalling this process.
Mr. Martoccia. Well, I don't think it is a lack of effort.
I mean, we have had a good trend. We are up, but we are only at
4.9. It is not good enough, and we are going to make every
effort to get to those businesses. We are going to do sources
sought. The Army alone has come up with $1.7 billion in the
next fiscal year of those requirements that they have already
identified that they want to set aside for service disabled
veterans. So we are going to do sources sought. We are going to
make it a priority.
Senator Snowe. And how will you do that? I mean, if you
think about the amount of defense spending with respect to
Iraq, Afghanistan, worldwide, it is obviously astronomical--
Mr. Martoccia. And we have----
Senator Snowe [continuing]. So it is really hard to
comprehend as to why this constituency, the most deserving for
providing selfless sacrifice to this Nation and not even being
able to participate to help them make this transition. We owe
them no less.
Mr. Martoccia. I agree, and we at DOD have a special
relationship with the veterans' community and we are doing and
we will continue to do all we can do to make those numbers
better quicker rather than later.
Senator Snowe. Well, you are talking about $220 billion for
DOD contracting and $1 billion for service disabled veterans,
$1 billion out of $220 billion. That is just really abysmal. It
is paltry.
Mr. Martoccia. It is a factor of 6 below what we would like
to call the floor of 3 percent.
Chairman Kerry. Could I just interrupt for 1 second? It is
not 4.9 percent.
Mr. Martoccia. I mean, .49 percent. I misspoke.
Senator Snowe. Yes. And so how quickly can we expect a
turnaround? More importantly, how quickly can the service
disabled veterans expect a turnaround, a different response?
Mr. Martoccia. Very soon. I would think that--I think they
are at the right place at the right time to do Government
contracting. There is going to be a major effort, and there is
currently a major effort ongoing to get those opportunities out
and improve the 0.49 of 1 percent so we can get closer to 3 in
a shorter amount of time than most people think.
Senator Snowe. Yes. If you think of $220 billion and $1
billion, it really is incredulous to think that we are making
such a minimal effort. It really is hard to believe, and those
are the 2005 numbers. I hate to think what they are today.
Mr. Martoccia. Again, Senator Snowe, it is not because of
lack of effort.
Senator Snowe. I know. It just is, the question is, it is
getting beyond the effort and it is getting it done. It is
achieving real results on behalf of this most deserving group
of individuals serving our Nation. What does it say about our
country if we can't help the Nation's veterans----
Mr. Martoccia. I agree.
Senator Snowe [continuing]. And those who have been
disabled as a result of their service? So I really hope that we
can turn this around. Make it your legacy. Make it the
Department of Defense's legacy. This problem just didn't
develop today, but we are at a very difficult and challenging
point in our own country's history with respect to the war in
Iraq and the War on Terror in Afghanistan, so we should make a
special extraordinary effort to send the right message to those
who are serving our Nation that we understand what they have
contributed and that we are prepared to do everything we can to
move heaven and earth to serve them as they have served our
country.
So I hope we can get this right sooner, because really, it
requires a major initiative, energy, and the drive to make it
happen; and you are in the position to do it.
Mr. Hsu, in all the contracting programs other than the
Small Business Disadvantaged Contracting Program, all the other
goals of the programs have not been met, as I cited earlier,
women-owned business, obviously the service disabled veteran-
owned, have not met the goals. HUBZone has never met their
goals since the inception of the program. The same is true for
women business-owned contracting. That has never been met. It
has never been accomplished. When can we expect a different
record of experience with respect to these programs?
Mr. Hsu. Well, Senator, we recognize that. That is the
reason why almost a year ago, the agency started the
initiative, to me, it is the initiative increasing the
opportunities for American small business. We have all the
different things that we want to do, and in particular Senator
Kerry mentioned about the PCRs.
We are implementing a new tool that is called EPCR. EPCR
stands for Electronic Procurement Center Representative. It
will provide a very effective and efficient tool for PCRs and
the Federal agencies to review all these requirements for set-
asides under the procurement program to ensure the opportunity
for all small businesses. This year, we will implement the
initiative, and so all----
Senator Snowe. What is the goal of SBA with respect to
making sure that these programs meet their statutory
requirements?
Mr. Hsu. Our goal is going to be 23 percent of small
business, 5 percent of women, 3 percent of service disabled----
Senator Snowe. But by which deadline, though, would this be
accomplished? What is the agency setting for a deadline to meet
this goal----
Mr. Hsu. Well, we want to do it as soon as possible----
Senator Snowe [continuing]. These goals? What?
Mr. Hsu. We want to do it as soon as possible, ma'am.
Senator Snowe. Yes, but is that going to take a matter of
months or the rest of the year? I mean, how long is it going to
take? You must have some estimate, because obviously that is
the standard of measurement that you would use in order to make
sure you have the right program in place to have it
accomplished.
Mr. Hsu. Well, we anticipate--take the Women-Owned Small
Business Federal Contracting Assistance Program, for example.
We anticipate the program will be implemented the end of this
fiscal year. It is--I have to admit, though, we thought it
could be very easy to identify the industries in which the
women-owned small businesses are, quote, ``under-represented,''
but as it turned out, it was more complicated than we expected.
And also, for the government-wide set-aside program based on
gender, this is very new to us. It is really a new concept, so
we want to make sure that all these withstand the
constitutional scrutiny.
But again, we are committed to increase the number of
contracts made for small business for women, for HUBZone, for
service disabled, and--
Senator Snowe. Yes, but you see, like the women's
contracting program has been in place for 6\1/2\ years, so how
long do you think it will take?
Mr. Hsu. Well, ma'am, we did our first study in 2001, which
is less than 10 months after the Congress passed the law. But
unfortunately, the National Academy of Science did not agree
with our study, so that is the reason why in 2006, we
contracted with RAND Corporation to do another study, and----
Senator Snowe. Yes, I know, but we are talking 6\1/2\
years. Two-thousand-one--we are in 2007.
Mr. Hsu. Yes, ma'am, but the study completed----
Senator Snowe. What?
Mr. Hsu. The study completed. The RAND Corporation did a
study and the study completed and we are moving very quickly to
publish the final rule, and this, like I said----
Senator Snowe. Is it going to address the problem?
Mr. Hsu. It will, ma'am, if we--yes.
Senator Snowe. So how long will that process take? What can
you tell the Committee? What can we expect----
Mr. Hsu. We will----
Senator Snowe [continuing]. So that we don't have to repeat
this process? At least get it implemented for the first time in
the history of the program.
Mr. Hsu. Yes, ma'am. We will implement the Women-Owned
Small Business Federal Contract Assistance Program by the end
of this fiscal year.
Senator Snowe. OK. And so now how about HUBZones?
Mr. Hsu. Yes, HUBZones----
Senator Snowe. That is since 1999.
Mr. Hsu. OK. The HUBZone Program is a place-based, race-
neutral program. We understand you stimulate the economic
development and create jobs in the Historically Under-Utilized
Business Zone. We are going to put effort under my watch. This
is my program, Senator. This is my program. We will put more
effort in marketing to the contracting agencies. We will put
PCRs, like I was just mentioning, and also we let all the
contracting officers understand there is a ``rule of two.'' In
other words, if there are two HUBZone companies that can
provide these services, this requirement will be and can be set
aside for HUBZone.
We continue the Fed-Biz Op electronic monitoring systems.
In other words, we will remind the Contracting Officer that the
three percent statutory goal. And most importantly, we will
proceed with the HUBZone set-aside letter system. This means an
e-mail message will go to the Contracting Officer automatically
and formally requesting that the future requirements can be and
will be----
Senator Snowe. When is that system going to be up and
running?
Mr. Hsu. It will be----
Senator Snowe. We have been told since 2005----
Mr. Hsu. No. I think under my watch, it will be by the end
of this fiscal year, ma'am.
Senator Snowe. The same is true for the HUBZones?
Mr. Hsu. Yes, ma'am.
Chairman Kerry. By the end of this fiscal year? In other
words, by this October?
Mr. Hsu. Uh--yes.
Senator Snowe. Mr. Martoccia, one other question. I have
many, but more one for this round. I sent a letter on March 21
to Peter Gehren, who is the Secretary of the Department of
Army, requesting documents, work performed by small businesses,
small business contracts at Walter Reed, and I had asked for a
response by April 5. Now, when could I expect this report, do
you think, since it has been 3 months?
Mr. Martoccia. I don't know the answer to that, Senator----
Senator Snowe. Well, because I am concerned that some of
these contractors could have contributed to the substandard and
disgraceful work at Walter Reed that we are all familiar with
now, and so I wrote a letter back in mid-March.
Mr. Martoccia. I don't think my particular office was
involved in it, but I will look into it when I get back.
Senator Snowe. OK, would you?
Mr. Martoccia. Yes, ma'am.
Senator Snowe. I would appreciate a response to that.
Mr. Martoccia. OK.
Senator Snowe. Thank you. Thank you, Mr. Chairman.
Chairman Kerry. Thank you, Senator Snowe.
We have another panel and I don't want to prolong this too
long because we need to get the other panel in, but Mr.
Martoccia, in answer to Senator Snowe about this question of
disabled veteran procurement, you said, and I will quote you,
``that it is not because of a lack of effort.'' I want to
respectfully disagree with you, because I think when the
military commits itself to something, those within the
Pentagon, they usually get it done.
I think it is a lack of effort. I don't think that there
has been a real commitment to it. I don't think there has been
a real awareness of it. And I am confident that if there had
been a sufficient effort, you would be here saying that we have
reached out to X-number of places. We have put the following
proactive marketing efforts in place. We have reached out to
the following numbers of people and here is what we have run up
against, and you would define it much more specifically than
you have.
So, I mean, I hate to say that, but I really think it has
just been off the radar screen, for whatever reasons.
Mr. Martoccia. In all due respect, Senator Kerry, I have
been there 2 months and I have never seen in my contracting
background the effort and the commitment----
Chairman Kerry. Oh, yes. I understand that----
Mr. Martoccia. No, in the actions----
Chairman Kerry [continuing]. Because this issue got burning
in January.
Mr. Martoccia. In the actions----
Chairman Kerry. You have been there for 2 months. It is now
July.
Mr. Martoccia. We have----
Chairman Kerry. The fact is that long before you got there,
this Committee lit a few burners on the issue on a bipartisan
basis, and even before that, there were a lot of questions
being raised about it, and particularly with Walter Reed and
other things that have happened, there is now an understanding.
And I will grant this, I think Secretary Gates is aware of it
and it committed to it and I think he is the kind of person who
will get the job done ultimately. But I don't think there has
been the effort to date.
Mr. Martoccia. Well, going forward, you can be assured----
Chairman Kerry. If there has been, then shame on whoever
has been making that effort, because it is inadequate. You
know, the Army, as you know, says they never leave any of their
wounded behind and the Marines don't leave their dead and the
military is famous for committing never to leave anybody
behind, but these folks, as we have seen, have been grievously
left behind.
Mr. Martoccia. Well, during my stay there, and hopefully it
will be until the end of the Administration, I will see to it
that it is a priority and there are actions taken and people
held accountable to get the job done.
