SMALL BUSINESS OUTREACH CONFERENCE

REMARKS BY JACK MARTIN

CHIEF FINANCIAL OFFICER

WASHINGTON, DC

FEBRUARY 23, 2004

Good morning. Thank you for that kind introduction, Glenn.

First of all, let me say I am deeply honored to have been chosen by
President Bush to be the Chief Financial Officer of the U.S. Department
of Education. I am equally honored to be a part of the Senior Leadership
team at the Department of Education that is working with Secretary
Paige, you and your colleagues around the country to implement HR 1, the
No Child Left Behind Act. I believe this is the most important piece of
education reform legislation in our country in the last several decades.

Most Americans do not know that the Department of Education, which has
the smallest number of employees of any Cabinet agency, has the third
largest discretionary budget, behind only the Departments of Defense and
Health and Human Services (our discretionary budget for FY 04 is \$55.1
billion and \$57 billion requested for FY 05). We are also one of the
largest banks in the world, with a student loan portfolio of over \$270
billion dollars, issued to 22 million borrowers.

The Department\'s core business functions include:

-   Leadership in education;

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-   Grants to support state and local reforms to strengthen teaching and
    learning and prepare students for citizenship, employment in a
    changing economy, and lifelong learning;

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-   Student loans and grants to help pay postsecondary education costs;

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-   Grants for literacy, employment and self-sufficiency training for
    adults;

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-   Monitoring and enforcement of civil rights for recipients of federal
    education funds; and

-   Support for statistics, research, development, evaluation and
    dissemination of information to improve educational quality and
    effectiveness.

To support these activities, the Department administers a budget that
consists of \$1.2 billion in administrative expenses. The Department
manages its workload by automating and streamlining functions,
implementing management improvements and utilizing contractor support to
augment the workforce. The Department uses 1.6 contractor staff for
every employee. A growing number of these contractors will come from
small and small disadvantaged businesses.

You ladies and gentlemen have joined us at this conference from
communities around the country, and I know that each of you plays some
level of leadership in the parts of the United States from which you
have journeyed.

I therefore want to ask you to support the *No Child Left Behind* Act
because it's good for our kids and it's good for your businesses.

In any discussion of public education in the U.S., there are several
issues on which I believe most people will agree.

First, African Americans, Hispanics and other under privileged
youngsters score significantly lower on math and reading assessment
tools than do their peers in the general population. Now this is not to
say that some of these youngsters don't score at the very top of their
peer group, but in general they score lower.

Second, if we look at the performance of our 12^th^ graders on math and
science assessment tools, our kids - [all of our kids not just
minorities]{.underline} - score lower on math and science assessment
tools than do their peers in the other western industrialized countries.
Indeed, they score lower than their peers in some non-industrialized
countries.

If we look at the performance of our high school graduates, far too many
of these kids are not: 1) prepared for meaningful employment, 2) are not
prepared to enter a college academic program, 3) may be reading at an
8^th^ grade level and 4) are not even prepared to enter our military.

And finally, if we look at the cost of public education, adjusted for
inflation, we have a cost curve that is increasing at 35 or 40 percent
and a performance curve based on NAEP scores that is virtually flat.

National report cards show that, despite the fact we've spent trillions
of state, federal and local tax dollars since 1965, we still have:

-   2 out of 3 fourth graders who can't read proficiently (67%)

-   7 out of 10 inner-city and rural fourth graders who can't read at
    the most basic level (70%)

We will close the achievement gap by implementing HR1 with its four
pillars of accountability, parental options, flexibility and
research-based instruction.

This law will help provide the well-trained work force that you and the
country need to maintain our world leadership.

As you may know, the number and size of bundled contracts within the
executive branch had reached record levels during the last
administration. Although contract bundling can serve a useful purpose,
the effect of this increase in contract bundling over the past ten years
cannot be underestimated. Not only are substantially fewer small
businesses receiving federal contracts, but the federal government is
suffering from a reduced supplier base. American small businesses bring
innovation, creativity, competition and lower costs to the federal
table. When these businesses are excluded from federal opportunities
through contract bundling, agencies such as the Department of Education,
small businesses, and the taxpayer lose.

On March 19, 2002, the President unveiled a Small Business Agenda that
proposed several substantive steps toward creating a dynamic environment
where small businesses and entrepreneurs can flourish. The plan included
new tax incentives, health care options, and a reduction in regulatory
barriers. And for those small businesses seeking to do business with the
federal government, the President announced several proposals to improve
the access of small businesses to federal contracting opportunities.
Specifically, the President called upon the Office of Management and
Budget (OMB) to prepare a strategy for unbundling contracts.

In late March 2002, the Office of Federal Procurement Policy (OFPP),
within OMB, created an interagency working group to develop strategies
for unbundling contracts. This group met on many occasions during the
summer and early fall of 2002.

OMB and the interagency working group sought significant public comment.
On May 6, 2002, OMB issued a notice in the [Federal
Register]{.underline} requesting public comments and received 27 public
comments on contract bundling and issues related to the access of small
businesses to federal contracting opportunities. On June 14, 2002, OMB
held a public meeting where interested parties were given an opportunity
to express their views. Fourteen individuals made presentations at that
public meeting.

Comments received from the public, both in writing and at the public
meeting, were considered in developing the following Executive Branch
actions related to contract bundling:

1.  Ensure accountability of senior agency management for improving
    contracting opportunities for small business;

2.  Ensure timely and accurate reporting of contract bundling
    information through the President's Management Council;

3.  Require contract bundling reviews for task and delivery orders under
    multiple award contract vehicles;

4.  Require agency review of proposed acquisitions above specified
    thresholds for unnecessary and unjustified contract bundling;

5.  Require identification of alternative acquisition strategies for the
    proposed bundling of contracts above specified thresholds and
    written justification when alternatives involving less bundling are
    not used;

6.  Mitigate the effects of contract bundling by strengthening
    compliance with subcontracting plans;

7.  Mitigate the effects of contract bundling by facilitating the
    development of small business teams and joint ventures;

8.  Identify best practices for maximizing small business opportunities;

9.  Dedicate agency Offices of Small and Disadvantaged Business
    Utilization (OSDBUs) to the President's Small Business Agenda.

As part of OMB's strategy, each federal agency is required to provide
implementation strategies for unbundling contracts and report quarterly
to OMB through the President's Management Council on its progress.

About one year ago, consistent with the action plan OMB required each
Executive Branch agency to implement, the Department's Chief Operating
Officer at the time, Deputy Secretary Bill Hansen, appointed me to lead
the Department's unbundling initiative. Secretary Paige, Bill Hansen
(during his tenure), and I wanted very aggressive implementation of this
new endeavor.

I believe I am somewhat uniquely qualified to lead this initiative
because for most of the past 28 years, I have been an entrepreneur and
small businessman, and I am a graduate of the SBA 8(a) program, and
spent many years as a consultant under SBA's 7(J) program. I also once
had a contract to investigate "sham" minority businesses, so I can fully
appreciate the obstacles you face.

This conference is one of our many actions to comply with the
President's directive.