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93–733 2015

CONTRACTING AND THE INDUSTRIAL BASE III: 

REVERSE AUCTIONS, VERIFICATION AND THE 

SBA’S ROLE IN RULEMAKING 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONTRACTING AND 

WORKFORCE 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MARCH 19, 2015 

Small Business Committee Document Number 114–007 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

TOM RICE, South Carolina 

CHRIS GIBSON, New York 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

CARLOS CURBELO, Florida 

MIKE BOST, Illinois 

CRESENT HARDY, Nevada 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

YVETTE CLARKE, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRENDA LAWRENCE, Michigan 

ALMA ADAMS, North Carolina 

SETH MOULTON, Massachusetts 

KEVIN FITZPATRICK, Staff Director 

STEPHEN DENNIS, Deputy Staff Director for Policy 

JAN OLIVER, Deputy Staff Director for Operation 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Richard Hanna ................................................................................................ 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESSES 

Mr. Daniel I. Gordon, Senior Advisor, Government Procurement Law Program, The George Washington University Law School, Washington, DC ...... 3 

Ms. Amber Peebles, President, Athena Construction Group, Inc., Dumfries, 

VA, testifying on behalf of Women Impacting Public Policy ............................ 5 

Mr. Davy G. Leghorn, Assistant Director, National Veterans Employment 

& Education Division, The American Legion, Washington, DC ....................... 7 

Ms. Margot Dorfman, CEO, United States Women’s Chamber of Commerce, 

Washington, DC ................................................................................................... 9 

APPENDIX 

Prepared Statements: 

Mr. Daniel I. Gordon, Senior Advisor, Government Procurement Law 

Program, The George Washington University Law School, Washington, 

DC .................................................................................................................. 19 

Ms. Amber Peebles, President, Athena Construction Group, Inc., Dumfries, VA, testifying on behalf of Women Impacting Public Policy ........... 25 

Mr. Davy G. Leghorn, Assistant Director, National Veterans Employment 

& Education Division, The American Legion, Washington, DC ................ 30 

Ms. Margot Dorfman, CEO, United States Women’s Chamber of Commerce, Washington, DC ................................................................................ 39 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

None. 

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(1) 

CONTRACTING AND THE INDUSTRIAL BASE 

III: REVERSE AUCTIONS, VERIFICATION 

AND THE SBA’S ROLE IN RULEMAKING 

THURSDAY, MARCH 19, 2015 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON CONTRACTING AND WORKFORCE, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 

2360, Rayburn House Office Building. Hon. Richard Hanna [chairman of the subcommittee] presiding. 

Present: Representatives Hanna, Hardy, Vela ́zquez, Chu, Clark, 

Meng, and Lawrence. 

Chairman HANNA. I will call this hearing to order. Welcome to 

our third hearing looking at businesses and our industrial base. 

Today we are going to focus on three important issues. First, we 

will hear about ongoing issues with veterans and Service disabled 

veterans’ contracting programs. Second, we will discuss reverse 

auctions. Last Congress, I introduced legislation addressing reverse 

auctions for construction service contractors. 

However, today we are going to hear about the systemic issues 

in reverse auctions. Finally, we will hear about challenges to timely 

implementation of small business contracting and legislation. 

Each of these issues is important to inclusion of small business 

in our industrial base. With a process for verifying as a Service disabled veteran owned small business being overly burdensome, legitimate veterans choose to be absent themselves from the federal 

marketplace. 

For example, having two different definitions of Service disabled 

veterans’ owned small businesses means we are forcing our veterans to resolve the tensions that lawmakers and regulators cannot 

solve or will not solve. 

Likewise, when reverse auctions are used properly, they can save 

taxpayers dollars. Unfortunately, some agencies have used reverse 

auctions in a manner that evades vigorous competition in contractor professions. 

Finally, the SBA and its Federal Acquisition Council, when they 

fail to act, it means contracting officers and small businesses have 

two conflicting sets of rules. Consequently, small businesses cannot 

plan and they often cannot compete for work. 

While the rulemaking process takes time, there is simply no excuse for the fact that nearly five years after Congress passed the 

Small Business Jobs Act, small business is still waiting for regulaSBREP-219 with DISTILLER

2 

tion. Given the bureaucratic delay, it is no surprise that many 

small businesses opt out. 

I expect as a result of the testimony we receive today, the Subcommittee will accurately pursue ways to increase opportunities for 

small businesses to compete for contracts. 

I look forward to hearing from each of you, and I want to welcome our witnesses. I now yield to Ranking Member Vela ́zquez, for 

her opening statement. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman, for holding this 

hearing. Today’s discussion continues our ongoing work to help 

more small businesses compete in the Federal marketplace. 

Earlier this week, the Subcommittee examined small companies’ 

participation in Federal procurement. Today’s hearing examines 

another set of barriers that stop small and disadvantaged companies from winning their fair share of contracts. 

One practice that this Committee had previously examined is socalled ‘‘reverse auctions,’’ which are meant to pit potential contractors against one another to lower prices. Unfortunately, reverse 

auctions have in many cases failed to introduce or enhance competition. 

The Government Accountability Office, for instance, found that in 

a single year, Federal agencies conducted 3,617 of reverse auctions 

where only one vendor participated and submitted bids. In this 

case, the Federal Government is spending money on a process that 

does not lower prices or increase the quality of goods and services. 

Beyond reverse options, there are other areas that need close 

scrutiny by the Committee if we are to grow small business’ role 

in the Federal marketplace. Congress has rightly created a program of targeting projects to veteran owned small businesses, especially those disabled during their time of service. In addition to 

SBA’s program, the VA launched an initiative. However, there are 

serious concerns about how VA verifies small businesses operated 

by eligible veterans. It is important this program functions effectively. 

With bad actors gaming the system, legitimate veteran owned 

businesses lose out on contracting opportunities. 

More generally, the Committee must examine how well SBA’s 

rulemaking process functions. Many of the rules the agency has 

formulated will boost small business’ ability to compete for Federal 

contracts. Yet, previous acts of Congress and Executive Orders 

have largely hamstringed the SBA’s rulemaking process. 

Mr. Chairman, this Committee has a long track record of working in a bipartisan manner, particularly when it comes to procurement issues. It is my hope we can continue that tradition to further 

small business’ role as Federal contractors. 

I thank the witnesses for being here today, and I yield back the 

balance of my time. 

Chairman HANNA. Thank you. Our first witness is Daniel Gordon, Senior Advisor to the Government Procurement Law Program 

at George Washington University Law School. 

Mr. Gordon previously served as President Obama’s Administrator for Federal Procurement Policy. Prior to serving at the Executive Branch, he worked 17 years in the Office of General Counsel 

for the Government Accountability Office. 

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Sitting next to him is Amber Peebles, President of Athena Construction Group, Inc. Athena Construction Group is a Service disabled veteran owned HUBZone and woman owned small business 

located in Dumfries, Virginia. She is a Marine Corps Service disabled veteran, and we thank you for your service. She testifies 

today on behalf of Women Impacting Public Policy. 

Our third witness is Davy G. Leghorn, Assistant Director of the 

National Veterans Employment & Education Division, The American Legion. Mr. Leghorn served as a mortar infantryman in the 

Army, and then as a civil affairs specialist. Thank you for your 

service, sir. 

I now yield to Ranking Member Vela ́zquez to introduce our 

fourth witness. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. It is my pleasure 

to introduce Ms. Margot Dorfman. Ms. Dorfman is the Founder and 

CEO of the United States Women’s Chamber of Commerce. The 

Women’s Chamber represents 500,000 members, three-quarters 

whom are small business owners and Federal contractors. Through 

her leadership, this organization has championed opportunities to 

increase women’s business careers. 

In addition, Ms. Dorfman has an extensive background in business, including over 10 years in executive positions with General 

Mills and other Fortune 500 firms. 

Welcome, Ms. Dorfman. 

Chairman HANNA. Thank you. Mr. Gordon, you may begin. 

STATEMENTS OF DANIEL I. GORDON, SENIOR ADVISOR, GOVERNMENT PROCUREMENT LAW PROGRAM, THE GEORGE 

WASHINGTON UNIVERSITY LAW SCHOOL; AMBER PEEBLES, 

PRESIDENT, ATHENA CONSTRUCTION GROUP, INC.; DAVY 

LEGHORN, ASSISTANT DIRECTOR, NATIONAL VETERANS EMPLOYMENT AND EDUCATION DIVISION, THE AMERICAN LEGION; MARGOT DORFMAN, CEO, UNITED STATES WOMEN’S 

CHAMBER OF COMMERCE 

STATEMENT OF DANIEL I. GORDON 

Mr. GORDON. Thank you, Mr. Chairman, and Ranking Member 

Vela ́zquez, members of the Committee, very much. It is an honor 

to be here this morning. 

My name is Daniel Gordon. I am the Senior Advisor to the Government Procurement Law Program at The George Washington 

University. As you probably know, G.W.’s Procurement Law Program has for more than 50 years been the premier institution 

granting degrees in procurement law. 

I am going to talk about electronic reverse auctions this morning. 

I have had the benefit of learning about them both in the U.S. context and in a good number of countries overseas that use reverse 

auctions frequently, from Russia, to Brazil, to Bangladesh, to Macedonia. 

In many ways, the best document about reverse auctions in the 

U.S. is the one you mentioned, Ranking Member Vela ́zquez, and 

that is the December 2013 GAO report. The report is full of interesting information. For one, the report agrees that reverse auctions 

save us money, but points out that we do not really know how 

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much money, and the data about the savings is largely not in the 

hands of our Federal agencies. 

Moreover, although small businesses win the majority of our reverse auctions, GAO points out rightly that it is not clear that the 

reverse auctions are increasing the amount of work going to small 

businesses. That is to say what would have happened if we had 

done it the old fashioned way, without reverse auctions. 

GAO also points out some of the challenges about reverse auctions, and I would like to focus on them this morning, in the next 

couple of minutes. 

In my experience, the more you are dealing with commodity, the 

more likely there is a good candidate for reverse auction, but the 

more you are dealing with something that is a service and not a 

commodity service, the more likely you are to be running into trouble. 

Related to that is the way you are going to pick the winner. If 

all you care about is price, the reverse auction probably makes 

sense. If you are worried about other things, like performance, 

quality, staffing, a reverse auction can be a very problematic way 

to proceed. 

Moreover, GAO gave us good data that shows us important and 

problematic developments. As Ranking Member Vela ́zquez pointed 

out, in far too many cases that GAO found, there was no competition. There was either only one bidder or even if there was more 

than one bidder, each one of them submitted only one bid. The 

Government was paying a fee to a private vendor even though it 

really was not getting any benefit from the reverse auction. 

That brings me to my final significant point, which I wrote about 

quite a bit in my written testimony, and that is the cost and benefits of relying on a private sector company to run electronic reverse 

auctions. 

In fact, GAO said that one company, FedBid, ran more than 99 

percent of the reverse auctions that GAO found on FedBizOpps, the 

Government-wide portal. That is pretty darn close to a monopoly, 

and it raises some questions. Not that FedBid has not done a good 

job. 

I have to tell you in my experience, FedBid has done an excellent 

job. They have been efficient. They have been helpful. They helped 

the Government get savings. They provided a good platform that 

works well. They provided administrative training support. FedBid 

has done an excellent job. 

It is performing a function which is closely associated to the inherently governmental one, that is to say award of Federal contracts, and that raises issues. Not only that, in my experience, 

FedBid has something of an organizational conflict of interest. 

They control the data. They control the information. They have a 

financial interest in having as many reverse auctions as possible, 

regardless of whether the procurement is suitable, regardless of 

whether there is real competition. They get their fee. It is actually 

not a high fee, and as I point out in my testimony, they sometimes 

waive the fee. 