Chairman Kerry. Well, we are going to obviously stay right
on this, and I know that Patty Murray and the Veterans Affairs
folks are going to be staying on it. I may even raise with the
Majority Leader the idea of having some kind of special
oversight effort that really keeps the spotlight on this and
makes certain that we are all in pursuit of this, so that by
the end of the year, there is just no possibility of having
overlooked any way of making this happen.
Mr. Martoccia. Well, we have a number of initiatives
ongoing that I can't talk about right now that I think you will
be pleased with with regard to the veterans----
Chairman Kerry. Helping disabled veterans is top secret?
Mr. Martoccia. No, it is not----
[Laughter.]
Mr. Martoccia. No, it is not. We are going to bring in
groups on a regular basis to discuss issues, to get their
feedback, to get their advice, small business, disabled
business, veterans' businesses, stakeholders----
Chairman Kerry. Well, we will look for all of it. That
sounds to me like real effort, and obviously we will welcome it
and we look forward to it.
Let me just ask you very quickly, both of you, Mr. Hsu, if
you are able to, can you share with us this question of size of
businesses? We hear from a lot of small businesses that they
repeatedly bump up against the size standards. For example, a
certified public accountant has a size standard that is around
$6.5 million, but then you get the four big accounting firms
and they are somewhere up around the $25 billion level in
revenue. So how does a small firm compete against that? You can
run down the list of different things.
Mr. Hsu. Yes, sir. The SBA----
Chairman Kerry. Should the size standards be changed?
Mr. Hsu. It will. We----
Chairman Kerry. By the end of this fiscal year?
Mr. Hsu. No. This is going to take about 18 to 24 months,
and here is why. We have a size standard for every private
sector industry in the U.S. economy. We use the NAICS code to
identify the industry. So we use either the number of employees
or the average annual receipt for the size standard. For
example, manufacturing, we use 500 people. In the professional
services, we use $6.5 million.
The size standard, like you said, sir, represents the
largest size that a business may be to remain as a small
business in the Federal Contracting Program, so we know that is
so important. We are, sir, we are conducting a comprehensive
study under the Administrator's leadership to reevaluate the
size standard for all industries.
Chairman Kerry. Are you doing them one at a time, or----
Mr. Hsu. We are doing two to three sectors at a time. So it
will take about 3 months for us to complete the two to three
sectors, and then the effort will be ongoing. So overall, this
is probably going be about 18 to 24 months' effort. But toward
the end, we will complete our comprehensive study for the
entire economy----
Chairman Kerry. I may want to pick up on some of these
questions with the Administrator when we have him here, and I
appreciate your being here certainly. But if you see these
lists of items up here, Mr. Martoccia, these are the excluded
items and they are excluded both statutorily and by regulation.
I think there is a very legitimate question as to whether they
are appropriately excluded.
[The list of excluded items referred to follows:]
[GRAPHIC] [TIFF OMITTED] T0408.050
Mr. Martoccia. I agree.
Chairman Kerry. OK. So maybe we can work at seeing whether
or not we broaden this base a little more effectively, and we
will certainly continue to do that.
In the interest of time, not because we don't have more
questions, I am going to leave the record open for 2 weeks so
that Committee Members can submit questions in writing. But I
do need to move to the next panel in the interest of time. So
we are grateful to you for being here today and we look forward
to following up and working with you on this issue.
If I could ask the second panel to come right up, we will
try to move with a minimum amount of disruption.
Can we stay in order, please? I would like to get folks
seated as fast as possible with minimal disruption. Thank you
very much.
We have a variety of accomplished witnesses in the second
panel today and we are very grateful to you for your patience.
First, we are going to hear from Mr. Todd McCracken, president
of the National Small Business Association. Then we will hear
from Ms. Patricia Rice, the director of the Maine Procurement
Technical Assistance Center. Our third witness on this panel is
Ms. Magdalah Silva, the chief executive officer of DMS
International, Inc., and testifying on behalf of Women
Impacting Public Policy. And finally, we will hear from Mr.
Ronald Newlan, president and chairman of the HUBZone
Contractors National Council.
Thank you again, all of you, for taking time to be here. I
know there was a little question mark about how we might meet
and so forth. I appreciate your patience, and Ms. Rice,
especially. I know you were questioning whether, I think,
either to be here or to go home or whatever, but we are glad we
could make it work for our neighbors from down East and we are
glad to have you here.
So if we could start, Mr. McCracken, please, first. Thanks.
STATEMENT OF TODD McCRACKEN, PRESIDENT, NATIONAL SMALL BUSINESS
ASSOCIATION, WASHINGTON, DC
Mr. McCracken. Thank you very much for having me. Again, my
name is Todd McCracken. I am the president of the National
Small Business Association. We are the largest national--excuse
me, the oldest national small business organization. I
appreciate the opportunity to be here on behalf of all of our
members, most especially those that are engaged or trying to be
engaged, as it were, in Federal contracting.
You have done, I think, a pretty fine job of outlining what
many of the problems are, so with your indulgence, I am going
to summarize my statement and not continue to belabor points
that have been made and just try to focus----
Chairman Kerry. Can I just interrupt you for 1 minute?
Mr. McCracken. Absolutely.
Chairman Kerry. Is Mr. Martoccia still here? Yes, he is.
Good. And Mr. Hsu is here. Thank you, because I want you to be
able to hear some of the testimony. Thank you. Mr. McCracken?
Mr. McCracken. Thank you. We believe that we need to
increase the small business goal. Twenty-three percent, we
think, looked at appropriately, still isn't being met, but even
23 percent is not representative of the role that small
business plays in the economy and we think that it needs to be
higher than, in fact, the 23 percent. We also think we need to
look at goals by agency and that each agency should be required
to meet the minimum Federal goal on an agency-by-agency basis.
We are also in complete agreement with some remarks that
have already been made today that the base, as it were, needs
to be increased. We specifically think that overseas contracts
should be included in the calculation of small business goals,
but it doesn't necessarily stop there. There are a lot of items
that are excluded and we think it should be looked at very
carefully. There are probably some that are appropriately
excluded, but not everything, we don't think.
Bundling--clearly, there has been a huge move toward
bundled contracts in this arena. Unfortunately, one of the
biggest problems is that the Federal definition of bundling
isn't sufficient. What we all think of as bundling often
doesn't meet the Federal definition for what is bundling to be
reviewed in the first place. And so we think that definition
needs to be changed to include a much broader range of
contracts and not just the narrow definition that currently is
in play.
When it comes to fraud and the inclusion--the definition of
which small business are getting the contracts, there has been
a very serious problem there, obviously, and it has been
exacerbated by the trend in recent years of larger companies
buying smaller contractors, which has been happening at a much
greater pace than it had been in the past. So now you have, as
your previous chart showed, very large defense contractors
being listed as small business, or their subsidiaries as small
business contractors, which clearly is not the case.
In the last month, the SBA has put into place some new
regulations which should, we think, help a great deal on this.
They may need to go further, we there is, we recognize here, a
difficult line because clearly many businesses may grow during
the course of a contract and may no longer be small businesses.
While we want to make sure that the goals really do help small
businesses get contracts, we also don't want to discourage that
small business growth at the same time. We don't want them to
be counted as small business contracts once they have grown
beyond small businesses, but it is important not to disrupt
those relationships so the businesses will be able to plan, as
well.
Subcontracting is a huge, huge issue for small companies.
We talked ad nauseam about prime contracts at these hearings
and other fora, but subcontracting is critically important to
many, many small companies across the country and there are a
whole host of issues there, some of which have been talked
about already, the case where a small company may never, in
fact, get the business that was promised by a larger business
when that larger business gets the prime contract and we think
there needs to be some additional accountability there with
those larger companies.
Secondarily, there is the question of payment, which has
been a perennial issue for small subcontractors. They often are
not paid in a timely fashion and we think that there is a very
significant potential role for the agencies to hold those prime
contractors' feet to the fire a little bit better than it has
in the last number of years. That clearly should be a prime
criteria that agencies use in evaluating those companies for
the awarding of prime contracts.
I think I will stop there and save time for questions. I
see my time is up anyway. Thank you very much.
[The prepared statement of Mr. McCracken follows:]
[GRAPHIC] [TIFF OMITTED] T0408.011
[GRAPHIC] [TIFF OMITTED] T0408.012
[GRAPHIC] [TIFF OMITTED] T0408.013
[GRAPHIC] [TIFF OMITTED] T0408.014
[GRAPHIC] [TIFF OMITTED] T0408.015
[GRAPHIC] [TIFF OMITTED] T0408.016
Chairman Kerry. Thank you very much.
Ms. Rice from Bangor?
STATEMENT OF PATRICIA RICE, DIRECTOR, MAINE PROCUREMENT
TECHNICAL ASSISTANCE CENTER, BANGOR, MAINE
Ms. Rice. From Bangor, yes. Mr. Chairman, Senator Snowe,
thank you for your support for the Nation's small businesses. I
am honored to be here. As was mentioned, I am the director of
the Maine Procurement Technical Assistance Center, often
referred to as the Maine PTAC. The Maine PTAC is part of the
Procurement Technical Assistance Program that has 93 centers
nationwide, funded through the Defense Logistics Agency.
The Government funding provided by the program allows the
Maine PTAC to offer what I consider the most important service,
and that is one-on-one counseling with the professionals
knowledgeable in Government contracting. This personalized
counseling benefits the business because they can find reliable
and timely answers to their Government contracting questions.
But our center also offers a bid match service, information on
past procurements, contracting workshops and training on
Government contracting, matchmaker events held in conjunction
with other New England PTAC Programs.
At this time, I would like to talk about some of the
challenges that have already been mentioned before. Top among
them would be contract bundling. I would like to give a Maine
example.
After pursuing Government contracts for more than a year
and then getting some small contracts, a Maine machine shop was
awarded a 5-year multi-million-dollar contract to make
precision parts for the U.S. Army Tank Automotive and Armaments
Command. That is TACOM. The small business ramped up, hired
people, filled orders, and then about 18 months later, the
machine parts that he was supplying to TACOM were wrapped into
a large bundled contract that ultimately went to a large prime
contractor. The company was unable to recover many of the costs
of ramping up and now is not actively looking for Government
contracts.
Contract bundling is promoted as making the contract
process more streamlined and providing cost savings to the
Government. However, nearly always, it impacts small business,
resulting in diminishing opportunities for a small business in
Government contracting. And if it is happening in Maine, it is
happening in other States.
Another pesky problem is the International Traffic and Arms
Regulations, ITAR. It presents a burden that is particularly
hard because of the registration and the high fee associated
with the--imposed upon by the Directorate of Defense Trade
Controls. In separate cases, two small Maine businesses who
supply a small part or component to a prime contractor found
out that the small part is for a weapons system. The businesses
received a letter informing them of the DDTC registration
requirement and the $1,750 annual fee in order to come into
compliance. One such company was a woman-owned small business
of four people supplying a $49 component.
The HUBZone Program, although it is not a hurdle and I
believe that the HUBZone Program has been a benefit to small
businesses, there are some areas that I see in need of
improvement. I see there are a lot of small businesses that
could be considered located in an economically-depressed area
of Maine, but are not eligible for HUBZone certification
because of how the HUBZones are defined. Some economically-
depressed, sparsely-populated sectors get overlooked by the
program because they get counted in with larger surrounding
areas that are more affluent or doing well.
So in conclusion, while I think small businesses face
hurdles in Government contracts, I don't think the process is
broken, only strained. The Maine PTAC works with businesses
every day to provide them with the tools that they need to
benefit from the Government opportunities, and nationally, the
figures for the PTAC Program are impressive. Nationwide, the
PTAC program has assistted 55,000 clients, generated over $14
billion in Government contracts, and creating or retaining over
300,000 jobs. So although the PTAC Program is small, it does
work.
I greatly appreciate the Committee leadership in assisting
small and medium-sized businesses and its focus today on
Government contracting. I thank you also for your support of
the PTAC Program and for the honor and opportunity to testify
today.
[The prepared statement of Ms. Rice follows:]
[GRAPHIC] [TIFF OMITTED] T0408.017
[GRAPHIC] [TIFF OMITTED] T0408.018
Chairman Kerry. Thank you so much for taking time to come
down here and be with us. We appreciate it.
Ms. Silva.
STATEMENT OF MAGDALAH SILVA, CHIEF EXECUTIVE OFFICER, DMS
INTERNATIONAL, INC., SILVER SPRING, MARYLAND, ON BEHALF OF
WOMEN IMPACTING PUBLIC POLICY
Ms. Silva. Chairman Kerry, Ranking Member Snowe, thank you
for the opportunity to be here today. I applaud your passion
and commitment to the development of small business. My name is
Magdalah Silva, president and chief executive efficer of DMS
International, a management and technology consulting firm
located in Silver Spring, Maryland. DMS is a woman-owned
company established in 1994 and has been providing information
assurance, software development, statistical reporting, as well
as instructor and Web-based training to both the defense and
civilian agencies. Our primary Federal customers include the
Department of Defense, Army, Navy, and Air Force, as well as
the U.S. Department of State and the Department of Housing and
Urban Development. Thank you for inviting me to testify today.
My testimony today is on behalf of Women Impacting Public
Policy. Women Impacting Public Policy is a bipartisan,
nonprofit organization that represents well over half-a-million
women in businesses nationwide and 46 small business
associations. The title of this hearing adequately reflects our
overall concerns on Federal contracting, ``Ensuring Fairness in
Small Business Contracting.''
As Senator Snowe observed, the Government failed to meet it
goals for contracting with women-owned businesses. In fiscal
year 2005, only 3.3 percent of Federal contracts were awarded
to women-owned businesses. That represents billions of dollars
left on the table and hundreds of qualified companies without
opportunity.
Furthermore, WIPP members believe that the small business
contracting goals should be increased. We strongly agree with
the H.R. 1873 passed by the House, which raises the overall
small business goal from 23 percent to 30 percent and raises
the women-owned goal from 5 percent to 8 percent.
We have said for a long time that since WIPP's existence,
that Pub.L. 106-554, the law authorizing the Women-Owned Small
Business Federal Contract Assistance Program, must be
implemented in order to meet the 5-percent goal for women-owned
businesses passed by Congress. For 7 long years, women have
waited for the SBA to implement this program. It is our
understanding that the proposed regulations are in the process
of being formulated and we ask Congress to continue to press
SBA for those proposed regulations.
Contract bundling continues to pose a real threat to small
business contracting. Despite the President's initiative in
2002 which clearly stated that unbundling of contracts was a
priority of the Administration, we see the trend in Government
contracting toward larger bundled contracts. The Office of
Management and Budget reported that for every $100 awarded on a
bundled contract, there is a $33 decrease to small businesses.
Despite strong evidence that bundling is not good for small
business or for the Government, for that matter, a 2004 GAO
report shows that Federal agencies remain confused about what
actually constitutes contract bundling, which results in poor
accountability and disparity in reporting. We urge the
Committee to clear up the confusion for the agencies by putting
into place concise language to define what triggers a bundling
review.
As Federal contracts get larger, subcontracting integrity
becomes more important. With regard to subcontracting, we
continue to believe that if you list us, use us. The Committee
language last year required that prime contractors utilize the
small businesses included in their subcontracting plan unless
the small businesses could no longer meet the requirements. It
also included penalties for violating the subcontracting plans.
Prompt payment from the prime contractors to the
subcontractors also continues to be an issue for small
business. Currently, the Government does not have the authority
to intervene because its relationship is with the prime
contractor, not with the subcontractor. Nevertheless, we
continue to hear stories from our members that this is an
ongoing problem. WIPP recommends that the Government withhold
further payments to prime contractors who are not paying their
subcontractors in a timely manner.
Another issue for small businesses is the current size
standards administered by the Small Business Administration.
WIPP members tell us that as the Government contracts get
larger, the small business size standards must be adjusted to
reflect that trend. In some cases, the size standard limit
restricts an award to very small companies instead of small
companies. This inhibits the ability of our small businesses to
compete in the Federal market and has the counter-effect of
ensuring that women- and minority-owned companies, in effect,
stay small.
One example which is particularly in my case is the size
standard for IT services. One commonly used code by the agency
for administrative IT services is capped at $6.5 million.
According to our members who have IT companies, this is simply
too low. The effect of having a size standard too low is that
very small firms will be selected and will require a major
integrator behind them to successfully execute the contract. If
the size standard is higher, a small business will be able to
successfully perform at least 100 percent of the work and
ultimately grow their business.
While we are not advocating a wholesale reworking of the
size standards, we are suggesting that for the problematic
ones, SBA should be willing to review them. This is critical
not just for the Federal Government procurement, but also
because States and cities look to the SBA size standards on
which to base their own programs.
Thank you for this opportunity to speak on behalf of a
number of important issues to WIPP members and many small
businesses. We look forward to working with the Committee on
changes to contracting laws and regulations to ensure continued
small business growth in the Federal sector. I will be happy to
answer any questions that you may have. Thank you.
[The prepared statement of Ms. Silva follows:]
[GRAPHIC] [TIFF OMITTED] T0408.019
[GRAPHIC] [TIFF OMITTED] T0408.020
[GRAPHIC] [TIFF OMITTED] T0408.021
[GRAPHIC] [TIFF OMITTED] T0408.022
Chairman Kerry. Thank you very much, Ms. Silva.
Mr. Newlan.
STATEMENT OF RONALD NEWLAN, PRESIDENT AND CHAIRMAN, HUBZONE
CONTRACTORS NATIONAL COUNCIL, ROCKVILLE, MARYLAND
Mr. Newlan. Chairman Kerry, Ranking Member Snowe,
distinguished Members of the Committee, thank you for inviting
me here today. For those I have not met, I am Ron Newlan,
chairman of the HUBZone Contractors National Council. Our
council is the only national trade association that focuses
exclusively on expanding the implementation of the Federal
HUBZone contracting program.
A HUBZone is an area of our Nation that has high
unemployment or low household income. Today, 37 million
Americans live in poverty. There is a strong correlation
between the locations of our HUBZones and the locations where
these 37 million impoverished Americans live.
This program was designed to create jobs where America
needs jobs the most. The program creates these jobs by offering
competitively-awarded Federal contract opportunities to small
businesses that locate in a HUBZone and hire employees who live
in these HUBZones.
Awarding Federal procurements to HUBZone firms is good
public policy for several reasons. First, awards under the
program are almost always based on competition, so the
Government receives the advantages of competitive pricing.
Second, each HUBZone firm must have its largest office in a
HUBZone. This stimulates the economic development of these
zones of poverty.
Third, at least 35 percent of each HUBZone firm's employees
must live in a HUBZone. In many instances, these employees,
before being hired by a HUBZone firm, were drawing unemployment
and/or welfare, so it is a double win as we move the unemployed
or the welfare recipient back to the roles of a productive tax-
paying employee.
The HUBZone Program was very well designed and I thank all
of the Members of this Committee who were here 10 years ago,
particularly former Chairman Senator Bond for his sponsorship
and leadership in creating the program.
Today, there are 13,000 HUBZone firms. Their collective
annual revenues exceed $25 billion. If they were collectively
ranked, they would be ranked number 90 on the Fortune 500 list,
larger than General Dynamics or Coca-Cola. Our resources as a
community are vast. In Massachusetts, there are 110 HUBZone
firms and their annual revenues exceed $370 million. In Maine,
we have 118 HUBZone firms whose collective annual revenues are
approximately $410 million.
Unfortunately, this well-designed program has been very
poorly implemented by the Federal agencies that buy America's
goods and services. The HUBZone statute sets forth a goal for
HUBZone contracting at three percent of total Federal
contracting dollars. Despite the large size of our HUBZone
contractor community, the Federal Government has never come
close to meeting this level. In fiscal year 2005, the
Government achieved 1.94 percent, and this was by far the best
year ever. If I could just repeat your opening statement,
Chairman Kerry, it is not about being nice. It is a matter of
it is the law, the 3 percent goal and all the other goals in
the Small Business Act.
If I had to attribute the program's lack of success to one
thing, I would attribute it to the procurement community's
reluctance to change their methods of doing business. For every
1 HUBZone set-aside competition conducted in 2005, there were
78 small business set-aside competitions conducted. Yet the
statutes and regulations are clear that the HUBZone Program is
a higher priority program than the small business set-aside
program.
Now to make matters even worse, the House of
Representatives has passed a bill, H.R. 1873, and sent it to
the Senate. One aspect of this bill is to increase the
contracting goals for small disadvantaged business and women-
owned business to 8 percent annually. The House completely
ignored increasing the HUBZone goal to 8 percent. If H.R. 1873
was to become law, this would increase the emphasis on the SDB
and the women-contracting program at the expense of the HUBZone
Program.
It is time for the Federal procurement community to follow
the law. For the past 10 years, far too many procurement
officials have ignored the HUBZone statute. For 37 million
Americans who live below the poverty level, the time for action
has arrived.
I ask this Committee to, one, convey to all senior
officials and Federal procurement officials that the HUBZone
rule of two means what it says. When there are two or more
qualified HUBZone firms, make the procurement a HUBZone set-
aside.
Two, reemphasize that the HUBZone Program has priority over
the small business set-aside program. There should never again
be 78 small business set-asides for every 1 HUBZone set-aside.
Three, ensure the SBA headquarters HUBZone Program regains
its budget line item status and appropriate no less than $15
million annually so this hard-working SBA staff can create the
tools required to ensure the Federal departments give the
program the emphasis that it deserves. For every dollar spent
on this SBA budget line item, the return to the taxpayers is
many-fold in reduced welfare payments, reduced unemployment
payments, and increased income taxes.
Four, increase the oversight of any department that fails
to meet the HUBZone minimum level set by Congress.
And five, increase all small business goals to 8 percent or
do not increase any of them. The HUBZone Program goal cannot be
ignored.
In closing, I would like to salute the departments and
agencies who have proven that achieving HUBZone contracting
goals is possible when senior leaders commit to the task and
their procurement communities focus on goal accomplishment. The
Departments of Agriculture and Interior each achieved 9
percent. The Department of Army achieved their 3 percent goal.