It is still troubling that Federal agencies, according to GAO, 

often do not know they are paying FedBid. That is not a healthy 

situation. In my experience, we need to ensure that these functions 

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are under the control of Federal officials. We need to have contracting officers with training in running reverse auctions before 

they conduct one. They need to be trained on what we need in reverse auctions, how to conduct a reverse auction. 

As I explained in my testimony, I am not sure that statutory 

guidance is always necessary, but at the very least, we need Government-like guidance, as GAO points out, so that these reverse 

auctions, which can be an useful tool, are used properly. 

I would note that GSA now has a reverse auction at no fee to 

the users. We need to explore that. 

I want to thank you very much for your time this morning. Obviously, if we have time, I will be delighted to answer questions. 

Chairman HANNA. Thank you very much. Ms. Peebles? 

STATEMENT OF AMBER PEEBLES 

Ms. PEEBLES. Good morning, Chairman Hanna, Ranking Member Vela ́zquez, and distinguished members of the Subcommittee. 

Thank you the opportunity to testify today. 

My name is Amber Peebles. I am President of Athena Construction Group, a Service disabled veteran/woman owned, HUBZone, 

construction company based in Northern Virginia, founded in 2003. 

I served eight years in the Marine Corps. 

Last year, Federal contracts accounted for more than half of 

Athena Construction Group’s revenues. Currently, we have 42 employees. 

I am also here today representing Women Impacting Public Policy, where I serve on its Executive Advisory Board. 

First, let me say thank you to the Subcommittee and staff for improving the contracting rules and regulations pertaining to small 

businesses. Under your leadership, the Congress has enacted much 

needed changes, increasing access to Federal contracts for all small 

businesses, but especially women. 

Nonetheless, these hearings make clear more can be done, including changes to help women meet their contracting goals for the 

first time. 

While construction related reverse auctions were the subject of a 

previous hearing, I would like to briefly share two experiences 

Athena Construction Group had with this procurement process that 

raises concerns. 

In one instance, after significant and costly preparation, an auction was closed with only seconds remaining. The contracting officer simply withdrew the requirement. While this happens occasionally in normal procurements, the additional costs of preparation for 

a reverse auction meant the loss was greater for my company. 

In another instance, several rounds of pricing for metals were required. Not to be overly technical, but a formula is used to address 

different price points for different times. This is standard in the industry. The Web site could not process the pricing structure accurately. Had this gone through a normal procurement, the opportunity would not have been wasted. 

We have previously submitted concerns on reverse auctions in 

testimony before this Committee, well cited in the GAO report. We 

support additional requirements to prevent the inappropriate use 

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of reverse auctions. In fact, we believe small business set-asides 

should not be eligible for reverse auctions. 

Legislation in the last Congress sponsored by Chairman Hanna 

and Congresswoman Meng made these changes. We were disappointed the changes did not make it into law. We encourage you 

to reintroduce the bill and persist in its passage. 

Many of WIPP’s members, including myself, are veterans running Service disabled veteran owned businesses. WIPP supports 

the Federal contracting programs that assist veterans in engaging 

in the Federal marketplace. 

Given the strong presence of veterans’ advocates here today, 

WIPP defers to them on the specifics of improving contracting opportunities for SDVOSBs and veteran owned small businesses. 

WIPP encourages this Committee to work with them to improve 

the contracting environment for veterans. 

Let me take a few minutes to address an issue that frustrates 

many WIPP members, the time that lapses between a law passing 

and the FAR Council adopting the change in many instances is too 

long. While we know the rulemaking process takes time, it is just 

common sense that it should not take years to put a contracting 

change in place. We should know. WIPP spent 11 years getting the 

WOSB program implemented. 

Another example is SBA’s recent proposed rule on subcontracting, which took two years to reach a proposed rule stage. 

Many women contractors have been waiting for those changes 

passed by this Committee because it would result in additional 

subcontracting opportunities. 

Even after final rules are promulgated by the agency, the wait 

for FAR Council adoption could take months if not years. While we 

are grateful the implementation of legislation to remove dollar caps 

on awards in the Women Owned Small Business Federal Contract 

Program was done quickly, it is not always the case. Currently, 

women entrepreneurs stand to gain with a speedy implementation 

of sole source authority in the WOSB Program. Every day this policy cannot be utilized is another day women business owners are 

disadvantaged by the contracting process. 

Members of Congress, along with the women’s business community have asked SBA to move expeditiously. It is our hope that 

when the time comes, the FAR Council will do so as well. 

WIPP has two recommendations. One, in our view, it is logical 

that FAR Council adoption of a change should happen concurrently 

with the promulgation of the SBA’s final rule implementing that 

change. 

Two, SBA should be added to the FAR Council. It seems to us 

appropriate that SBA charged with looking after small business 

procurements be included in the Council. 

Expanding beyond the scope of this contracting hearing, I want 

to close with a contracting concern of WIPP. The increased Federal 

strategic sourcing efforts in our view represents a serious threat to 

the small business contracting community. In a name, strategic 

sourcing sounds like a good idea, akin to good governance. For 

small businesses, including WOSBs, however, the trend is eroding 

the industrial base. 

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The efforts to maximize short term savings through large, limited competition contract vehicles have pushed small businesses 

out of competition and picked a select group of winners. 

One solution may be to revise how small business participation 

is measured by the agencies. Currently, small business goals only 

measure the dollars awarded to small businesses. Equally important is how those dollars are distributed among small businesses. 

SBA should consider expanding its goal criteria to include a participation rate. In doing so, it will help ensure that a diverse group 

of businesses, including women, are engaged in the Federal marketplace. 

Thank you for holding this hearing today, and for making the 

contracting environment better for women owned businesses. I am 

happy to answer any questions. 

Chairman HANNA. Thank you. As you can see, we have votes. 

We will just adjourn for about 20 minutes. There are two votes. 

Relax, and we will be right back. Thank you. 

[Recess] 

Chairman HANNA. Thank you. Mr. Leghorn? 

STATEMENT OF DAVY LEGHORN 

Mr. LEGHORN. Good morning, Chairman Hanna, Ranking 

Member Velasquez, and members of the Subcommittee, on behalf 

of our National Commander, Michael D. Helm, and the 2.3 million 

members of The American Legion, we thank you for this opportunity to testify today. 

The American Legion identifies three main issues that pose obstacles for veteran owned small businesses: reverse auctions, differences between Small Business Administration and Department 

of Veterans Affairs standards, and exclusion of veterans from Disadvantaged Business Enterprise Programs in the Department of 

Transportation. 

On reverse auctions, the Government has a fiduciary responsibility to treat small businesses fairly and not take advantage of its 

buying power and become predatory. 

The American Legion appreciates the goal of lowering Federal 

expenditures through competitive contracting initiatives, but we 

are concerned that misuse of non-governmental platforms could put 

veteran small businesses at risk and limit job creation. 

The American Legion is also concerned that reverse auctions will 

lead to decreased quality because these platforms encourage vendors to provide the cheapest product and services and only to maintain the smallest profit margins to stay competitive. 

The Government is therefore purchasing substandard products 

and services because reverse auctions steer agencies to shop for 

lowest pricing and not for best value. 

These business models favor home based businesses that primarily operate online with no customer support. Businesses like 

these rely on Federal procurement as their sole source of income 

and their tight profit margins do not incentivize job creation. 

When something is bad for small business, The American Legion 

recommends simply doing away with it. The Federal dollars spent 

in purchasing reverse auction services are better utilized in hiring 

more contracting officers to do market research to ensure that proSBREP-219 with DISTILLER

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curements are made at fair market value. A reverse auction is a 

shortcut contracting officers resort to because there simply are not 

enough of them. 

On VA verification, the American Legion supports verification. 

Contracting officers are risk adverse and they prefer giving contracts to firms that have undergone third party vetting, so we understand why contracting officers have started asking SDVOSBs if 

they are CVE certified. 

However, this has added to the confusion of having two vetting 

processes for two agencies for relatively the same purpose. To cut 

down on the confusion, we ask the Committee to consider a single 

set of standards for all SDVOSBs who contract with the Federal 

Government. We would defer to the Committee’s expertise in selecting the agency most capable of undertaking this task. 

The American Legion also believes that SBA and VA need to 

work together to minimize inconsistencies in decisions being made. 

The main challenge with VA verification is striking the balance between the amount of intrusion necessary to substantiate size, ownership, and control, and the requisite amount of oversight to protect the integrity of the program. 

Including SBA in the appeals process would ensure consistency 

in the final decisions being made and provide impartiality in not 

having the agency of original jurisdiction review their previously 

denied applications. 

Further, SBA has the legal expertise, experience, and ample base 

of precedential case law that can be applied to a formalized appeals 

process. 

Lastly, regarding the Department of Transportation’s DBE Program. By law, the Federal Government is mandated to award no 

less than three percent of all Federal contracts to SDVOSBs. For 

a number of reasons, a few agencies have not met this goal. 

One of the most egregious exclusions of veteran owned small 

businesses occurs in the Department of Transportation’s Disadvantaged Business Enterprise Program, which mandates that states 

receiving Federal dollars for infrastructure repairs have to set 

aside 10 percent for preferred groups of small businesses. 

It is a misconception that this 10 percent is solely relegated to 

road and infrastructure construction firms, and there are a variety 

of industries involved, such as engineering, landscaping, remediation, utilities, and information technology. This is an issue that affects all veteran owned small businesses. 

The American Legion worked closely with Congressman Mike 

Fitzpatrick from Pennsylvania to amend the current legislation to 

add ‘‘veteran owned small business concerns’’ as a separate line to 

the list of candidates eligible in the program, and such an addition 

would not presume that veterans are socially and economically disadvantaged, instead, VOSBs would be considered independently eligible for participation in the DBE Program. 

In previous Congresses, Congressman Fitzpatrick has introduced 

the Fairness to Veterans for Infrastructure Investment Act that 

makes this change. The American Legion and numerous other veteran service organizations support this bill and will ask again for 

this Committee’s support when Congress reauthorizes the Federal 

Highway bill. 

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Thank you, and I look forward to any questions you may have. 

Chairman HANNA. Thank you. Ms. Dorfman? 

STATEMENT OF MARGOT DORFMAN 

Ms. DORFMAN. Chairman Hanna, Ranking Member Vela ́zquez, 

and members of the Subcommittee, thank you for the opportunity 

to provide testimony on behalf of our over 500,000 members of the 

U.S. Women’s Chamber of Commerce. 

While reverse auctions have the potential to deliver savings for 

the Government, we have concerns with the process and outcomes. 

Small business owners may be pushed to lower bids to their own 

detriment. The complexity and risks involved in an auction may 

drive down competition by causing potential bidders to not participate. There is a risk of circumventing regulations related to the 

small business requirements. In many instances, it may be more efficient and cost effective to simply purchase off a schedule. 

Regarding verifications, our members are concerned about the 

failure of the SBA to verify firms claiming to be small and meeting 

the socioeconomic requirements. Congress established programs to 

support our nation’s efforts to reach full productive capacity and 

assure a fair portion of Federal contracts are placed with the full 

spectrum of small businesses. 

The SBA is charged with accurately identifying and verifying eligible firms as small, veteran owned, women owned, et cetera. Unfortunately, the Small Business Administration has failed at the 

most basic requirement. For the last decade, the Inspector General’s annual report, Report on the Most Serious Management and 

Performance Challenges, listed the top challenge of the SBA as allowing large firms to obtain small business contracts and allowing 

agencies to count these contracts toward their small business goals. 

The SBA’s failure to verify small business and socioeconomic 

claims became a major issue when the Service Disabled Veteran 

Owned Small Business Set-Aside was created. The SBA did not establish any eligibility verification for the program, creating fraud 

and abuse as contracts went to ineligible firms. 