HUD achieved 4 percent, and GSA achieved 4 percent.
Thank you for the opportunity to bring these urgent matters
to your attention. I would like to just add that I have brought
some color-coded maps of each State represented on this
Committee, so if the staff would like to pick them up, there
are packets here. I will leave them in these orange folders.
But color-coded maps of where the HUBZones are in every one of
your States. Thank you.
[The prepared statement of Mr. Newlan follows with
attachments:]
[GRAPHIC] [TIFF OMITTED] T0408.023
[GRAPHIC] [TIFF OMITTED] T0408.024
[GRAPHIC] [TIFF OMITTED] T0408.025
[GRAPHIC] [TIFF OMITTED] T0408.026
[GRAPHIC] [TIFF OMITTED] T0408.027
[GRAPHIC] [TIFF OMITTED] T0408.028
[GRAPHIC] [TIFF OMITTED] T0408.029
[GRAPHIC] [TIFF OMITTED] T0408.030
[GRAPHIC] [TIFF OMITTED] T0408.031
[GRAPHIC] [TIFF OMITTED] T0408.032
[GRAPHIC] [TIFF OMITTED] T0408.033
[GRAPHIC] [TIFF OMITTED] T0408.034
[GRAPHIC] [TIFF OMITTED] T0408.035
[GRAPHIC] [TIFF OMITTED] T0408.036
[GRAPHIC] [TIFF OMITTED] T0408.037
[GRAPHIC] [TIFF OMITTED] T0408.038
[GRAPHIC] [TIFF OMITTED] T0408.039
[GRAPHIC] [TIFF OMITTED] T0408.040
[GRAPHIC] [TIFF OMITTED] T0408.041
[GRAPHIC] [TIFF OMITTED] T0408.042
[GRAPHIC] [TIFF OMITTED] T0408.043
Chairman Kerry. That would be terrific. That is very
helpful and we will collect them and we will put them to good
use.
While we are on the subject of HUBZones, let me just ask
you very quickly, in May of this year, the Inspector General,
SBA's Inspector General, released a report showing a very high
level of decertification of people who had been previously
certified, and I think that the IG found that in fiscal year
2005, a 3-year certification review found that more than 81
percent of the firms that were initially approved as HUBZones
were decertified or recommended for decertification. What is
going on here and what needs to be done to guarantee a higher
level of accountability for the HUBZone process?
Mr. Newlan. I think the number one component for the
decertifications or the dropping out of the program is it costs
extra money oftentimes to run your company in a HUBZone. You
hire employees that live in a HUBZone that you might not
necessarily hire, and then when you don't get any payback with
winning and be awarded Federal contracts, firms are just
walking away from the program. It is not----
Chairman Kerry. The lack of follow-through on procurement
is, you are saying, a very significant mark in the failure
rate.
Mr. Newlan. Yes, sir.
Chairman Kerry. What do you think--Ms. Silva, also, I
wanted you to weigh in. I want everybody or anybody who wants
to weigh in on this. This is essentially the heart of your
testimony. We have both of our Government witnesses here and
listening to you, so you have an opportunity both with the
Defense Department and the SBA to kind of put it on the line as
directly as you can. I am grateful to both of you for staying
here to hear this because it is important. It is valuable, I
think.
But, Ms. Silva, in your judgment, what is the biggest
restraint on the ability of women, but also these other
entities to be able to get the procurement that you have talked
about? What happens, in your judgment?
Ms. Silva. Well, I think accountability, first and
foremost, and I will just give you a quick story of having a
conversation with a Contracting Officer--well, actually not a
Contracting Officer, a small business representative for one of
the major agencies. I went to see him and actually talked about
the fact that what happens to you if you don't meet your goals,
and he told me that actually what happens is he walks around
the other side of the table and he gives himself a stern
talking to. That, I think in a nutshell, represents what
happens with the goals. I mean, we have objectives that are
set. We have goals in some instances----
Chairman Kerry. But nobody is enforcing it.
Ms. Silva [continuing.] But nobody is enforcing it and
there is no accountability.
Chairman Kerry. You are nodding.
Mr. Newlan. I couldn't agree more. Procurement officials
throughout the country are breaking your statute, the statute
that started HUBZones, started in this Committee, and, of
course, all the goals are overseen by this Committee and they
break them on a yearly basis and they get away with it.
Chairman Kerry. Do you think there is something inherent in
the procurement process that drives a procurement officer to
not do it because it is bothersome, because it is more of a
hassle, because you don't get the bang for the buck? What are
the ingredients of sitting there saying, I am not going to pay
attention to this? It is easier for me to go off and do it
here. Anybody. Mr. McCracken, you represent a large number of
businesses in that regard----
Mr. McCracken. Well, I think that is--my view is that is
exactly it. I mean, we are talking about a very large
population of people, obviously, and so they are all going to
have different motivations. But I think at the end of the day,
it is easier to go to one company that can do a lot of things
for you than to put out a number of smaller contracts, whereas
those may be more efficient, they may save more money, but if
it is only looked at as most efficient from the Contracting
Officer's perspective, from their own lives as opposed to what
is most efficient for the American taxpayer or the overall----
Chairman Kerry. To what degree is that a balance? I mean,
to what degree does the taxpayer get a better return in that
regard? Can you make the argument appropriately, as we always
have here, and we try to, that there is a return to the
taxpayer in broadening the base and in increasing the numbers
of jobs and in sharing that wealth that it may not be recorded
in the same way as the quick and easy 1-year return on, wow, we
got the whole job done with one contract and here is what it
cost us. I mean, is that the relationship that has to be better
defined, or what?
Mr. McCracken. I think it does, and unfortunately, when we
were moving primarily back in the 1990s toward much greater
bundling of contracts, when that whole argument was going on
effectively in Congress and in the Administration, the case was
really only looked at, I thought at that time, from the
perspective of what is most efficient for Government
bureaucrats who are doing contracting. The whole rest of the
balance wasn't really looked at.
Chairman Kerry. You were going to add to that, Ms. Silva,
and then----
Ms. Silva. No, I was just going to say that you eloquently
pointed out, Senator Kerry, that basically what everyone knows,
that the small businesses drive innovation, and whether it is
the Federal Government or whether it is the private sector, we
want the best quality for the best price, and when you tend to
be focused on a kind of a single contractor and not opening up
the opportunities for small business, you really limit the
amount of innovation opportunity and advancement overall for
the country in terms of being able to draw resources from pools
of businesses that have a wide area of expertise but don't have
accessibility or don't have visibility and don't have
opportunity.
Chairman Kerry. Mr. Newlan.
Mr. Newlan. Mr. Chairman, one thing that has probably never
been said at this Committee before, but I think customer
service is getting in the way. If you think the way the
Government is typically organized, you have a program office
that has a need and funding and you have a procurement office
whose job it is to make the award for the needs and services of
that program office. And I have heard time and time again when
I go to a contracting office or procurement shop and say, why
wasn't this a HUBZone set-aside?
Their answer is, we are in the customer service business.
The program office is our customer and if we don't give them
what they want, they are going to take this requirement to
another contracting shop down the road or in another agency
through an interagency government-wide acquisition contract and
they will get what they want down there. So how can I give you,
the HUBZone community, what you want, and I would like to give
it to you, but I am going to lose the business. They are going
to go down the street and it is going to be an unrestricted
procurement down the street. So we have got procurement shops
that want to do the right thing, i.e., customer service, and
they fail to hit their goals because of it.
Chairman Kerry. Ms. Rice, you are at the real delivery
level there.
Ms. Rice. Yes, I am.
Chairman Kerry. You see it where the rubber meets the road.
Ms. Rice. I see it a little differently. I think that
Federal agencies and large prime contractors are risk-adverse
and they don't want to take on new contractors, especially
small businesses, if they don't know. So it is very, very
difficult for the small business to break into Government
contracting because of this risk-adverse attitude out there in
Federal agencies----
Chairman Kerry. For the agency itself?
Ms. Rice. Federal agencies and----
Chairman Kerry. So you think there is a fear factor in
terms of accountability? There is a reverse accountability. It
is not just the accountability for meeting the standard, but
there is accountability for meeting the goal of the procurement
itself and they have a fear that somebody smaller isn't going
to do that.
Ms. Rice. For performing the job. In a contract, they want
the existing contractor to perform the job. They are very
comfortable----
Chairman Kerry. Why? What is the reason, just comfort?
Ms. Rice. Comfort. They are comfortable with the status
quo, with the current contractor, and if that is a large
contractor, they are very risk-adverse to initiate change.
Chairman Kerry. Well, isn't the key to this--this is my
last question and then I will turn to Senator Snowe--the
accountability issue? I mean, don't you need somebody there? It
is like any office anywhere. If somebody isn't saying, have you
met your goal----
Ms. Rice. Oh, absolutely.
Chairman Kerry. Are you on top of this? When are you going
to meet it?
Ms. Rice. Oh, I agree with all the panelists here----
Chairman Kerry. If you don't meet it, you are not going to
work here anymore. It is a pretty simple equation, isn't it?
Ms. Rice. Absolutely, Mr. Chairman. I believe that with all
the panelists here, we think that there is accountability that
needs to be there at the Federal Contracting Officer level and
the oversight that is needed by SBA.
Chairman Kerry. Senator Snowe.
Senator Snowe. Thank you all for your great testimony. It
is very helpful, given the wide array of problems and
challenges that exist with the variety of programs that could
so well serve small businesses in creating jobs, helping so
many communities across this country, and particularly rural
areas, as Ms. Rice and I know. In the State of Maine, the
HUBZone Program, for example, is a prime illustration, very
little money, because the Federal Government is going to be
spending this money anyway through the contracting process and
through procurement that to allow these small businesses in
areas that are impoverished, under-employment, or major closure
of a facility to help boost the economy in a particular region.
But I am just mystified to the extent to which it is such
an under-utilized program. As you might recall, Ms. Rice, the
Committee and I conducted forums in the counties in my State
that are obviously designated as HUBZone eligible. I mean,
roughly two-thirds of the State of Maine is designated as such,
but it is only 118 companies as I mentioned earlier that are
HUBZone eligible. And this is also true nationwide.
I am just wondering what steps you think that the Committee
could take to improve this program. First of all, there are
very few people aware of the program. That is what I discovered
in conducting these forums across the State and through the
counties. There is very little awareness about the existence of
the program. They might have a different experience as you go
around, Ms. Rice, but I think given the fact it is so under-
utilized, that is obviously the case.
Now, second, could it be the process? I know you lend great
assistance in helping people apply so they will become
designated as eligible. Is the application process burdensome?
What is your experience, and is there anything we can do to
make it easier?
Ms. Rice. I don't really think the application process is
that burdensome. There are steps that the small business has to
go through in order to get certified by SBA, but if we are
knowledgeable about that, the company trying to apply for
certification, we will help them through the entire process.
What I have found is sometimes the small business sometimes
doesn't follow through enough on getting certified. That was
one of the things that--and lack of opportunity. Once they do
get certified, they don't see the opportunity out there and to
get recertified, they might not have that interest anymore in
pursuing Federal contracts because they don't see--
Senator Snowe. How often do they have to get recertified?