This issue became more complicated when the VA began their 

own Vets First Contracting Program with its own certification. The 

Vets First Contracting Program is only for specific contracting opportunities within the VA, and has different eligibility requirements from the SBA’s SDVOSB Program. 

Some members of Congress have suggested the VA’s verification 

for the Vets First Program should be moved to the SBA and paid 

for by the VA. The idea stems from a lack of understanding that 

the SDVOSB Program, which is under the SBA’s management and 

enforcement, has a different purpose and different requirements 

from the VA’s Vet First Program. 

Since the SBA failed to create the verification process for the 

SDVOSB, businesses and agencies are confused, and legitimate 

Service disabled veteran owned firms have lost hundreds of millions of dollars. 

More recently due to the SBA’s poor regulatory implementation 

and enforcement of the Women Owned Set-Aside Program, the 

Government Accountability Office found that more than 40 percent 

of businesses securing women owned set-asides were ineligible. 

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Thankfully, Congress and the President acted through recent 

passage of the National Defense Authorization Act to remove self 

certification from the Women Owned Set-Aside Program, which 

when implemented, will elevate the verification for this program. 

We appreciate Congress stepping up to force the SBA to do what 

it should have done all along, and ask this Committee to hold the 

SBA accountable for the expedient creation of strong regulations to 

improve verification. 

As Congress passes legislation to achieve these goals, we rely on 

the SBA to prepare and enforce regulations that successfully fulfill 

your intent. In this area, the SBA has failed woefully. 

The regulations developed and enforced by the SBA for the 

Women Owned Set-Aside Program were flawed from the start. The 

SBA ignored stakeholder input on the inability of the processes to 

ensure that only qualified women owned firms received set-asides, 

created a grossly complex document management process, and 

turned contracting officers into de facto certifiers, driving down 

their desire to use the program. 

We ask that the House Small Business Committee hold a full 

Committee hearing with the SBA to understand how this plan will 

be implemented. 

The SBA failed to establish verification for the SDVOSB Program, causing hundreds of millions of dollars to be lost, fraud and 

abuse, and setting up confusion between SBA’s program and the 

VA’s program. 

The SBA has also failed to staff an appropriate number of procurement center representatives, PCRs, to enforce the requirement 

for small business set-asides in their regions, the most crucial front 

line team to assure that a fair portion of purchases are placed with 

small business concerns. It is not a regulatory enforcement priority 

for the SBA. 

We agree with the budget views of the Committee, the SBA must 

allocate greater use of their funds to core congressionally mandated 

activities, rather than funding the SBA’s extra layers of non-essential management and non-mandated programs. We recommend 

funds be directed to regulatory enforcement and direct small business services. 

Thank you. 

Chairman HANNA. Thank you. I will yield to Ranking Member 

Vela ́zquez for our first questions. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. Ms. Dorfman, 

some of the issues with self verification of veterans are also present 

in the Women’s Program due to the ability to self certify. However, 

due to legislation I offered last year, businesses would no longer be 

able to self certify their eligibility for the Women’s Program. 

Yet, we know some damage has already been done. Can you discuss some of the ramifications that the allowance of self 

verification has done to these programs, the Women’s Program, in 

particular? 

Ms. DORFMAN. Certainly. Thank you. As the GAO report mentioned, it was 2012 or 2013, for both years, 40 percent of the contracts awarded to ‘‘women owned firms’’ actually went to ineligible 

firms. That is billions of dollars of lost opportunities. 

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The U.S. Women’s Chamber of Commerce is a third party certifier. We did a similar quick review probably a year ago where we 

found that out of all those applications that had come in, we had 

denied 39 percent, and 53 percent of those ended up self certifying, 

so they are receiving contracts, and there is no way the SBA has 

been trying to—the SBA has not followed up at this point to mitigate that situation. 

Ms. VELA ́ ZQUEZ. Thank you. Ms. Peebles? 

Ms. PEEBLES. Speaking on behalf of WIPP, we are absolutely 

against any fraud in any of these small business programs. I do 

think a concern or a focus of ours would be to ensure the sole 

source authority moves along, but not at the expense of the certification process intervening with that. 

Ms. VELA ́ ZQUEZ. Thank you. As the SBA develops its own 

verification process, what are some key factors you think the agency should be focusing on to reduce instances of fraud in the program? Ms. Dorfman? 

Ms. DORFMAN. There certainly needs to be much more follow 

up when they are actually doing the process to be able to identify 

those that are truly women owned firms versus those that are 

masquerading as women owned firms, and I think they need to 

make sure that their regulations and their processes are in compliance with their own regulations. 

Ms. VELA ́ ZQUEZ. Thank you. Mr. Gordon, since the use of reverse auctions, they have been calls from various stakeholders to 

ensure regulations and guidelines as to how and when the reverse 

auctions should be used. 

However, while there have been several rounds of data collection, 

we have yet to see the issuance of any policies. Why do you believe 

there is such hesitation to publish this much needed guidance on 

regulations? 

Mr. GORDON. As a former administrator, I would have some 

sympathy for the workload that very small office has, they have 

very few people, and they have an enormous responsibility. 

I would say we need Government-wide guidance. I am not sure 

we need statutes that go into any detail. I am not sure we need 

an amendment to the Federal Acquisition Regulations. I worry that 

technology changes very quickly, so I would say whatever goes into 

a statute or the FAR should be at a very high level, but you have 

basic principles, that you need training, et cetera. 

We absolutely need to get Government-wide guidance. Our contracting officers across the Government do not know what procurements are suitable for these. The training is critical. 

Ms. VELA ́ ZQUEZ. Training. Thank you, Mr. Gordon. Mr. Leghorn, I am really happy to hear in your testimony that you are 

stating there have been some improvements to VA’s verification 

process, including they have decreased the time it takes for a business to receive its initial decision. 

Also, you noted you have seen fewer requests for counseling services in the verification process. Do you think this means the VA 

has finally turned some things around for the certification process? 

Mr. LEGHORN. Thank you for your question. VA, yes, they are 

coming around. I do not think they have completely turned the corner yet. There is still some discrepancies in the quality of the deciSBREP-219 with DISTILLER

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sions that are being made, but by far, when it comes to time alone, 

it has had success and done a really good job. 

Ms. VELA ́ ZQUEZ. How do you feel about a call made by some 

to move the VA process to SBA completely? 

Mr. LEGHORN. Again, as in our testimony, we do not have a 

preference. We believe there needs to be certification agency-wide, 

and we would rely on this Committee’s expertise to tell us whether 

that is going to be an agency or third party. 

Ms. VELA ́ ZQUEZ. Thank you. My time has expired. Thank you, 

Mr. Chairman. 

Chairman HANNA. Mr. Gordon, if you had the opportunity to 

eliminate in its entirety reverse auctions except for commodities 

versus us trying to figure out all the nuances and dynamics of the 

different types of businesses, where would you go? 

Mr. GORDON. Mr. Chairman, I want to make sure I understand 

the question. Eliminate reverse auctions for commodities? 

Chairman HANNA. For everything but commodities. Would that 

produce an outcome that is more desirable than trying to work 

through what we have in front of us? 

Mr. GORDON. It might make sense. Of course, defining ‘‘commodities’’ is not just a simple thing. I am very concerned that (a) 

our people across the Government do not know how problematic it 

is to do a reverse auction when you are focused on quality and past 

performance, et cetera, and they do not realize that buying services, especially professional services, you do not want to be doing 

a reverse auction. 

What happens, sir, is you can have situations where a company 

wins the auction but does not get the contract. You are driving 

down price even though price is not really your focus. 

I often tell people if you want to do a reverse auction to buy surgery services, make sure you do not particularly like the patient, 

because you are going to be driving down the price on something 

where you should be focused on other than price. 

I think it would be a step forward, at least as a cautionary move, 

to say do not use reverse auctions for non-commodities. 

Chairman HANNA. Take the time to define what we mean by 

‘‘commodities’’ and throw the rest. What do you think, Ms. Peebles? 

Ms. PEEBLES. I think the Professor is fascinating. My knowledge of reverse auctions is not as in-depth as the Professor’s. There 

are concerns that I as a private citizen and as a business owner 

who has attempted to use FedBid have about the process, and one 

of my concerns is the lag feature, which if I am not mistaken, according to the GAO report, is an arbitrary feature, meaning when 

you submit a price, it will immediately show that you are lagging, 

indicating somebody else is bidding against you. 

Chairman HANNA. Which may not be the reality. 

Ms. PEEBLES. Which may not be the case. If I may just speak 

as a private citizen, as a taxpayer, and as a business owner, if I 

used this feature and responded to that lag feature, I have concerns because every time my company receives a prime contract, I, 

as President, sign a document, Truth in Negotiations Act, which 

has penalties if I have done that in bad faith. 

I, frankly, think we are a better country than that, to use deception in a Federal procurement. 

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Chairman HANNA. Does anyone else want to weigh in? 

I kind of agree with you. Weaving through this, what is obvious 

is the very, very subjective nature and the complexity of so many 

different types of products and outcomes we are looking for, it defies reason that we would even use reverse auctions. 

I appreciate that, and I am going to yield to Ms. Chu for five 

minutes. Thank you. 

Ms. CHU. Mr. Leghorn, you testified that the American Legion 

has found that instead of fostering positive partnership relationships between Government and industry, the use of reverse auctions has actually cultivated resentment between buyers and sellers, ruining any potential for a constructive relationship to be had. 

Can you give us an example of a time when you have seen this 

partnership deteriorate? 

Mr. LEGHORN. I am not an expert on reverse auctions for the 

American Legion. Can I take that one for the record and get a specific example back to you at a later date? 

Ms. CHU. Sure. 

Mr. LEGHORN. Thanks. 

Ms. CHU. Mr. Gordon, you brought up many points about problems with reverse auctions, including something that I had not 

heard of before, the use of a private company, FedBid, to administer the data which could be a conflict of interest. 

Can a reverse auction be fair, and if so, what would an ideal reverse auction look like? 

Mr. GORDON. Thank you for the question. Again, I want to emphasize that FedBid does a very good job. The problem is their situation creates, as you said, a conflict of interest. 

If I can give you an example. If a company is bidding and they 

bid $100 in a reverse auction, what shows up on the screen for everybody, including the agency, is not the $100, it is $103, because 

FedBid adds its bid automatically, and people do not realize that 

the figure they are seeing on the screen is not what the company 

is bidding. It is what they are bidding plus the private company’s 

fee. 

What GAO found was when GAO asked the agencies are you 

paying a fee to FedBid, there were agency personnel that said no, 

we do not pay any fee to FedBid. It is extraordinary that the data 

is completely under the control of FedBid. 

I worked at GAO for 17 years. I do not recall ever seeing a GAO 

report or when you go through it, every charge, every graph, where 

they list a source, FedBid data, FedBid data. GAO did not have access to agency data because the agencies do not have the data. 

You want to have a system where there is not a conflict of interest, where the decision about whether to use a reverse auction is 

based on what makes sense for the Government in that procurement, unencumbered by some private company’s corporate interest, 

where they get a fee, regardless of whether it makes sense to use 

a reverse auction, regardless of whether you have competition, even 

if you only get one bid, they are going to get their fee. You want 

to avoid any sort of conflict of interest. 

Ms. CHU. You are saying that our Federal Government does not 

even have the data with which to make a sensible decision? 

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Mr. GORDON. As GAO pointed out, and I think they are right, 

agencies cannot decide whether it makes sense to use a reverse 

auction because they do not have the data. At the very least, agencies need to be in control of the data, they need to have the training, they need to realize they cannot advocate their responsibility. 