Ms. Rice. I think there is a recertification every 3 years
or so that is looked at by the SBA, I believe.
Senator Snowe. I would imagine on the recertification
process overall.
Ms. Rice. I don't think--I am not that familiar with the
recertification process.
Senator Snowe. I see. Ok. I could just say, though, if you
are running a small business, it is very difficult to find the
time. You don't have the resources. You have to travel, the
expense. It seems overwhelming, I mean, the bureaucracies and
the paperwork.
Ms. Rice. It does----
Senator Snowe. There is nothing there that is appealing,
frankly, in order to go through that process and just in
talking to businesses. They think, OK, this is going to be
complex and difficult. So I think that is part of the issue. We
have to simplify it in some way to make it user-friendly.
Ms. Rice. I think that the small business does see it as a
complicated process.
Senator Snowe. That is what I heard in comments, is just
that, where are you going to find the time to just work their
way through the maze. Your office is terrific and once you can
get them there and hook them up with you, it is great. But it
is getting to that point and many of these businesses are
located in very rural areas. So I think it makes it especially
difficult.
So if you have any suggestions you think that we can
improve upon that process in some way that might also get the
message out, I think that is the other issue. I just don't
sense that this is widely known across the country. Do you, Mr.
Newlan? I mean, what is your--
Mr. Newlan. I think that is the issue, Senator Snowe. It is
getting the message out to the firms and then getting the
message out to the Government procurement offices that we are
serious and 3 percent means 3 percent.
The certification and recertification process is not very
complicated as Government programs go. It is a completely
online system. It is Internet-based, should take less than 30
minutes to apply and then 30 minutes to update the data every 3
years. So it is not a particularly burdensome administrative
process, but the word has to get out to the community that
there are benefits to being located in this HUBZone, Federal
procurement benefits, and then to the procurement people.
What is it you don't understand about 3 percent as a floor?
That is the message that has to get out. I am not sure how the
SBA HUBZone Program Office would spend the $15 million if the
Congress were to appropriate it, but I am sure some of it would
go to getting the message out.
Senator Snowe. So you think that that would be one way of
doing it, of helping?
Mr. Newlan. Oh, absolutely. Yes.
Senator Snowe. You think that would advance the program in
some way?
Mr. Newlan. Absolutely.
Senator Snowe. Yes.
Mr. Newlan. Absolutely.
Senator Snowe. You mentioned HUBZone goals not being met,
and you talked about that earlier. Back in 2001, I referred to
the GAO report. It cited a number of issues Federal contracting
offices provided for not using the HUBZone Program. One was the
relatively small number of certified HUBZone firms; two, the
difficulty of identifying certified HUBZone firms that provide
particular goods and services; and three, SBA guidance and
internal policies that favored the 8(a) Program over the
HUBZone Program. As I said, Senator Bond had sent a letter to
the GAO requesting a follow-up on the 2001 GAO report detailing
all these barriers. Do you think that those are the same
problems that exist today as they did back in 2001?
Mr. Newlan. Oh, no. Those problems have all been fixed.
Senator Snowe. OK. So we have a new set of them?
Mr. Newlan. The small community issue is the HUBZone
community is the second-largest specialty small business
program in the Federal Government. The women-owned program is a
larger program. There are more women-owned firms than there are
HUBZone, but there are more HUBZone firms than there are
service disabled veteran firms, veteran-owned firms, SDBs, or
8(a)s. So the community is large. It is getting the word out
and having HUBZone set-asides created by the executive branch.
That is the key.
Senator Snowe. That is the key.
Mr. Newlan. The good thing about a HUBZone set-aside is you
are guaranteed a HUBZone firm will win, and that will count
towards the 3-percent goal.
Senator Snowe. I see. Yes. There is much more incentive and
it is probably more attractive, a guarantee that there is going
to be that sort of--
Mr. Newlan. Some HUBZone firm is going to get it.
Senator Snowe. Yes, exactly, rather than being in a pool.
Mr. McCracken, talking about expanding subcontracting
opportunities, what do you think should be done in that regard?
We talked earlier, and I know Mr. Hsu was talking about their
whole certification process, especially to examine the larger
companies that do the bait and switch.
Mr. McCracken. Right.
Senator Snowe. They front as small businesses and the next
thing you know, they take over the contracts, as we have heard.
So one of the issues that I think is important is that, really,
the SBA doesn't have any strong authority to enforce any
penalties with respect to those violators of these provisions.
Do you think that that would be an effective approach?
Mr. McCracken. I think it could be, yes. We certainly think
there needs to be some additional enforcement in those areas.
We have to make sure that the primes, when they don't use the
firms that were included in their subcontracting plans, are
very specific in reporting back to what their reasons for that
were, and we have to make sure that we are very clear those are
valid reasons, that there was a significant change in the
contract or there is a significant change in the ability of
that small firm to do the work. If there isn't what will be
deemed a valid reason, then there should be some significant
penalties, because--
Senator Snowe. Do you think the lack of penalty, the lack
of enforcement authority, is a detriment to preventing this
kind of abuse, because we have seen a number of violators.
Obviously, it has been pervasive. It is not a minimal problem.
Mr. McCracken. It is not a small problem at all. When we
get a group of small companies together in a room that do
contracting and do subcontracting work, I would probably say
that the most common story I hear, is that we have been used by
these companies again and again. Many of them have just stopped
working with some of these larger companies. The large
companies will reach out to them. They are not campaigning,
necessarily. The large companies will come to them and say,
hey, we have this great opportunity. They will put in a great
deal of time and effort in working with the company and the
company gets the contract and they never hear from them again.
It happens again and again.
Senator Snowe. One of the provisions I had in last year's
reauthorization--and hopefully we can include it at some
point--is the disbarment of those who violate the requirements.
Do you think that would be helpful? Do you think that would be
a disincentive?
Mr. McCracken. It would certainly be a disincentive.
[Laughter.]
Mr. McCracken. I think we would tend to support that. We
would have to make clear that, you know, it is a pretty severe
penalty, so you have to make sure that there are clear
definitions in place. But if it can clearly be shown that
companies are doing what we described, then absolutely.
Senator Snowe. Yes. Given what has happened out there, it
seems to me that we need to do something. I mean, we hear about
it consistently before this Committee.
Ms. Rice, you spoke to that question, as well.
Ms. Rice. With regard to subcontracting?
Senator Snowe. Yes, well, and to the Maine company, the
machine tool company.
Ms. Rice. Yes. It did not become a subcontractor of that
prime for various reasons. But I do think there should be an
enforcement of goals. Prime contractors often do not attain
those goals. There should be some oversight by SBA and
enforcement of why the prime is not attaining those goals.
Senator Snowe. Ms. Silva, what do you think should be the
primary focus of our priorities, given your experience with
small business and the varying contracting procedures? Should
it be size regulations? What do you think we should focus on?
Ms. Silva. Well, I think that you have identified the major
obstacle to the programs that exist currently is enforceability
and accountability. Before we actually go further in creating
more programs and expanding programs, we need to make sure that
the programs that are in place-the goals that are in place--
that there are repercussions, whether you are talking about
disbarment or whether you are talking about any kind of
repercussions at the prime level for non-use of subcontractors,
or whether it is a 3 percent or 5 percent goal. But what
happens when those goals aren't met? So I think it is really a
question of accountability. As a priority, it is
accountability.
Senator Snowe. Would you all agree with that, in terms of
that?
OK. Thank you, Mr. Chairman. Thank you all.
Chairman Kerry. Thank you, Senator Snowe. Accountability,
accountability seems to be leaking out here. It is just a
question of leadership.
Senator Snowe. Yes.
Chairman Kerry. We are certainly going to, in this
Committee, do our best to try to achieve that accountability
and watch what is happening.
I do have some questions that I am going to submit in
writing, pursuant to the 2-week period for other colleagues,
also.
We really want to thank you for your contribution here. I
think it has been very helpful to understanding the challenge.
Just one very quick question I might ask. Mr. McCracken,
you suggested that the goal needs to be higher than the 23
percent. In fact, you suggested, I think, a third. So you are
looking at 33 percent. Which, in your judgment, is more
important, since we are not meeting the goal now of the 23
percent? Is it going up to the higher percentage or the
enforcement and achieve the 23?
Mr. McCracken. If we were forced to choose between one or
the other, I think enforcement of the current system, we think
would be probably----
Chairman Kerry. But you think, in fact, both ought to
happen.
Mr. McCracken. But we think both ought to happen. I don't
think that they ought to be mutually exclusive goals.
Chairman Kerry. Fair enough. Not necessarily. I am not sure
if that is the right level or not. That is something we have to
look at. But I appreciate the thought. Some of the questions I
want to pursue in writing, would be sort of what the
appropriate level is, how you achieve that, and so forth.
Is there anything anybody felt they really had to say that
they didn't have a chance to say, especially Ms. Rice? You
traveled that distance. I want to make sure you are fully on
record.
Senator Snowe. I do have a question, one more question.
Chairman Kerry. Go ahead.
Senator Snowe. We talked about a redefinition of HUBZone,
because in Penobscot County, for example, they are a
metropolitan area.
[Laughter.]
Chairman Kerry. Boy, that is a stretch.
Senator Snowe. Some of the areas are excluded as HUBZones,
so we wanted to redefine for HUBZone eligibility. Do you agree
with that?
Ms. Rice. Yes. In fact, that is what I was hinting at in my
testimony was that very fact. Penobscot County is a very large,
long county and very depressed areas are not defined as
HUBZones because they got counted with larger more prosperous
areas. Thus, any small business in that area can't be certified
as a HUBZone company, disqualifying them from participation in
the program. So looking at that, how you define HUBZone areas,
should be part of the Committee's oversight and--yes, I think
that is something that should be looked at.
Senator Snowe. I appreciate that. Mr. Newlan, do you agree?
Mr. Newlan. I completely agree, yes.
Senator Snowe. OK. Thank you very much. Thank you again for
being here today.
Chairman Kerry. Ms. Rice, thank you. How come you don't
talk like some of those folks out there?
[Laughter.]
Chairman Kerry. Anyway, we are glad to have you here. Thank
you all very much.
We stand adjourned. Thanks.
[Whereupon, at 4:12 p.m., the Committee was adjourned.]
APPENDIX MATERIAL SUBMITTED
[GRAPHIC] [TIFF OMITTED] T0408.044
[GRAPHIC] [TIFF OMITTED] T0408.045
Response by Ronald Newland to Written Questions fron Senator Bond
Question. I noted in your testimony your recommendation to
fund the SBA HUBZone Office at the $15 million level. Would you
please elaborate on that. Thank you.
Answer. I believe that the SBA Headquarters HUBZone Program
Office should be funded at the annual level of $15 million and
they should have their own line item to accomplish the
following tasks:
Train procurement personnel throughout the
Government on the HUBZone Program
Work closely with any Department that does not
achieve their 3 percent annual HUBZone Program goal
Work with the SBA PCRs to ensure HUBZone
contracting meets the 3 percent contracting level
Build the systems to facilitate enhancing HUBZone
contracting
Provide adequate staffing to manage the Program
Allow for increased HUBZone Program re-
examination
Provide the resources to SBA so they can
encourage state governments to utilize the SBA-certified firms
for state contracting
Add a business development component to assist
the less experienced HUBZone firms
Thank you for your interest in this matter.