I think the reasons agencies let FedBid make the decisions is because it is easier. It is not because FedBid is doing anything wrong, 

on the contrary, they are so good that the agencies say okay, 

FedBid says this is a good procurement for a reverse auction, let’s 

go for it. 

That is our Federal officials advocating their responsibility, and 

we need to avoid that. 

Ms. CHU. Thank you for that. Switching gears, Ms. Peebles and 

Ms. Dorfman, I have consternation constantly about the fact that 

we never met the five percent goal for women owned businesses, 

and in fact last year it was 3.6 percent. Once again, we did not 

make it. 

Finally, women owned businesses will get the designation they 

deserve through the sole sourcing provision passed in last year’s 

NDAA. Do you believe that implementing this provision for women 

owned small businesses is enough to rectify the lack of access that 

female entrepreneurs have to Government contracts? 

Ms. DORFMAN. First off, it is actually the removal of the self 

certification that will make it better for women owned firms so 

they are competing against women owned firms. The sole source is 

something the contracting officers need because in some industries, 

there is only one woman owned firm that can perform that work, 

so they need to have that. 

I think that impacts the program a far less percentage than the 

women owned small business certification being the SBA having to 

do it or making sure it is done properly with a follow up, however 

they are planning to implement it. 

I am hoping that gets implemented very quickly. I do not know 

that it will. I am looking toward this Committee to help hold them 

accountable, to make sure that they do implement it fairly speedily. 

Thank you. 

Ms. CHU. Ms. Peebles? 

Ms. PEEBLES. Thank you. We are very optimistic that the five 

percent set-aside will certainly go a long way in helping to eliminate these gaps in the percentages of meeting procurement goals. 

Having said that, I think the additional impact is that now, women 

owned businesses plan strategically for their marketing and their 

procurement strategy now that this is in place. 

The way to make it most impactful is to get the regulations in 

place quickly so that women owned businesses can start utilizing 

it and taking advantage of it now. 

Ms. CHU. Thank you. I yield back. 

Chairman HANNA. Ms. Lawrence? 

Ms. LAWRENCE. Thank you, Chairman, and Ranking Member, 

for calling this hearing. The 2013 goals for awarding contracts to 

Service disabled veteran owned businesses has surpassed the three 

percent statutory goal. This is a positive development, but the unemployment rate for veterans who served since 2001 currently is 

at nine percent. We have a long way to go. 

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Mr. Leghorn, the disparity in the verification systems for veteran 

owned businesses at the SBA and the Department of Veterans, the 

VA, I am concerned that it may lead to awarding of contracts to 

some fraudulent parties. Do you believe veteran owned businesses 

may have lost out on contracts that normally would have been received, and this would be due to the lack of clarity in the 

verification system? Answer that and then tell me what do you recommend we do to correct it? 

Mr. LEGHORN. Thank you for the question. With there being 

two procurement policies in terms of how SDVOSBs participate in 

Federal procurements, on the self certification side, you are always 

going to find fraud, and on the verification side, if you are a bad 

actor and you want to defraud the Government, there is still a way 

around it because it is a very document driven process. 

My answer to the first part of the question is the Government 

can only do so much to check up on people. If you were somebody 

that is out there purposely trying to defraud the Government, you 

are going to know the way around the system. 

What can we do about it? SBA or VA, they need the resources 

to do more onsite visits, that is one way to catch people in the act. 

It is about moving the agencies to take reporting or allegations 

when somebody is trying to defraud the Government, to take those 

allegations seriously and look into it, in a prompt manner. 

Ms. LAWRENCE. I want to thank the Committee and those of 

you who are testifying. The women owned and veteran owned businesses and our commitment through the SBA is something that I 

am very committed to, but we must find ways to validate and 

eliminate as much fraud as we can. Unfortunately, enforcing the 

research and the processes so we can identify fraud is the first 

step, but also to have our systems and verifications in a way that 

it rises to the top for the women’s and veterans’ businesses. 

I thank you for your expertise in this. I yield my time. 

Chairman HANNA. Ms. Meng? 

Ms. MENG. Thank you all for being here and for sharing your 

experiences with us. First, I want to thank Congressman Hanna 

for introducing his legislation to ban reverse auctions in certain 

areas. I believe the legislation is a good step forward, and I hope 

there will be even more we can do to protect small businesses from 

the use of reverse auctions. 

Although some will argue that reverse auctions benefit the Government by offering lower prices, we have often been left with junk 

bidders who provide subpar service. 

My question is as a follow up to something that was mentioned 

at Tuesday’s Subcommittee hearing. Where do you see contracting 

goals headed? Do you believe there has been too much emphasis on 

dollars for our prime and subcontracting goals, and not enough emphasis on the diversity and quantity of businesses receiving these 

opportunities? Of course, any recommendations. For anyone who 

wishes to answer. 

Ms. DORFMAN. I will jump in. It has been a frustration that 

there continues to be double counting within the socioeconomic categories because what that does is the person with the most certifications gets the contracts. It would be far better to make sure that 

as the agencies are counting their goals, that they are saying okay, 

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if you are 8(a), HUBZone, Service disabled veteran, woman owned, 

which one is that going to, so that more small businesses have access to those contracts. Thank you. 

Chairman HANNA. Thank you. We are going to open it up for 

another round of questions for anyone who may have any. 

This is a screen shot from FedBizOpps, from the Federal Web 

site where all Federal contracts are advertised. I am sure you all 

have seen it. This lets you search by contracting office, so if you 

wanted to do business with GSA in D.C., you can choose that option. 

However, what this screen shot does is show that the Federal 

Government has classified FedBid—a private company—as a contracting office of the Federal Government. I am just curious if anyone thinks that is appropriate or inappropriate, and if you think 

it leads to confusion. 

Go ahead, Mr. Gordon. 

Mr. GORDON. Mr. Chairman, it is a real problem. Again, it is 

not that FedBid does not do a good job, they do a great job. They 

are doing work that is closely associated with inherently governmental work, and the line is getting blurred. You are seeing mission creep. When you are looking on FedBizOpps, which is a Federal Web site, you are looking for a Government office. There is 

FedBid. 

I think we need to think long and hard if we are going to have 

a private company running these auctions, we have to have adequate Federal supervision so you do not have this sort of confusion. 

If I can tell you one quick anecdote, other people when they have 

a spring break at a law school go to like Florida, Ft. Lauderdale 

or whatever, I spent my spring break a couple of weeks ago in Macedonia, in Southeast Europe, learning about procurement and 

speaking about procurement to government officials there. 

They do electronic reverse auctions in Macedonia, a small country, not a rich or sophisticated one. I said to them do you have a 

private company running your reverse auctions. They looked at me 

like I was crazy. They said of course not, we have our government 

officials who run the reverse auctions. 

I thought a little point about maybe what the country of Macedonia could do is maybe something the Committee may want to 

reflect on. 

Chairman HANNA. Who bids against FedBid? 

Mr. GORDON. In theory, there are other sources of reverse auctions, but I was not at all surprised when I saw in the GAO report 

that more than 99 percent of the reverse auctions on FedBizOpps 

that GAO found were done by FedBid. 

Chairman HANNA. Do you happen to know anything about the 

probability that a particular company that is listed is part of the 

Army, incidentally? 

Mr. GORDON. No. 

Chairman HANNA. Thank you very much. Anything else? Ms. 

Vela ́zquez? 

Ms. VELA ́ ZQUEZ. Yes. I just would like to ask the panel about 

the reverse auction process. We have to be so very careful that we 

do not cause harm and make the programs whole and be effective, 

but we have found that the reverse auction process may move too 

SBREP-219 with DISTILLER

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quickly for competitors to accurately reassess their costs or the way 

they will actually do the work. 

There have been reports where the buyer has to step in to prevent a supplier from submitting a price that will harm the company. 

Do you believe contractors are actually able to perform the contract at the price they bid or are some putting the viability of the 

company at risk? Ms. Peebles? 

Ms. PEEBLES. Thank you, Congresswoman Vela ́zquez. If I understand the question correctly, it is basically how is a company 

going to respond to this purchasing mechanism, and I will speak 

as a business owner in this regard, for myself, and not on behalf 

of WIPP with regard to this particular issue. 

There are so many unknown’s when submitting pricing to FedBid 

as compared to a standard procurement process, that it leads basically to a bifurcated decision. 

One, if you are somewhat unsophisticated with the process and 

you see the lag time hit, and you are like I want to win a Federal 

contract, you see someone is competing against you, you think 

okay, well, I can do it for less, because apparently that is what the 

market will bear, without knowing everything involved, you can bid 

so low and make a commitment, that you are causing damage to 

your company financially. 

The flip side is because there are so many unknown’s, you can 

inflate the price to cover against what you do not know, and if you 

are the only bidder, you have not given the Government a good 

price that you would have given under normal channels. 

Ms. VELA ́ ZQUEZ. Mr. Gordon? 

Mr. GORDON. It is interesting. I think it may be worth pursuing 

this area one way or the other, and with some hesitation because 

of the workload of GAO, that GAO might be able to do a study 

about the impact of this low pricing on small businesses. 

That said, I have a lot of confidence in our small businesses and 

their sophistication. I am a little bit skeptical when people tell me 

companies are bidding so low that they are putting their company 

at risk. 

I understand that in an auction, people in a normal auction, people sometimes bid higher than they should. I appreciate that. I 

have actually gone down that path personally without disclosing 

any details here. 

I trust our companies, the fact is in a Federal procurement of 

any sort—we had sealed bids in the procurements we have been 

doing for more than 100 years, companies submit bids. Do they 

sometimes submit bids that are foolishly low? Yes. I trust their 

judgment. They are business people. I think we can trust them to 

make judgments about how low they should or should not bid. 

Ms. VELA ́ ZQUEZ. Thank you. 

Chairman HANNA. What you are really describing is a race to 

the bottom, an opportunity to bid virtually against yourself, taking 

a risk that may be inappropriate in the moment. Everybody wants 

to work. Contracting companies have overhead they need to cover. 

Sometimes they do work below their costs, they do not always do 

it on purpose. The other side is people can actually bid at a much 

higher price, just randomly, taking an opportunity. 

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To your point, I personally probably have bid on over 3,000 jobs, 

big and small, in my life, and believe me it is often the case in a 

very competitive market that the low bidder is the guy that never 

finishes the job, which is another issue having to do with a lot of 

other things. 

The goal is to get the product we want at a reasonable price and 

let companies make money, and thrive, and take advantage of all 

the opportunities the Government has for small businesses. 

It seems to me that a reverse auction is often antithetical to the 

outcome, the pricing, and to competition. 

With that, we have a couple of minutes if anyone wants to say 

anything else that has not been said or that we have not heard, 

go ahead. Anyone? 

Ms. PEEBLES. Previously, I was asked a question regarding 

meeting the woman owned small business goals, and if I could just 

take a moment and elaborate on the answer. This is my first time 

to testify, so I wanted to get my thoughts together. 

Two points that I wanted to make and then I am done. Sole 

source was a phenominally good law for women owned businesses. 

It allows access to contracts for women in business and it is a very 

good vehicle for contracting officers. 

We do not want to raise the WOSB goal. We want to meet it 

first. Thank you. 

Ms. VELA ́ ZQUEZ. If I can make a comment about that, it has 

always been my position that the Federal Government struggled 

for so many years, and this is why I initiated a Government-wide 

report that I issued for almost 14 years, measuring contracting 

goals and achievements for all the Federal agencies, Governmentwide. 

What good does it do if we increase it if for the first time this 

year, this year and last year, for the first time Government-wide, 

yet there are those that claim that ineligible firms were qualified 

as small businesses. 

Let’s do this right. Let’s achieve those goals, and then we will 

move from there to increase those goals. I agree with you. 

Chairman HANNA. Thank you. I want to thank you all for being 

here. You have done a marvelous job. These are not easy questions, 

they are complicated, but you have helped us and given us a lot 

of opportunity for direction, and I would ask you to watch this 

Committee if you can and see what comes out in some legislation 

shortly. 

I will recommend to Chairman Chabot a full Committee markup 

on legislation addressing verification and reverse auctions and the 

process for implementing small business contracting reforms. 

I ask unanimous consent that members have five days to submit 

statements and supporting materials for the record. Without objection, so ordered. 

This hearing is now adjourned. Thank you very much. 

[Whereupon, at 10:55 a.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

STATEMENT OF THE HONORABLE DANIEL I. GORDON 

SENIOR ADVISOR, GOVERNMENT PROCUREMENT LAW 

PROGRAM, 

THE GEORGE WASHINGTON UNIVERSITY LAW SCHOOL 

BEFORE THE HOUSE SMALL BUSINESS COMMITTEE 

SUBCOMMITTEE ON CONTRACTING AND WORKFORCE 

March 19, 2015 

Chairman Hanna, Ranking Member Vela ́zquez, Chairman 

Chabot, Members of the Committee, good morning. I am grateful 

for the honor of being invited to testify before you today about electronic reverse auctions and other important procurement issues. I 

am the Senior Advisor to the Government Procurement Law Program at the George Washington University Law School, which has, 

for more than 50 years, been the premier venue for the studying 

and teaching of procurement law in this country. 

Let me begin by commending you for focusing on the important 

topic of electronic reverse auctions, which are essentially auctions 

run through the Internet in which bidders offer successively lower 

prices. I have seen the importance of these reverse auctions in both 

the U.S. acquisition system and in procurement systems around 

the world in recent years, including in countries as diverse as Bangladesh, Macedonia, Brazil, and Russia. 

In the U.S., perhaps the best report on the subject is the Government Accountability Office’s December 2013 report, Reverse Auctions: Guidance Is Needed to Maximize Competition and Achieve 

Cost Savings, GAO–14–108. In that report, GAO looked at the use 

of reverse auctions in fiscal year 2012, and found that more than 

$1 billion had been awarded in contracts through use of reverse 

auctions during that year. GAO focused on the five federal agencies 

that together used about 70 percent of the auctions in 2012: the 

Departments of the Army, Homeland Security, Interior, and Veterans Affairs, and the Defense Logistics Agency (DLA). Of those 

five, the first four all used the same vendor to run the auctions, 

and GAO was able to obtain detailed information on their use of 

auctions from that vendor; the fifth agency, DLA, bought a license 

to run its auctions without reliance on a vendor, but it lacked detailed data for GAO to review. 

Both from my review of the GAO report and from what I have 

seen and heard, in the U.S. and abroad, I would suggest that use 

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of electronic reverse auctions has brought benefits in three areas: 

savings, speed, and small businesses. 

Savings: While GAO expressed concern that the exact 

amount of savings obtained is uncertain, there is no doubt that 

reverse auctions have led to a reduction in the amount of taxpayer funds spent on the commodity goods and services for 

which auctions were used. I have been estimates of savings on 

the order of 10 to 20 percent, and sometimes higher, though 

GAO is right to point out that the way savings are measured 

can be problematic. 

Speed: Reverse auctions can be conducted quickly, and they 

have contributed to a substantial improvement in efficiency in 

government procurement systems over the past 10 years, both 

in the U.S. and abroad. 

Small businesses: GAO reported that 86% of the procurements in which reverse auctions were conducted were won by 

U.S. small businesses, which translated to 80% of the dollar 

value of the procurements. In its report, GAO notes this is consistent with the presumptive set-aside for U.S. small businesses under federal law for procurements under $150,000. 

While it is thus not clear that use of reverse auctions increased 

the percentage of these procurements that would have otherwise been won by small businesses, the fact is that the great 

majority of the procurements went to U.S. small businesses. 

In its report, GAO identified some challenges associated with use 

of electronic reverse auctions, and my experience, both in the U.S. 

and overseas, confirms that many users, or potential users, of auctions have wrestled with these issues. While I do not think that 

amending the Federal Acquisition Regulation is needed (in part because technology moves faster than the regulatory process), I very 

much concur with GAO’s recommendation that the Office of Management and Budget issue guidance related to the issues discussed 

below (and in the GAO report). 

Identifying procurements suitable for use of reverse auctions: Some users are tempted to conduct reverse auctions in almost every procurement; most recognize, however, that some procurements are suitable for auctions, while others are not. In terms 

of what is being bought, most people agree that auctions make the 

most sense when the government is buying commodities. Thus, 

GAO found that reverse auctions were used largely for commodity 

goods, in particular, information technology (IT) and medical equipment and supplies. Use of reverse auctions for the purchase of 

services is more controversial. While GAO was told that their use 

for buying services was increasing, in my view, auctions may not 

be a sensible way to conduct a procurement for services unless the 

services being bought are commodities, such as overnight delivery 

of packages. 

Another metric, in terms of which procurements are suitable for 

auctions, is the dollar value of the procurement, but here the picture is somewhat complicated. GAO found that the four agencies 

for which it obtained detailed data were using auctions primarily 

for procurements valued below $150,000—while the guidance of the 

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fifth agency, DLA, was to use auctions for purchases above that 

level. My sense is, in terms of whether a reverse auction is appropriate, that the question of what is being bought is more important 

than the value of the procurement. 

Another metric, though, also needs to be considered. Some people 

believe that electronic reverse auctions can be used regardless of 

whether the government is focused on buying the lowest-price acceptable good or service, or whether, instead, the government 

wants to be able to conduct a tradeoff between multiple award criteria, including price and another factor, such as the bidder’s past 

performance or the quality of its product. In my experience, auctions make the most sense when the government is focused on obtaining the lowest price—that is why commodities are the best candidates. As soon as the government is considering doing a tradeoff 

with a non-price factors, such as quality or past performance, I believe that the auction risks causing mischief. Where the government is concerned about quality, rather than simply buying a commodity, the auction’s focus on price may run counter to the government’s goals. Especially when the government is buying professional services, the auction’s focus on low price may be inconsistent 

with the government’s interest. Moreover, if the company that wins 

the price auction may lose the competition for the contract, one 

needs to ask what the point of an auction is. 

Addressing limited competition in the auctions: In the auctions that GAO reviewed for its report, and in procurement systems 

that I have looked at overseas, concerns have arisen due to limited 

competition in the auctions, which can call into question the value 

of the auctions. GAO found that in more than a third of the auctions it studied no competitive bidding took place at all: in 27 percent of the auctions, there was only one bidder, and in another 8 

percent, while there was more than one bidder, none of them submitted more than one bid. In all of those cases, use of the Internetbased auction technique seems to have provided no benefit beyond 

that of the ‘‘sealed bidding’’ competition that the federal government has used for more than 100 years. Similarly, I learned that 

in one European country that I visited recently to discuss its procurement system, a high percentage of reverse auctions obtain only 

one bid. In my opinion, any competition for a government contract, 

whether run electronically or ‘‘the old fashioned way,’’ that gets 

only one bid should be considered a failure. If the government is 

paying a fee to use an electronic reverse auction and only one bid 

is received, the government is paying a fee for that failed procurement. In that regard, GAO found that agencies had paid $3.9 million in fees for reverse auctions in which there was no competitive 

bidding. 

Considering the costs and benefits of using a private firm 

to run the auctions: Many U.S. agencies rely on a single private 

firm to conduct electronic reverse auctions for them. While in theory more than one company could provide that service, my experience is consistent with what GAO found, which is that one firm— 

FedBid, Inc.—conducted more than 99 percent of the reverse auctions listed in the government-wide database, FedBizOpps. FedBid 

has clearly brought benefits to the federal government: not only 

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does it provide a good, ready-to-use platform for reverse auctions, 

but, as GAO notes, FedBid also relieves agencies of various administrative duties and it offers training and technical support. Overall, FedBid has played a key role in helping agencies obtain the 

cost and efficiency savings that reverse auctions can bring. Moreover, the fee that FedBid charges for its services may be viewed as 

quite reasonable: they are capped at three percent of the contract 

value, and the company waives its fee entirely in various situations. 

The benefits that FedBid brings, however, need to be compared 

to the risks of use of a private-sector company playing a central 

role in a function that is closely associated with an inherently governmental function, the award of federal contracts. See Office of 

Federal Procurement Policy, Performance of Inherently Governmental and Critical Functions, Policy Letter 11–01 (Oct. 2011). As 

is often the case in situations where contractors perform functions 

closely associated with inherently governmental ones, the risks do 

not arise because of any defect or flaw in the company. On the contrary, the contractor—FedBid, in this case—may perform so well 

that agencies tend to defer to it even when they should not. Thus, 

FedBid correctly makes clear that the contracting agencies make 

all key acquisition decisions, from whether to use a reverse auction 

at all to what the award criteria are to which company actually 

wins the contract. Yet that deference, which is completely appropriate, is eroded when the company is plainly the expert in this 

areas, and agency personnel are inclined to defer to the company— 

indeed, I suspect that many federal contracting officials consider 

that letting FedBid take the lead is the whole point of using the 

company’s services. Put another way, FedBid does its job so well 

that federal officials allow its role to expand into areas that should 

be the federal officials’ responsibility. 

Examples of this pattern are identified in GAO’s report. For example, GAO found that agencies rely on FedBid to maintain data 

related to their reverse auctions, so that even GAO had to turn to 

FedBid to obtain the data that it needed for its report. Similarly, 

while FedBid clearly knows how much it is charging and who pays 

its fees, GAO found that agencies using FedBid’s services often did 

not know how much they were paying, nor did they know, if some 

cases, that the agencies were paying FedBid at all. GAO also identified situations where agencies are paying two fees (one to FedBid, 

another to the agency that awarded the overarching contract being 

used), but the agencies were unaware of this. 

These matters are not simply questions of confusion. Instead, 

they raise concern that any private-sector vendor fulfilling a function so closely associated with an inherently governmental one may 

have an organizational conflict of interest. FedBid, for example, has 

not corporate interest in clarifying confusion about whether agencies or vendors are paying its fees. Similarly, FedBid has a corporate interest in claiming that its services lead to large savings— 

but GAO questioned the accuracy of those claims. With regard to 

the important questions, explained above, of deciding whether a 

particular procurement is a good candidate for a reverse auction, 

a company that obtains a fee only if a reverse auction is conducted 

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obviously has an interest in encouraging the use of auctions. Moreover, while an auction that obtains only one bid may be a failure 

for the competitive procurement system, it may not be a failure for 

a private-sector auction provider that obtains its fee, even in that 

flawed competition. 

Regarding the reasonableness of FedBid’s fee, agency personnel’s 

misunderstanding of the fee and fee structure impedes their ability 

to judge whether the fee is reasonable. In the language of GAO’s 

report, agencies ‘‘are not able to independently assess the cost effectiveness of reverse auctions.’’ In this regard, I would point out 

that, while a fee capped at 3 percent may seem very reasonable for 

an auction that can lead to savings of 20 percent, those large savings are for the first time the auction is conducted. Obviously, the 

second time an auction is conducted for a particular item, it is unlikely that the price paid will drop an additional 20 percent, so that 

the savings will drop—but FedBid’s fee will not, and paying 3 percent to obtain a much smaller amount of savings may seem less 

reasonable. 

GAO also found that other companies had concerned related to 

FedBid’s role in the federal acquisition process. Specifically, GAO 

heard complaints from vendors that FedBid ‘‘creates an additional 

layer between the vendor and the end user that can inhibit [vendors’] efforts to clarify detailed in the solicitation.’’ Moreover, 

FedBid requires vendors that want to participate in a reverse auction to register with FedBid, and GAO heard that some vendors did 

not want to register with another vendor. GAO noted that this 

issue could reduce competition for federal contracts. 