----------
Response by Paul Hsu to Written Questions from Senator Kerry
Question 1. What plan does the SBA have to increase the
number of PCRs beyond the nine slated to be hired in the next 2
years?
Answer. At this juncture, we believe that a full complement
of sixty-six procurement center representatives (PCRs) will be
sufficient to support attainment of statutory small business
and socioeconomic procurement preference program goals. We
believe that this number will be adequate given the systemic
steps that we are now taking to increase contracting
opportunities for small businesses, women owned small
businesses, service disabled veteran owned small businesses and
HUBZone small businesses. These measures are described in our
response to Senator Snowe's first question, below.
Question 2. Will the SBA release its updated size standards
on a rolling basis as they are completed or all at once of the
end of the 24-month time period?
SBA plans to publish a series of proposed rules during a
24-month period. During that time, SBA will evaluate a specific
group of related industries and issue proposed rules to revise
size standards as appropriate. Upon completion of a group of
industries, an evaluation of another group of industries will
begin. This process will continue until all industry size
standards have been evaluated.
------
Response by Paul Hsu to Written Questions from Senator Lieberman
Question 1. Mr. Hsu: The SBA has asked 1000 prime
contractors to review voluntarily their status as small
business contractors with regards to size. Has the SBA set my
guidelines for penalties if such firms do not comply with this
request?
Answer. The letter requested voluntary action on the part
of prime contractors, beyond that required under the newly
implemented regulations, to accelerate improvement of the
contracting data base regarding characterization of awards as
having been made to small firms. In essence, the letter sought
cooperation and collaboration with large prime contractors.
Because the letter requested voluntary action on the part of
vendors, it contemplated no adverse action for failure to act.
Indeed, threat of adverse action would have undermined the
intent and objective of the letter.
Question 2. Mr. Hsu: In your testimony, you stated that
there may be some ``constitutional'' considerations for small
business programs based upon gender. Can you elaborate on these
concerns? Why would there be constitutional restrictions for a
program to assist women-owned businesses in securing Federal
contracts? Does the SBA support such an effort?
Answer. The Equal Protection Clause of the United States
Constitution and court cases interpreting that clause require a
heightened scrutiny analysis for gender-based set-aside
programs. For that reason, SBA and the Department of Justice
are working together to ensure compliance with this
constitutional standard.
Question 3. Mr. Hsu and Mr. Martoccia: The San Diego based
company, SAIC, is a multibillion dollar firm with more than
44,000 employees worldwide. But last year, SAIC received over
$512 million in Government based small business contracts with
the Defense Department. Lockheed Martin and General Dynamics
also boasted high numbers for small business contracts with the
Defense Department. I understand that the Small Business
Administration has different definitions for what constitutes a
``small business'' in its regulations, but I'm fairly certain
that none of these large companies fits the bill. How will the
SBA address this problem? Are current contracts being reviewed?
What will be the penalty for the failure of a firm to recertify
as a small business?
Answer. The SBA has, and is addressing this issue through a
number of measures. On November 15, 2006, the Agency published
regulations requiring periodic recertification of size on long-
term contracts to ensure greater accuracy in reporting, and to
encourage agencies to pursue new small business sources. On
July 5, 2007, a companion change to the Federal Acquisition
Regulation (FAR) was issued. The SBA's regulation, and the
change to the FAR, are effective June 30, 2007. The regulations
may apply to existing contracts and acquisitions and mergers of
companies that occurred before June 30, 2007, rather than
merely applying prospectively. This makes them much more
meaningful and effective.
Over the last eighteen months, SBA has worked very closely
with acquisition agencies and the Integrated Acquisition
Environment (IAE) to `perfect the electronic records' in
contracting data base, `scrub' data, and to make systemic
changes to reduce the possibility that vendors that are `other
than small' are miscoded as `small.'
During the summer of 2006, some $12 billion of fiscal year
2005 contract awards, characterized as having been made to
small businesses, was challenged. In September 2006, the
Administrators of the Office of Federal Procurement Policy
(OFPP) and SBA required agencies to review their 2005
procurement data, identify discrepancies, and correct the
records, as necessary. This process was completed in March of
2007.
In April 2007, SBA required that agencies review fiscal
year 2006 contracting data by June 30, 2007, and IAE deployed
an analytical `tool' and issued a battery of `exception'
reports to assist in data cleansing, On June 30, 2007, IAE
`locked down' the contracting data base, and on August 17,
2007, SBA issued the fiscal year 2006 Small Business Goaling
Report, and re-issued the fiscal year 2005 Small Business
Goaling Report.
On August 17, 2007, SBA issued the first Small Business
Procurement Scorecard. The Scorecard is modeled after the one
used to track the President's Management Agenda. It provides
for a `current' status rating, based on actual performance, and
a `progress' rating based on what agencies have done, and are
planning to do, to improve performance. Notably, the scorecard
includes an element addressing agencies efforts to ensure data
integrity.
We also note that in March 2007, OFPP began requiring that
the Chief Acquisition Officers of agencies establish
comprehensive, statistically-valid contracting data
verification and validation procedures, and that they certify
data accuracy and completeness to the General Services
Administration (GSA), the `owner' of FPDS-NG, each year. The
first statement of data verification and validation must be
submitted by December 15, 2007.
Collectively, these measures will yield quantum improvement
in contracting data integrity. It may take fifteen to eighteen
months for the fill benefits of these improvements to accrue.
But, we believe that fiscal year 2006 data is substantially
more reliable than that of prior years, and that the quality of
data will increase measurably each year, well into the future.
------
Response by Paul Hsu to Written Questions from Senator Snowe
Question 1. You referred to an `initiative increasing
opportunities for American small bussiness . . . different
things we want to do.' Beside the Electronic Procurement Center
Representative, what does this initiative entail?
Answer. The initiative referenced is intended to assist
small businesses in securing more Federal procurement
opportunities, by concentrating on areas in which the Federal
Government has failed to meet contracting goals--HUBZone,
Service Disabled Veteran Owned Small Business, and Women Owned
Small Business Programs. The initiative includes implementation
of an enhancement to the Central Contractor Registration (CCR)/
Dynamic Small Business Search engine called Quick Market
Search. This tool will allow procurement officials to conduct
market searches quickly and easily to find firms that can
perform Federal contracts.
Under this initiative, Procurement Center Representatives'
(PCRs') efforts will be geared more fully to assisting Federal
buying activities in meeting their goals. Up until now,
requirement coordination between SBA and procuring agencies was
essentially limited to review and appeal of unrestricted
requirements for possible small business set aside. Under this
initiative, requirement coordination will extend to review and
appeal of requirements for set-asides under HUBZone, Service
Disabled Veteran Owned Small Businesses, and Women Owned Small
Business Programs. Specifically, PCRs will review existing
unrestricted requirements, and new requirements, restricted and
unrestricted, for appropriateness of possible set-aside under
not only small business program, but also under above noted
programs. Further, SBA will exercise formal authority to appeal
decisions not to set-aside requirements under not only small
business program, but also under above noted programs.
Question 2. You [Dr. Hsu] stated, ``We will implement the
Women-Owned Small Business Contract Program by the end of this
fiscal year.'' Does that mean by October 1, 2007, certain
contracts will be set-aside for women-owned small business;
please explain this situation?
Answer. At this juncture, our draft final rule has been
sent to OMB and remains in interagency clearance. The
regulation will set forth an effective date which will define
when requirements in eligible industries may be set-aside for
competition under the program.
Question 3. What is SBA 's specific plan and timetable for
ensuring the governmentwide service disabled, women owned, and
HUBZune goals are met?
Answer. Please reference our answer to Senator Snowe's
question 1., above. At this time, we cannot reliably estimate
when the each of the socioeconomic preference goals will be met
governmentwide. However, it is our intention to work with
acquisition agencies, at national and buying office levels, to
develop and implement strategies that will yield increased
opportunities for small businesses under these programs that
will be reflected in higher levels of goal accomplishment.
Question 4. Prime and subcontracting data are equally
important. Data is presently unavailable for subcontracting
goaling by agency. Please provide these Government-wide
statistics for years FY 04, FY 05, and including your most
recent data.
Answer. Government-wide data for fiscal years 2004, 2005,
and 2006 has been posted to our website, and can be found at
the following address: http://www.sba/gov/aboutsba/sbaprograms/
goals/SBGR 2006 SCGR.html.
Question 5. What are the ramifications SBA proposes for
corporations that do not follow Administrator Preston's letter
on July 3, 2007, requesting hundreds of larger corporations to
identify and report by September 30, 2007, to the SBA, any
small business contracts that their corporation or subsidiaries
presently hold?
Answer. The letter requested voluntary action on the part
of prime contractors, beyond that required under the newly
implemented regulations, to accelerate improvement of the
contracting data base regarding characterization of awards as
having been made to small firms. In essence, the letter sought
cooperation and collaboration with large prime contractors.
Because the letter requested voluntary action on the part of
vendors, it contemplated no adverse action for failure to act.
Indeed, threat of adverse action would have undermined the
intent and objective of the letter.
Question 6. Following my recent GAO request for an overall
review of HUBZone underutilization, what are the effects of
decertification on HUBZone firms? Why are firms being
decertified? What can be done to increase HUBZone
certification?
Answer. HUBZone firms that no longer meet the basic
eligibility criteria and therefore need to be decertified must
remain out of the program for a full year from the date of
decertification.
The underlying cause for failure to recertify firms under
the HUBZone program, pursuant to program examinations, is
substantially non-responsiveness. For those firms expressing a
reason for not responding to a request for continuing
eligibility information, most often cited is limited
opportunity to compete for contracts set-aside under the
HUBZone program. This may suggest that firms that have
committed resources to secure HUBZone status, see limited
direct benefit to continuing in the program.
We believe that increasing set-aside of requirements under
the HUBZone program will increase interest in entering the
program, and remaining in it. As noted above, increasing set-
aside of requirements and award of contracts under the HUBZone,
Women Owned Small Business and Service Disabled Veteran Owned
Business programs are key objective of the Agency, and the
focus of its principle government contracting initiative for
the foreseeable future.
----------
Response by Anthony Martoccia to Written Questions from Senator Kerry
Question 1. What is the Department of Defense doing to
protect small business sub-contractors who are not getting paid
in a timely fashion by their prime contractors?
Answer. The Department's policy is to assist small business
concerns, particularly small disadvantaged business firms in
obtaining payments under their prime contracts, late payment,
interest penalties, or information on contractual payment
provisions. Pursuant with the Government Accountability
Office's recommendation, Wide Area Work Flow--Receipts and
Acceptance (WAWF-RA) will soon be updated to include a small
business indicator flag to alert Department of Defense (DoD)
payment officials when an invoice is from a small business and
to process the invoice expeditiously.