In my judgment, we would be well advised to re-visit the role 

that a private-sector company should play in the conduct of federal 

reverse auctions. I say that will full appreciation for the excellent 

work that FedBid has performed for the federal government for 

many years. The Committee may be interested to know that in 

many other countries, large and small, electronic reverse auctions 

for government contracts are successfully conducted without reliance on a private-sector company to run them. For example, I 

learned recently that the small nation of Macedonia routinely conducts a large number of reverse auctions each year, run solely by 

government staff. Closer to home, I am pleased to see that GSA 

has now launched its own reverse auctions program, within the 

context of the Federal Supply Schedule. Notably, GSA has announced that user agencies will not pay any additional fee for use 

of the reverse auction platform. 

If a private-sector company continues to conduct reverse auctions 

for federal agencies, I believe that it is critical that agencies ensure 

that their staff are properly trained and equipped to supervise the 

private-sector provider. That training must ensure that agency personnel do not abdicate their responsibility for key decisions, such 

as deciding which procurements are appropriate candidates for reverse auctions and what the award criteria should be, as well as 

for collecting and maintaining data. Agency personnel must also 

ensure that they have the information needed to make informed 

decisions about the cost and benefits of conducting reverse auctions. 

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In conclusion, I would again commend the Committee for your 

work in this important, but challenging area, and thank you for the 

opportunity to appear before you today. I would be pleased to respond to any questions you may have. 

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Insert offset folio 26 here 93733.001
26 

1 15 U.S.C. § 631 

Good morning. Chairman Hanna, Ranking Member Meng and 

distinguished Members of the Subcommittee, thank you for the opportunity to testify. 

My name is Amber Peebles. I am President of Athena Construction Group, Inc. a service-disabl3ed veteran-owned, HUBZone, and 

woman-owned small business based in northern Virginia founded 

in 2003. I am a service-disabled veteran, serving eight years in the 

United States Marine Corps. Last year, federal contracts accounted 

for more than half of Athena Construction Group’s revenues. Currently, we have forty-two employees. 

I am also here today representing Women Impacting Public Policy (WIPP) where I serve on its Executive Advisory Board. WIPP 

is a national nonpartisan public policy organization advocating on 

behalf of its coalition of 4.7 million business women including 78 

business organizations. WIPP plays a key role in developing 

women-owned businesses into successful federal government contractors through its Give Me 5 and ChallengeHER programs. 

First, let me say thank you to the Subcommittee and staff for improving the contracting rules and regulations pertaining to small 

businesses. Under your leadership, the Congress has enacted much 

needed changes, increasing access to federal contracts for all small 

businesses, but especially women. Nonetheless, these hearings 

make clear more can be done. This is underscored by the fact that 

twenty years after establishing a five percent contracting goal for 

women-owned small businesses, that goal has never been met. As 

this discussion begins, we value the Congressional direction already given on this issue in the Small Business Act (P.L. 85–536), 

which notes that the government should: 

Insure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government be placed with small-business enterprises...to the maximum extent practicable.1

Reverse Auctions 

1. Withdrawal at close of auction. In one instance, after significant and costly preparation, an auction was closed with 

only seconds remaining. The contracting officer simply withdrew the requirement. While this happens occasionally in normal procurements, the additional costs for my business of a reverse auction meant that additional resources were wasted. 

2. Auction site not suitable for complex bidding. In another 

instance, several rounds of pricing for metals were required. 

Not to be overly technical - but a formula is used to address 

different price points for different times. This is standard in 

our industry. The website could not process the pricing structure. This became a wasted opportunity that is normally handled effectively through other procurement methods. 

Beyond my experiences, WIPP has testified before this Committee with concerns on reverse auctions that were well cited in 

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2GAO–14–108. 

the GAO report.2 Additional requirements should be added to prevent the inappropriate use of reverse auctions. Similarly, as these 

auctions require resources from competing companies, we believe 

small business set-asides, including set-asides made through all the 

disadvantaged small business contracting programs, should not be 

eligible for reverse auctions. 

Legislation in the last Congress, the Commonsense Contracting 

Act of 2013, sponsored by Chair Hanna and Ranking Member 

Meng, made these changes. While WIPP was excited to see reverse 

auction education requirements added to the FY15 NDAA, the removal of certain sections passed by the House means the need for 

such legislation remains. We encourage you to reintroduce the bill. 

SDVOSB Verification 

Many of WIPP’s members, including myself, are veterans running service-disabled veteran-owned small businesses (SDVOSBs). 

WIPP supports the federal contracting programs that assist veterans in engaging the federal marketplace. Moreover, as with many 

procurement issues, the procurement process should be streamlined 

to ensure that companies could access the federal market easily 

and effectively. 

Given the strong presence of veterans’ advocates nationwide, and 

even at this hearing, WIPP defers to them on the specifics of improving contracting opportunities for SDVOSBs and veteran-owned 

small businesses. WIPP encourages this Committee to work with 

them to improve the contracting environment for veterans. 

SBA’s Role in Rulemaking 

Turning to the largest focus of this testimony, WIPP believes the 

delay in implementation of important small business contracting 

provisions is an ongoing frustration of women business owners. 

While we understand the rulemaking process and do not expect implementation overnight, many of the changes we seek are fixes that 

WIPP members who are contractors have asked us to fix. 

The timeline for implementing these changes can be lengthy. For 

example, SBA’s recent proposed rule on subcontracting limitations 

took two years to reach a proposed rule stage. 

The needed changes proposed in those rules - implementing provisions authored, debated, and passed by this Committee - should 

not require years of missed opportunities for small businesses. 

That is simply unfair to the businesses burdened by outdated, ineffective, or damaging policies Congress saw fit to change. 

Even after final rules are promulgated, the wait for actual implementation may continue for months, if not years. That is because 

of additional time required for Federal Acquisition Regulation 

(FAR) adoption by the FAR Council. While the recent implementation of legislation to remove dollar caps on awards in the WomenOwned Small Business (WOSB) Federal Contract Program is a 

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good example of how SBA and the FAR Council can move quickly, 

that is not always the case. 

Currently, women entrepreneurs stand to gain with a speedy implementation of sole source authority in the WOSB program. Every 

day this policy cannot be utilized is another day women business 

owners are disadvantaged by the contracting process. Members of 

Congress, along with the women’s business community have asked 

SBA to move expeditiously. It is our hope that when the time 

comes, the FAR Council will move in a similar manner. 

WIPP has two recommendations with regards to the timeline of 

SBA rule promulgation and FAR adoption. In our view, there is no 

reason these cannot be done concurrently. Any diversions between 

the proposed rules could be best addressed through increased cooperation between SBA and the FAR Council. One solution could 

be adding SBA to the FAR Council. WIPP supports this option because it would also give small businesses an advocate on the Council charged with maintaining acquisition procedures. 

Additional Recommendations to the Committee 

Expanding beyond the scope of this contracting hearing, I want 

to take this opportunity to raise a related concern of WIPP. The increased federal ‘‘strategic sourcing’’ efforts, in our view, represent 

a serious threat to the small business contracting community. In 

a name, strategic sourcing sounds like a good idea - akin to good 

governance. For small businesses, included WOSBs, however, the 

trend is eroding the industrial base this Committee seeks to protect. 

These efforts to maximize short-term savings through large, limited-competition contract vehicles have pushed small businesses 

out of competition and picked a small group of ‘‘winners.’’ These efforts are happening across all agencies and all industries and come 

at the direction of the Office of Management and Budget (OMB). 

This movement does not align with Congressional directives to 

keep a diverse set of businesses in the procurement community nor 

does it mirror the private sector strategic sourcing practices. Examples include the increased, and at times mandated use of IDIQ vehicles (e.g. EAGLE II), GWACs, FSSI contracts, and recent GSA 

awards (e.g. OS3). Many industries, including office products, technology, janitorial and sanitation products, building maintenance 

and operations and furniture, have already been subject to strategic sourcing and face fewer awards and increased barriers to federal business—ultimately hurting their bottom line. 

To be sure, some small businesses will benefit in the short-term. 

Many, however, at the end of these five-year contracts will exceed 

their small business size, and no longer be able to compete for 

small business contracts. They may not have a separate revenue 

stream to continue at their size let alone continue to grow. Instead 

they may collapse over the longer term, to their detriment. Equally 

important, the limited competition for these goods and services 

will, over time, diminish any realized savings by the government. 

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One solution may be to revise how small business participation 

is measured by the agencies. Currently small business goals measure the dollars awarded to small businesses. By adding a participation rate, i.e. the number of businesses awarded prime contracts, 

will ensure that a diverse group of businesses are engaged in the 

federal marketplace. 

Thank you for holding this hearing today and for making the 

contracting environment better for women-owned businesses. It is 

our hope that our recommendations are helpful. I am happy to answer any questions. 

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STATEMENT OF 

DAVY LEGHORN, ASSISTANT DIRECTOR, VETERANS’ 

EMPLOYMENT AND 

EDUCATION DIVISION OF 

THE AMERICAN LEGION 

BEFORE THE 

SUBCOMMITTEE ON CONTRACTING AND WORKFORCE 

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF REPRESENTATIVES 

MARCH 19, 2015 

Good morning Chairman Hanna, Ranking Member Velazquez 

and members of the subcommittee. On behalf of our National Commander, Michael D. Helm, and the 2.3 million members of The 

American Legion, we thank you for this opportunity to testify at 

this hearing on the challenges facing veteran owned small businesses seeking federal contracts. 

The American Legion identifies three main issues that poses obstacles for veteran owned small businesses and service-disabled 

veterans seeking federal contracts: reverse auctions, differences between Small Business Administration (SBA) and Department of 

Veterans Affairs (VA) procurement policy standards, and exclusion 

of veterans from Disadvantaged Business Enterprise (DBE) programs. 

Reverse Auctions Reduce Quality: 

The Small Business Act applies government wide, not just to the 

Small Business Administration (SBA). Government has a fiduciary 

responsibility and legal obligation to treat small business fairly, 

and to not take advantage of its buying power and become predatory. 

The American Legion appreciates the goal of the government 

contracting community to lower federal expenditure through competitive contracting initiatives, but we are concerned that misuse 

of non-governmental platforms that have not suffered the scrutiny 

of the appropriations process, are putting veteran owned small 

businesses at risk and could also be serving to undermine the entire procurement process. 

Reverse auctions end up giving a false valuation of fair market 

product pricing, and will eventually create a disparity between a 

thorough procurement vehicle processes, where value is made part 

of the decision matrix, versus the reverse auction - where value or 

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1 Resolution No. 321: Support reasonable set-aside of federal governments and contracts for 

business owned and operated by veterans, American Legion. National Convention August 2012 

http://archive.legion.org/handle/123456789/2190 

2Federal Acquisition Regulation, March 2005, http://www.acquisition.gov/far/current/pdf/ 

FAR.pdf 3 Ibid 

4 Ibid 

added value is often omitted from bid consideration. Further, reverse auctions appear to undermine the Government Services Administration’s (GSA) application process that requires the government be offered the best possible in the first place. If that is true, 

then how can GSA contract holders consistently compete in the reverse auction process at offers lower than their established GSA 

contract? 