The DoD follows the policy in Part 32 of the Federal
Acquisition Regulation to ensure that prime contractors
establish procedures for the timely payment of amounts due
pursuant to the terms of their subcontract(s). DoD contracting
officers will encourage the prime contractor to make timely
payments to the subcontractor, or the contracting officer may
reduce or suspend progress payments until the contractor
complies. If prime contractors fail to pay their subcontractors
in a timely manner then, negative past performance information
is reported into the Federal Government Past Performance
Information Retrieval System (PPIRS.) PPIRS is a Web-enabled,
Government-wide application that provides timely and pertinent
past contractor performance information to the Federal
acquisition community to use in making source selection
decisions.
Question 2. Do you believe that the prompt payment act
should be extended to all subcontracting?
Answer. No. The Department has no ability to enforce the
provisions or resolve disagreements regarding payment amounts
or timing between prime contractors and their subcontractors.
Question 3. When DoD relies on the credentials of
subcontractors in the awarding of bids don't they have an
interest in ensuring that those subcontractors are used for the
work?
Answer. To the extent the Government evaluates the
capabilities of proposed subcontractors in making award
decisions with respect to prime contracts, the Government would
expect any replacement subcontractor to have equivalent
capabilities.
Question 4. In your testimony you stated that the DoD has
suffered from a lack of funding for contracting officers. What
plan does the DoD have to increase its number of contracting
officers?
Answer. The Director of Defense Procurement and Acquisition
Policy (DPAP), serving as the Functional Advisor for the
Contracting, Purchasing and Industrial/Contract Property
Management Career Field (hereinafter referred to as the
contracting community) is working hand-in-hand with the
Department's Senior Acquisition Executives to develop a human
capital plan for this community--drawing upon the strengths of
the contracting community to ensure the Department has the
right people, with the right skills mix.
DPAP's human capital strategy will ensure that the
Department's contracting community continues to effectively
deliver equipment and services that meet the needs of the
warfighters. DPAP is using competency-based management
techniques to define current and future competency needs to
support the Department's contracting community. By using
competency-based management, DPAP is able to assess
competencies resident in the contracting community, and
identify gaps for current and future requirements. The
Department of Defense completed development of a comprehensive
competency model for the contracting career field in March
2007. Beginning in the second quarter of calendar year 2007 and
continuing through 2008, the Defense Acquisition University and
DPAP are working with the contracting community to assess
workload demands for these competencies and the degree to which
members of the workforce possess these competencies. The
results of these competency-based capability assessments will
reveal where gaps exist in personnel and/or skill levels so
that the Department can adjust efforts in hiring, allocation of
resources and training to address these gaps.
Question 5. At present, what percentage of contracts are
reviewed for bundling at the department?
Answer. Defense Federal Acquisition Regulation Supplement
219.201 requires that all acquisitions over $10,000, except
those under $100,000 that are totally set-aside for small
business concerns, be reviewed by a small business specialist.
Bundling is one element of this review.
Question 6. Once a bundled contract is identified, what
steps does the department take to break out contracting
opportunities for small businesses?
Answer. There are a number of strategies a DoD acquisition
team may employ to avoid or lessen the adverse impact of
contract bundling on small businesses, such as:
Conduct industry forums or pre-solicitation
conferences to determine small business interest and/or
suggestions for potential strategies that will allow small
businesses to participate as prime contractors;
Remove obstacles to small business participation
by configuring solicitations to be small business friendly. For
example, if practicable, divide requirements into smaller
geographic requirements or quantities, and/or adjust delivery
schedules to increase the likelihood of small business
participation;
Fncourage teaming arrangements or joint ventures
involving two or more small businesses;
Take into account circumstances that may
negatively affect the small business community. For example,
the preservation of the small business base may be a
significant consideration for avoiding bundling.
Even if bundling can be justified by its anticipated
benefits, the use of acquisition strategies that increase small
business subcontracting opportunities are encouraged throughout
the entire acquisition process--from the pre-award stage to
post-award. To maximize small business participation, the
acquisition team may develop a strategy that results not only
in the setting of goals, but also ensures the achievement of
these goals. In the pre-award stage, the acquisition team
emphasizes the prime contractors' small business subcontracting
performance during the source selection, including the
establishment of aggressive subcontracting goals and
incentives. Acquisition strategy teams are encouraged to
implement a process (established during the pre-award stage) to
ensure the prime contractor's achievement of subcontracting
goals and enforcement of the requirements of the resultant
subcontracting plan.
------
Response by Anthony Martoccia to Written Questions from Senator
Lieberman
Question 1. In your testimony, you indicated that a
comprehensive review of small business size standards is
needed. To meet the Defense Department's small business
contracting goals, how would you change current SBA size
standard guidelines by industry? Will the Defense Department
consult with the SBA as the SBA issues new guidelines on size
standards?
Answer. The Department of Defense (DoD) is currently
working with the Small Business Administration (SBA) to
determine which North American Industry Classification System
codes small business size standards need adjusting and the
magnitude of any necessary adjustment.
In March of 2007 representatives from the DoD Office of
Small Business Programs (OSBP) met with staff members from the
SBA and the Office of Federal Procurement Policy to discuss
this matter at length. Since then the DoD OSBP has conducted a
preliminary analysis to assess changes in the percentage of
contracts awarded by the Department to small businesses for the
most highly demanded commodities over the last 5 years. We
intend to forward these results lo the SBA.
Question 2. What is the Defense Department's goal for the
percentage of contracts awarded to women-owned small
businesses? What is the current percentage of Defense
Department contracts awarded to women-owned small businesses?
Do you have a plan to increase the current percentage? What is
that plan? Is it a priority within the department?
Answer. The Department's goal for participation by women-
owned small business (WOSB) is 5 percent of all eligible prime
contract dollars and 5 percent of the total dollars
subcontracted. In FY 2006 the Department of Defense (DoD)
achieved 2.9 percent for WOSB prime contracting; the
Department's subcontracting achievement for WOSBs was 5.5
percent.
Within DoD the WOSB is a special emphasis program;
therefore improving our performance in this small business
category is a priority. Our plan includes a combination of
training (including Web casts) and outreach to emphasize the
importance to our acquisition professionals of the need to
maximize contracting opportunities for WOSBs. We anticipate
that with the publication of the Small Business
Administration's final rule regarding set-asides for WOSB (as
authorized by section 8(m) of the Small Business Act, Public
Law 85-536, as amended), we will have an even greater ability
to increase our contract awards to companies owned by women.
The Military Departments and Defense Agencies use outreach
and matchmaking events to ensure that WOSB's are kept informed
regarding contracting and subcontracting opportunities within
the Department. In addition, the Procurement Technical
Assistance Centers, which have offices and representatives in
every state, participate in numerous outreach events and
provide training and one-on-one counseling.
Question 3. The San Diego based company, SAIC, is a multi-
billion dollar firm with more than 44,000 employees worldwide.
But last year, SAIC received over $512 million in government
based small business contracts with the Defense Department.
Lockheed Martin and General Dynamics also boasted high numbers
for small business contracts with the Defense Department. I
understand that the Small Business Administration has different
definitions for what constitutes a ``small business'' in its
regulations, but I'm fairly certain that none of these large
companies fits the bill. How will the SBA address this problem?
Are current contracts being reviewed? What will be the penalty
for the failure of a firm to recertify as a small business?
Answer. There have been instances where a large business
has mistakenly been identified as small in the Federal
Procurement Data System--Next Generation (FPD-SG). DoD has
acknowledged there were miscoding errors in the FPDS-NG and has
dedicated a considerable amount of time and personnel resources
to correct these data entry errors.
The Small Business Administration formally requested all
agencies to revalidate and correct certain historic records
with respect to business size. The Defense Manpower Data Center
is continually running reports in the FPDS-NG to flag activity
that may appear to have been reported incorrectly for small
business size determination. As of FY07, all DoD contract
action reports are submitted to the FPDS-NG. Most of the DoD
contract action reports in the FPDS-NG for FY06 and prior years
are a result of migrated data from DoD's historical DD350
system. Due to the differences in the two systems, data
migration was extremely complex requiring revalidation and
correction of individual records. DoD is working with General
Services Administration (GSA) to manage data corrections.
The Defense Department has a number of initiatives in place
to address data accuracy in reporting. In May of this year DoD
sent a letter to the Administrator, Office of Management and
Budget. to provide the Department's plan for improving the data
in the FPDS-NG. In addition to the plan, DoD has established a
Data Management Team to oversee the Department's data
improvement program. DoD's plan also includes dedicated
resources to the FPDS-NG training with an emphasis on improving
data quality.
Congress has also expressed concern that a small business
firm that received a contract award may, over the life of a
contract, outgrow its small business size status yet still be
counted by the awarding agency as a small business. This is
most likely to occur in long-term contracts or when a
contractor is merged or is acquired by another company. To
account for these occurrences and ensure that the source data
used to populate the FPDS-NG is as accurate as possible, DoD
worked with the Small Business Administration (SBA) in support
of its efforts to develop a new rule for small business size
``rerepresentation.''
SBA published a final rule in the Federal Register on
November 15, 2006. This rule was implemented in the Federal
Acquisition Regulations (FAR) on July 5, 2007. The FAR revision
became effective on June 30, 2007 and was issued as an interim
rule to provide an opportunity for public comment. The final
rule may vary from the interim rule to reflect changes
resulting from the comments received.
Under the interim rule, a contractor that represented
itself as a small business before contract award must now
``rerepresent'' its size status within 30 days in the event of
a novation agreement or merger or acquisition that does not
require a novation and for a long-term contract (i.e., a
contract with an anticipated performance period longer than 5
years). This must be completed within 60-120 days prior to the
end of the fifth year of the contract and prior to the exercise
of any remaining contract option. Furthermore, if the
contractor ``rerepresents'' that it is no longer a small
business, then from that point forward the agency may no longer
include the value of options exercised or the orders issued
against the contract in its small business prime contracting
goal achievements..
DoD is working with GSA (the administrator of the FPDS-NG
system) to make the necessary modifications to the FPDS-NG to
accommodate the ``rerepresentation'' rule requirements.
Current contracts are being reviewed, in accordance with
the applicable acquisition regulations and policies. The new
FAR clause was added to solicitations issued and contracts
awarded on or after June 30, 2007.
If the conditions of the FAR ``rerepresentation'' rule are
met and a contracting officer receives a size protest or if the
contracting officer has reason to believe the contractor is no
longer small, the size protest would be submitted to the SBA in
accordance with FAR 19.302. A change in size status does not
change the terms and conditions of the contract and does not
require termination of the contract.
Question 4. I have received some less than flattering
reports about the Defense Department's Mentor-Protege program.
Some large contractors (mentors) are apparently requiring small
business subcontractors to sign up for the program to generate
reimbursable expenses for the mentor company. Can you explain
how this program works? Specifically, how much money can a
large contractor receive in reimbursed expenses when the firm
takes on a protege?
Answer. All Department of Defense (DoD) Mentor-Protege
agreements must undergo an extensive review and approval
process. This review includes an in depth assessment of the
developmental assistance that will be provided, the period of
performance of the agreement, and the funding required.