An example of added value would be a printer and copier vendor 

that, through their negotiated license agreement with the manufacturer, is required to provide training and technical support on the 

products they sell. This added value increases the market price of 

the product, but may not be reflected in the automated environment of the reverse auction bid process. Reverse auctions create a 

disproportionate disparity in the federal procurement industry 

while American Legion resolution 321 1 specifically calls for equal 

parity in federal procurement, and according to the Federal Acquisition Regulation (FAR); ‘‘ ‘Fair market price’ means a price based 

on reasonable costs under normal competitive conditions and not 

on lowest possible cost’’.2 Further, Fair Market Price is mentioned 

in nearly every part of the FAR and that exact term can be found 

more than 30 times. 

FAR part 19 § 807 gives a definition of Estimating Fair Market 

Price; 

‘‘(c) In estimating a fair market price for a repeat purchase, the 

contracting officer shall consider recent award prices for the same 

items or work if there is comparability in quantities, conditions, 

terms, and performance times. The estimated price should be adjusted to reflect differences in specifications, plans, transportation 

costs, packaging and packing costs, and other circumstances. Price 

indices may be used as guides to determine the changes in labor 

and material costs. Comparison of commercial prices for similar 

items may also be used. 

FAR part 15 § 404–1 discusses proper Proposal Analysis Technique: 

‘‘(a) General. The objective of proposal analysis is to ensure that 

the final agreed-to price is fair and reasonable.’’3

Finally FAR part 19.1405 outlines Service-Disabled VeteranOwned Small Business Set-Aside Procedures; 

‘‘(b)(2) Award will be made at a fair market price.’’ 4

While reverse auctions may have a limited capacity place in federal procurement, The American Legion believes that the federal 

contracting office has the primary responsibility to ensure that 

every product that the government spends tax payer dollars on, is 

purchased at fair market value. This assurance protects the tax 

payer, the small business, and the market. 

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5 Resolution No. 50: Support legislation that bolsters the hiring of veterans in the public and 

private sectors, American Legion, National Convention, August 2012 http://archive.legion.org/ 

bitstream/handle/123456789/2212/2012N050.pdf?sequence=1 6 Contract management Magazine, Reverse Auctions: Turning Winners into Losers, October 

2012 http://www.nxtbook.com/nxtbooks/ncma/cm—201210/index.php#/4 

The American Legion is concerned that reverse auctions will lead 

to decreased quality and decreased employment opportunities for 

veterans, which is in direct violation of American Legion resolution 

number 50 that supports more hiring opportunities for veterans.5

Reverse auctions encourage vendors to provide the cheapest products and services in order to maintain the smallest possible profit 

margins in order to maintain a competitive edge. Government will 

then be stuck purchasing poor-quality products and services because reverse auction platforms do not provide the ability for an 

agency to shop for best value and relegate their decision solely on 

a best price basis. These types of business models favor home-based 

businesses that primarily operate online and have no employees, 

aside from the owner, and no customer support. Businesses of this 

type end up relying solely on federal procurement as their only 

source of income. This type of business model severely disadvantages other small businesses and do not create jobs, because with 

employees there comes increased overhead expenses. 

An article in Contract Management magazine points out a case 

study, conducted by the Department of State, reveals reverse auctions are already losing market share and have dropped 30 percent 

between 2007 and 2010, despite an increase in bid notifications of 

more than 225 percent.6

There is a belief that use of reverse auctions by government contracting officers will save billions of dollars. However, The American Legion has not been able to find evidence that this process 

contributes to business innovation, economic growth, or positive 

partner relationships between government and industry. Instead, 

we have found that reverse auctions foster resentment between 

sellers and buyers and leave the seller with an attitude counter to 

providing anything more than exactly what was paid for, thus obliterating any harmonious relationship that should be developed 

between buyer and seller. 

The American Legion also learned that businesses answering solicitations for services find that customers rarely, if ever, include 

all necessary requirements in the original solicitation. What is 

wanted versus what was asked for continues to be a source of frustration between contractors and vendors. The American Legion has 

received numerous complaints from veteran business owners who 

routinely argue that their customers are dissatisfied based not on 

the work that was performed, but more importantly, based on the 

work that wasn’t performed because it wasn’t specified in the original solicitation. 

When something is bad for small business, The American Legion 

recommends simply doing away with it. The federal dollars spent 

in purchasing this reverse auction services are better utilized in 

hiring more contracting officers to do market research to ensure 

that goods and services are purchased at the fair market value. A 

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7 American Legion Resolution No. 108. 

8The Veterans Entrepreneurship and Small Business Development Act of 1999. 

9The Veterans Health Care, Benefits and Information Technology Act of 2006; PL 109–461. 

reverse auction is a shortcut contracting officers resort to because 

there simply aren’t enough of them. 

However, if federal contracting officers are allowed the continued 

use of reverse auctions, The American Legion reiterates the recommendations we have provided in the past: 

1. More outreach training for small veteran owned businesses. 

2. Eliminate the LEAD or LAG indicators. This creates an 

unrealistic stressor for the seller and can be extremely detrimental for the nascent business. 

3. Collect fees directly from customer (buyer). 

4. Build a fair market price list into the process for commonly purchased items, and prevent sellers from going below 

the established fair market price. 

5. Make buyers attest that they have conducted proper and 

adequate market research to determine fair market price. 

6. Eliminate the ability of the buyer to set a minimally acceptable price, or clearly state to the seller what the starting 

price is. 

7. Requests for debrief, protests, and any other dispute resulting between the seller and the federal government needs to 

be handled directly by the federal government, not handled 

through a civilian commercial company who has no authority 

to represent the federal government. 

8. Exact match bids need to be more interactive. Government 

has unique needs and requirements, and even items under the 

same National Stock Numbers provide variation that can cause 

end user difficulties. 

9. Limit contracting officers’ use reverse auctions to contracts over $150,000 for supply contracts that excluding services. 

VA Center for Verification and Examination (CVE) 

Verification: 

Many veterans find VA’s Veterans First Contracting Program 

verification process to be overly burdensome, which is why The 

American Legion passed a resolution titled: Support Verification 

Improvements for Veterans’ Businesses within the Department of 

Veterans Affairs.7

The American Legion believes that Public Law 106–50 made all 

federal agencies stakeholders in supporting veterans’ entrepreneurship.8 A subsequent law passed in 2006 provides VA with the authority in setting higher agency standards for SDVOSB and VOSB 

set-asides.9 A new procurement hierarchy within VA was created, 

which places the highest priority with SDVOSBs followed by 

VOSBs. VA refers to this program as the Veterans First Contracting Program (Veterans First). 

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10 38 CFR § 74. 

The process of verification involves a review of a business’ governance documentation and a determination as to whether the documentation is in compliance with VA’s Center for Verification and 

Examination’s (CVE) legal requirements for admittance into the 

Veterans First Contracting Program.10 The main challenge with 

the program is striking the appropriate balance between the 

amount of government intrusion necessary to verify a business and 

the amount of government oversight necessary to protect the integrity of the program. This is not an easy task and VA is still trying 

to find that balance. 

The American Legion has been involved with VA verification 

since the program’s inception. Most notably, The American Legion 

is a participant in the Verification Assistance Counseling Program 

and for the last two years, we have worked with numerous small 

business owners who have received verification status. The American Legion would be remiss if we did not mention that CVE has 

significantly cut down the time it takes for a small business owner 

to receive an initial decision to less than 30 days. This is a stark 

contrast to the situation in October 2012, when it took approximately 85 days for CVE to make a determination on an initial application. 

In 2012 and 2013, The American Legion counseled nearly 50 

small business owners with questions about the verification process. In 2014 that number was halved, as less small business owners sought counseling services. This could be an indicator that CVE 

has implemented changes that have improved the process and cut 

down on wait time. This trend could also be the product of a combination of VA diminishing the backlog of applications in the queue 

and extended the time a small business can remain on verified status from one to two years. 

SBA Involvement in Appeals: 

The American Legion believes that SBA and VA need to work 

closer together to minimize the inconsistencies in the decisions 

being made. Currently, VA’s Office of General Counsel (OGC) 

makes the final determinations; OGC does not utilize SBA’s case 

laws in their decisions nor do they publish their decision. SBA has 

the legal expertise, 60 years of long-standing experience, and an 

ample base of precedential case law that can be applied to future 

rulings. VA does not. Further, SBA’s Office of Hearings and Appeals (OHA) has a 15 day turnover rate for final decisions on appellate claims and OHA does so with substantially less resources. 

The American Legion believes there is added value for VA to fall 

back on SBA’s expertise and case law. 

Last year, VA submitted changes to 38 CFR § 74 to make it so 

that their case reviewers could reconcile requirements for the 

growth of small businesses with the requirements for proof of ownership and control. Having taken part in the discussion of the final 

proposal of changes that went to VA Office of General Counsel, The 

American Legion can attest that these changes drastically differ 

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from SBA’s 13 CFR § 125. If these changes are adopted, it would 

defeat the purpose of having appellate hearings conducted at SBA 

OHA as OHA judges would then have to make adjudications based 

off a new set of standards. 

Further, the current funding mechanism proposed for the appeals to be heard at SBA OHA should not be seen as one agency 

funding a new program within another. Instead, it is a funding 

mechanism that incentivizes VA to minimize their appeals and 

make correct initial decisions. Under the proposed funding mechanism, VA would pay SBA by the case load; therefore, VA could potentially stop having to pay for appeals that go to SBA OHA, when 

VOSB and SDVOSBs no longer have reasons to appeal. 

There has been push-back for moving of appellate hearings of 

VOSB and SDVOSB statuses to SBA out of concerns that this 

would add VOSBs as a new set-aside program government wide. 

The American Legion wants to be clear that this is absolutely not 

the case and not our intention when we supported the bill last year 

that proposed moving the appeals process from VA to SBA. We believe that the language was clear that VOSB appellate claims are 

merely being heard by SBA OHA as they pertain to contracting 

within VA’s Veterans First Contracting Program and nowhere else. 

The American Legion impresses upon the Committee that (1) including SBA in the appellate process would ensure more consistency in the final decisions being made and ensure impartiality in 

not having the agency of original adjudication review their previously denied claim and (2) moving appeals to SBA does not create 

a new preference group within the federal small business set-aside 

program. 

Differences between Self Certification and CVE 

Verification: 

The American Legion supports verification. Government contracting officers are busy, risk averse and they prefer certifications. 

This is why within the realm of set-aside procurement; there is a 

preference for 8(a) and women-owned small businesses. When a 

contract is awarded, a contracting officer can rest-assured knowing 

that the recipient of the award has been vetted for ownership and 

control. 

SBA’s model and VA’s model for verifying a small business currently follows similar regulations, except where SBA allows firms 

to self certify as SDVOSBs and VA does not. VA requires a firm 

to enter a rigorous process on the front end, where every issue that 

may arise from the present and the future would have to be resolved before a firm is verified. SBA’s process of self certification 

policies itself through status protests from the small business community once a contract has been awarded. SBA would then subject 

the protested firm to rigorous scrutiny. Whereas VA’s rigorous 

verification is necessary for entry into the Veterans First Contracting Program within VA, SBA’s self certification process is government wide. 

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The American Legion understands why contracting officers, 

agency-wide, have started asking SDVOSBs if they are CVE 

verified. However, this has added to the confusion of having two 

types of vetting processes for two agencies for relatively the same 

purpose. To cut down on the confusion, the Committee should consider a single set of standards for all SDVOSBs to contract with 

the federal government. The American Legion recognizes the importance of having a single set of standards and vetting practices, 

but we would defer to the Committee’s expertise in selecting the 

agency most capable of undertaking this task. The American Legion asks the Committee to weigh past performance, expertise and 

resources in determination which verifying body would be best suited for this job. 

Exclusion of Veterans from DOT DBE Program: 

By law, the federal government is mandated to award no less 

than three percent of all federal contracts to SDVOSBs. For a number of reasons a few agencies have not met this goal. One major 

reasons is because some contract funding streams exist outside the 

realm of regular appropriations and therefore are not susceptible to 

SBA’s small business goal tracking. 