Section 831 of Public Law 101-510, as amended, and the
Defense Federal Acquisition Regulation Supplement mandate
reports and reviews on the performance of both the mentor and
protege. The Defense Contract Management Agency (DCMA) is
required to perform annual performance reviews on every active
Mentor-Protege agreement. Their review includes evaluation of
the developmental assistance provided by the mentor to the
protege (which includes audit by the Defense Contract Audit
Agency to ensure that the expenditures are allowable, allocable
and reasonable), and separate interviews with both the mentor
and the protege to establish the health and welfare of the
agreement.
In addition to the report mentioned above, mentors and
proteges are mandated as part of their participation to provide
the DoD OSBP a semi-annual report (recently updated to a
quarterly requirement) on their return on investment,
employment, performance metrics and milestones, contract
awards, and the status of funding provided. Misuse of funding
is not tolerated.
The total amount reimbursed to a mentor firm for costs of
assistance furnished in a fiscal year to a protege firm may not
exceed $1 million, except when the Secretary of Defense
determines in writing that unusual circumstances justify a
reimbursement of a higher amount.
------
Response by Anthony Martoccia to Written Questions from Senator Snowe
Question 1. You stated at the hearing that ``the Department
and Secretary Gates and my boss are totally committed . . .''
to make opportunities available to service-disabled veterans.
Please provide specifies of the commitments and the timeframe
when DoD will meet the 3 percent goal for service-disabled
veterans.
Answer. The Department has made achievement of the service-
disabled veteran-owned small business (SDVOSB) goal one of our
highest priorities. The following list provides a chronology of
the actions taken by the Department during Fiscal Year 2007, to
promote contracting with SDVOSB firms:
April 12, 2007--Mr. Kenneth Krieg, the Under
Secretary for Acquisition, Technology & Logistics, issues
memorandum to Department of Defense (DoD) leadership, making
interagency commitment to use the General Services
Administration (GSA) Veterans Government-wide Acquisition
Contract and pursuing SDVOSB 3 percent goal ``with vigor''.
May 18, 2007--Mr. Shay Assad, Director, Defense
Procurement and Policy, issues memorandum to senior acquisition
officials encouraging the use of set-aside and sole source
tools to increase procurement awards to SDVOSBs.
May 24, 2007--Mr. Tony Martoccia, Director, DoD
Office of Small Business Programs (OSBP), issues memorandum to
senior acquisition officials encouraging acquisition personnel
to increase awards to SDVOSBs.
June 6, 2007--Beginning of a series of interviews
with the Director, OSBP by various news organizations including
ABC News, National Public Radio, Federal Computer Week, the
Kansas City Star, Federal News, the Federal Times, USA Radio,
and WTOP-FM, regarding DoD's initiatives to increase contract
awards to SDVOSBs. (These interviews occurred during June 6,
2007 through August 27, 2007).
June 7, 2007--Letter from Secretary of Defense
Robert Gates to Senator John Kerry, establishing a high
priority within the Department for implementing the SDVOSB
program and enumerating initiatives to reach the statutory
goal.
June 23. 2007--The third year of the DoD
Strategic Plan for SDVOSBs is amended to emphasis the use of
data bases for increasing contracts and subcontracts to
SDVOSBs.
June 26, 2007--The Honorable Dr. James Finley,
the Deputy Under Secretary of Defense (DUSD) for Acquisition
and Technology (A&T), provides keynote address at the third
Annual Veterans Business Conference on third Year of DoD's
Strategic Plan before an audience of 1,200. Later that day
during the same event the Director, OSBP, participated in a
Federal acquisition panel to discuss various DoD initiatives
for SDVOSBs.
August 7, 2007--The Director, OSBP met with
officials from Walter Reed Hospital, the Director of Small
Business Programs at the Army Medical Command, and the Deputy
Director of TRICARE, to develop a strategy and an
implementation plan to increase awards to SDVOSBs at military
medical facilities.
August 7, 2007--The DUSD A&T met with the
Director, OSBP and Small Business Director for United States
Transportation Command and representatives from various Veteran
Service Organizations (VSOs) to develop transportation
initiative for SDVOSBs.
August 9, 2007--The Director, OSBP, is a guest speaker at
the third annual GSA Service Disabled Veteran-owned Small
Business Conference, in New Orleans. The focus of his
presentation was the DoD Strategic Plan and other SDVOSB
initiatives with the Department.
August 10, 2007--The Director, OSBP, is among
several participants in GSA's SDVOSB Roundtable in New Orleans.
The purpose of the round table was to discuss opportunities for
SDVOSBs in the Gulf Coast area. Other participants were
representatives of the Army Corps of Engineers (Hurricane
Prevention Office), the GSA, VSOs, prime contractors and local
chambers of commerce.
August 20, 2007--The DUSD, A&T, and the Director,
OSBP, present the inaugural Golden Talon awards for fiscal year
2006. The DUSD, A&T, closed the ceremony by calling for Golden
Talon nominees for next year. (The Golden Talon Award is
presented to DoD acquisition professionals in recognition of
their outstanding contributions to the Department's SDVOSB
program.)
August 21, 2007--The DUSD, A&T, met with senior
DoD leadership and Directors of Small Business Programs for the
Military Departments to impress upon these leaders the
importance of achieving the 3 percent goal and to develop
strategies and initiatives for increasing awards to SDVOSBs.
August 27, 2007--The Director, OSBP, is a guest
speaker at the American Legion National Convention. His speech
focused on DoD's Strategic Plan and initiatives.
September 13, 2007--The Director, OSBP, met with
officials from DoD Installations and Environment (the DoD
organization responsible for executing the Base Re-alignment
and Closures (BRAC)), Navy and Air Force senior procurement
officials to develop initiatives for SDVOSBs for the BRAC
schedule.
UPCOMING EVENT: November 5, 2007--The DoD OSBP
will host the inaugural SDVOSB Achievement Awards at the
beginning of Veterans Day Week, honoring outstanding
achievements by DoD employees in the SDVOSB program and
outstanding DoD SDVOSBs contractors. The ceremony will take
place at the Pentagon.
As evidenced by the above policy statements and
initiatives, senior Departmental leadership and the entire DoD
acquisition workforce are working aggressively to achieve the 3
percent goal. However at present the Department cannot provide
a timeframe for achieving the SDVOSP goal.
Question 2. You disagreed with the figure that 87 percent
of bundled contracts at DoD are not reviewed? What is the
correct figure? Please outline specifically what DoD is doing
to reduce bundling of requirements and give specific examples.
Answer. The 87 percent pertained to the finding made by the
Small Business Administration (SBA) Inspector General regarding
the fact that the SBA did not have enough Procurement Center
Representatives to review bundled contracts and that according
to SBA IG's survey, the SBA had not reviewed 87 percent of
bundled contracts. This was not a statement concerning contract
reviews within the Department of Defense.
Defense Federal Acquisition Regulation Supplement 219.201
requires that all acquisitions over $10,000, except those under
$100,000 that are totally set-aside for small business
concerns, be reviewed by a small business specialist. Bundling
is one element of this review. All of those contracts that fit
this category under DoD purview were reviewed.
The Department has focused its efforts in four areas: (1)
data accuracy; (2) increasing awareness training for the
acquisition workforce on the concepts of consolidation and
bundling; (3) developing more tools to assist the acquisition
workforce, as well as small business; and (4) taking small
business participation into account in strategic sourcing
decisions. I will discuss our progress as we are attempting to
address each of these areas.
Data accuracy: DoD has dedicated a significant number of
resources to ensure the successful transition into the Federal
Procurement Data System--Next Generation (FPDS-NG).
Additionally, the DoD Office of Small Business Programs is
currently developing a ``Data Monitoring and Analysis Plan.''
The intent of the Plan is to ensure small business data is
reviewed for anomalies and to perform analysis of the data. As
a result of this latter initiative, OSBP recently discovered
2,066 actions in fiscal year 2007 that were coded as bundled by
one DoD component. Further investigation revealed that all
2,066 of these actions had been miscoded as a result of issues
related to migration of data into the FPDS-NG.
Training: The Department requires analyses of alternatives,
including methods for mitigating the impact on small business,
even if the bundling or consolidation can be justified by its
anticipated benefits. During the past year. DoD has provided
training to acquisition professionals in our efforts to
facilitate the successful use of small business joint ventures,
partnerships, and teaming. In addition. the DoD Office of Small
Business Programs is currently developing an online Guidebook
and a formal workshop that will identify Federal and commercial
best practices and real world examples.
Tools: The Department is working to provide tools that will
assist the acquisition workforce, further ensuring that
requirements are not improperly consolidated or bundled. One
such tool is the Benefit Analysis Guidebook that the DoD Office
of Small Business Programs (OSBP) developed and posted online
in 2002 to assist DoD acquisition personnel with the
justification and analysis requirements necessary prior to
bundling or consolidating. We are in the final stages of
revising this Guidebook and will post it online soon.
Additionally, OSBP is developing a Teaming/Joint Venture
Guidebook as well as training to assist small businesses in
pursuing larger procurements. This Guidebook and training will
be available by the end of the year. Finally, OSBP collaborated
with the Defense Acquisition University this past year to
establish a small business community of practice (COP) Website.
The COP provides invaluable small business information and
resources to the DoD acquisition community.
Small business in strategic sourcing considerations: In May
of 2005 the Office of Management and Budget directed agency
heads to identify no fewer than three commodities that could be
purchased more effectively and efficiently through the
application of strategic sourcing. The Department is working to
ensure that strategic sourcing does not result in bundling;
however, it can many times result in consolidation. Each
strategic sourcing action includes a small business advocate
and seeks to increase, rather than decrease, achievement of
socioeconomic goals.
Question 3. How specifically does DoD monitor and enforce
subcontracting plans?
Answer. It is the post-award responsibility of Department
of Defense contracting officers and small business specialists
to ensure prime contractors' make a good faith effort to comply
with their subcontracting plan. Military Departments and Other
Defense Agencies may delegate contract administration,
including monitoring and oversight of the prime contractor's
entire small business program to the Defense Contract
Management Agency (DCMA). DCMA conducts small business program
compliance reviews to assess the effectiveness of the prime
contractor's overall small business subcontracting program, and
when delegated, will monitor individual subcontracting plans.
The monitoring of an individual subcontracting plan is
usually performed by the cognizant DCMA Administrative
Contracting Officer (ACO). The ACO evaluates and monitors
subcontracting plans in accordance with Federal Acquisition
Regulation (FAR) 19.706. If warranted, section 8(d) of the
Small Business Act as implemented in FAR 19.705-7 provides for
liquidated damages to be paid by a prime contractor when the
prime contractor fails to make a good faith effort to comply
with the requirements of the small business subcontracting
plan.
[GRAPHIC] [TIFF OMITTED] T0408.053
[GRAPHIC] [TIFF OMITTED] T0408.050
[GRAPHIC] [TIFF OMITTED] T0408.051
[GRAPHIC] [TIFF OMITTED] T0408.052
COMMENTS FOR THE RECORD
[GRAPHIC] [TIFF OMITTED] T0408.048
[GRAPHIC] [TIFF OMITTED] T0408.049
[GRAPHIC] [TIFF OMITTED] T0408.046
[GRAPHIC] [TIFF OMITTED] T0408.047