One of the most egregious exclusion of veterans owned small 

businesses occurs in the budget for the U.S. Department of Transportation’s Disadvantaged Business Enterprise (DBE) program, 

which mandates that states receiving federal dollars for highway 

infrastructure repairs have to set aside 10 percent for preferred 

groups of small businesses through the Moving Ahead for Progress 

in the 21st Century Act (MAP-21). It is a misconception that this 

10 percent is solely relegated to road and infrastructure construction firms. There are a variety of industries involved in infrastructure repairs, such as engineering, landscaping, remediation, utilities and information technology. This is an issue that affects all 

veteran owned small businesses and not just those in construction. 

Section 1101(b) of MAP-21 currently provides that: 

Except to the extent that the Secretary determines otherwise, not less than 10 percent of the amounts made available 

for any program under divisions A and B of this Act and section 403 of title 23, United States Code, shall be expended 

through small business concerns owned and controlled by socially and economically disadvantaged individuals. 

Section 1101(b) adopts the definition of socially and economically 

disadvantaged individuals given in Section 8(d) of the Small Business Act and its implementing regulations, which, in turn, establish a presumption that specific groups of minorities are socially 

and economically disadvantaged. Section 1101(b) also establishes a 

presumption that women are socially and economically disadvantaged individuals for purposes of the DBE program. Since veterans 

are not explicitly listed in Section 1101(b), they are excluded from 

the DEB program. 

Recently, Congressman Mike Fitzpatrick from Pennsylvania has 

successfully added an amendment to rail infrastructure legislation 

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11 H.R. 749 12 Includes Women Owned Small Businesses. 

which passed the House on March 4, 2015. Fitzpatrick’s amendment, passed as part of the Passenger Rail Reform and Investment 

Act,11 directs the Secretary of Transportation to conduct ‘‘a nationwide disparity and availability study on the availability and use of 

certain classes of small businesses—including veteran-owned businesses.’’ 

The American Legion believes that this is a crucial step in leveling the playing field for our veteran small business owners that 

are not currently eligible to go after these set-asides. 

The American Legion works closely with Congressman 

Fitzpatrick to advocate for the amending of Section 1101(b) to add 

‘‘veteran-owned small business concerns’’ as a separate line to the 

list of entities eligible. Such an addition would not presume that 

veterans are ‘‘socially and economically disadvantaged.’’ Instead, 

VOSBs would become independently eligible for the DBE program 

by establishing two categories of entities who count for purposes of 

the 10 percent goal: (1) small businesses owned and controlled by 

presumed socially disadvantaged individuals 12, and (2) VOSBs. 

In previous Congresses, Fitzpatrick has introduced the bipartisan 

Fairness to Veterans for Infrastructure Investment Act which seeks 

to add veterans as a separate category of small businesses they can 

use to meet their 10 percent goal. The American Legion and numerous other Veteran Service Organizations support this bill and 

asks again for this Committee’s support this summer when Congress reauthorizes the federal highway bill. 

Conclusion: 

The American Legion appreciates the opportunity to testify 

today. Thank you again to Chairman Hanna, Ranking Member 

Velazquez and members of the subcommittee for directing your attention to this critical issue facing veterans. For additional information regarding this testimony, please contact Mr. Larry Provost 

at The American Legion’s Legislative Division, 202–263–5755 or 

lprovost@legion.org. 

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BIOGRAPHY FOR 

DAVY LEGHORN 

ASSISTANT DIRECTOR 

NATIONAL ECONOMIC COMMISSION 

THE AMERICAN LEGION 

Davy Leghorn was appointed to the position of Assistant Director 

of the Economic Division of The American Legion in January, 2012. 

Mr. Leghorn oversees veterans’ employment and small business 

issues and administers The American Legion’s National Veterans 

Hiring Initiative. He also represents The American Legion on the 

Small Business Administration’s Advisory Committee on Veterans 

Business Affairs. 

He previously worked as a National Appeals Representative for 

The American Legion at the Department of Veterans Affairs’ Board 

of Veterans’ Appeals, where he provided representation to veterans, 

their spouses and dependents in appellate hearings before the Veterans Law Judges. 

Mr. Leghorn served as a mortar infantryman in the Army with 

the 2/72 Armored Battalion, 4/7 Cavalry and 3/15 Infantry, then as 

a Civil Affairs Specialist with 450th Civil Affairs Battalion. 

He currently serves as Second Vice Commander for George 

Washington Post #1 in The American Legion Department of the 

District of Columbia. 

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Insert offset folio 40 here 93733.002
40 

Chairman Hanna, Ranking Member Vela ́zquez and Members of 

the Committee. Thank you for the opportunity to provide testimony 

this morning on behalf of the over 500,000 members of the U.S. 

Women’s Chamber of Commerce, three-quarters of whom are American small business owners and federal contractors. Today, as the 

Committee discusses contracting and the industrial base, I will address our views on the use of reverse auctions, size and socio-economic verifications and the SBA’s role in rulemaking and enforcement. 

Reverse Auctions 

While reverse auctions have the potential to deliver savings for 

the federal government when purchasing supplies, commodities 

and other services, we have a number of concerns with the reverse 

auction process and outcomes: 

1. Given the complexity of pricing and delivery of supplies 

and commodities, small business owners may be pushed in the 

moment to lower bids to their own detriment. 

2. Low bidders may try to win a contract and then seek to 

make up lost profits through price adjustments. 

3. When procurements include a mix of products and/or services, the variables may be too complex to be adequately managed through the pressures of reverse auction. 

4. The complexity and risks involved in an auction environment may actually drive down competition by causing potential 

bidders to not participate. 

5. There is a risk of circumventing regulations related to the 

small business and socio-economic requirements. 

6. Past performance is not given consideration. 

7. Due to the extreme focus on lowering pricing, there is a 

risk that defective products or counterfeit parts may be provided. 

8. With the 3% fee to the reverse auction provider, it may 

often be more efficient to simply purchase off a schedule. 

Verifications 

Our members are very concerned about the failure of the Small 

Business Administration to verify the veracity of firms claiming to 

be small and meeting certain socio-economic requirements for setasides and other programs. 

Congress has established a number of programs to assist small 

businesses competing for federal contracts. These programs support 

our nation’s efforts to reach full productive capacity and assuring 

that a fair portion of the total purchases and contracts for property 

and services for Government in each industry category are placed 

with small business concerns. These focused programs require that 

the SBA accurately identify and verify eligible firms. This 

verification includes determining if the business is small, the business is veteran-owned, women-owned, disadvantaged-owned, in a 

HUBZone, etc. 

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Unfortunately, the SBA has failed at this most basic requirement 

for more than a decade. For the last decade, the SBA Inspector 

General’s annual ‘‘Report on the Most Serious Management and 

Performance Challenges Facing the Small Business Administration,’’ has listed as SBA management’s top challenge - flaws in the 

procurement process allow large firms to obtain small business 

awards, and allow agencies to count contracts performed by large 

firms toward their small business goals. Yes, a decade. 

The SBA’s failure to verify small business and socio-economic 

claims became a major issue when the Service Disabled VeteranOwned Small Business set-aside was created. During the process 

to create regulations, the SBA did not establish any eligibility 

verification for the SDVOSB program. This regulatory failure lead 

to hundreds of millions of dollars in fraud and abuse as contract 

went to ineligible firms. 

The veteran’s contracting issue became more complicated when 

the U.S. Department of Veterans Affairs began their own Vets 

First Contracting Program with its own verification. The Vets First 

Contracting Program is only for specific contracting opportunities 

within the U.S. Department of Veterans Affairs. It is wholly separate from the SBA and has different eligibility requirements from 

the SBA’s Service Disabled Veteran Small Business program which 

is used all across the federal government. 

Now, we understand some members of Congress have suggested 

the VA’s verification of veteran-owned firms for the Vets First Contracting Program should be moved to the SBA and paid for by the 

VA. This idea comes from a lack of understanding that the Service 

Disabled Veteran-Owned Small Business set-aside program, which 

is under the SBA’s management and enforcement, has a different 

purpose and different requirements from the VA’s Vets First Contracting Program. Since the SBA failed to create a verification program for the Service Disabled Veteran-Owned Small Business setaside program, businesses and agencies are confused and hundreds 

of millions of dollars have been lost to legitimate SDVOSB firms 

due to fraud and abuse. 

Additionally, if the SBA took on the VA’s verification for the Vets 

First Contracting Program and the VA paid for this program, what 

would happen when the VA runs into budgetary challenges and 

doesn’t want to pay for the services anymore? 

More recently, due to the SBA’s poor regulatory implementation 

of the Women-Owned Small Business set-aside program, the Government Accountability Office found that more than forty-percent 

of businesses (that previously received contracts) it examined for 

program eligibility should not have attested they were WOSBs or 

EDWOSBs at the time of review. 

Thankfully, Congress and the President acted together through 

the recent passage of the FY15 National Defense Authorization Act 

to remove self-certification from the Women-Owned Small Business 

set-aside program which, when implemented, will certainly elevate 

the scrutiny of verification for this program. We appreciate Congress stepping up to force the SBA to do what it should have done 

all along. We strongly implore this committee to hold SBA accountSBREP-219 with DISTILLER

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able for the creation of strong regulations to improve the 

verification and use of this program. 

SBA’s role in the Rule Making Process 

The SBA’s role in the rule making process includes the development and enforcement of regulations to enact federal laws. Both 

steps are vitally important to our nation’s goal to reach full productive capacity and assure that a fair portion of the total purchases 

and contracts are placed with small business concerns. 

So, as Congress passes legislation aiming to achieve these goals, 

we must rely upon the SBA to prepare and enforce regulations that 

successfully fulfill your intent. In this area, the SBA has failed 

woefully. 

1. The regulations developed and enforced by the SBA for 

the implementation of the Women-Owned Small Business setaside program were flawed from the very start. The SBA ignored the input from stakeholders on the inability of the processes brought about through the regulations to effectively insure that only qualified women-owned firms received access to 

set-asides. The SBA created a grossly complex method of managing the documents secured from firms seeking access to the 

program. The SBA turned contracting officers into de facto certifiers - driving down their desire to use the program. And, the 

SBA devoted very limited resources and funding to the implementation of the program, education of contracting officers and 

oversight/enforcement of the regulations. 

2. The SBA failed to create a verification program for the 

Service Disabled Veteran-Owned Small Business set-aside program. The consequence has been that hundreds of millions of 

dollars have been lost to legitimate SDVOSB firms due to 

fraud and abuse and there is a great deal of confusion between 

the SBA’s SDVOSB and the VA’s Vets First program. 

3. We also see the failings of the SBA in the failure of the 

agency to staff an appropriate number of Procurement Center 

Representatives. PCR’s work all across the U.S. to enforce the 

requirement for small business set-asides in their regions. The 

most crucial, front-line teams that acts to assure that a fair 

portion of the total purchases and contracts are placed with 

small business concerns - is clearly not a regulatory enforcement priority of the Small Business Administration. 

The U.S. Women’s Chamber of Commerce agrees with the budget 

views of this committee: the SBA must allocate greater use of their 

funds to the core, Congressional mandated activities of the agency. 

And, this Committee must provide strong oversight and accountability. Rather than funding the SBA’s extra layer of non-essential 

national and regional management and non-mandated programs - 

we recommend funds be directed to regulatory enforcement and 

services provided directly to assist and protect small business owners. 

And, I ask you to help us assure that the SBA properly implements the provisions in the FY15 National Defense Authorization 

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Act that will bring greater verification and accountability to the 

Women-Owned Small Business set-aside program. 

Thank you for the opportunity to provide this input. 

Æ 

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