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99–715 2016

FIELD HEARING IN PALMDALE, CA: CHALLENGES 

FOR SMALL DEFENSE CONTRACTORS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONTRACTING AND 

WORKFORCE 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

APRIL 5, 2016 

Small Business Committee Document Number 114–053 

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 

CHRIS GIBSON, New York 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

CARLOS CURBELO, Florida 

CRESENT HARDY, Nevada 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

YVETTE CLARK, 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 

MARK TAKAI, Hawaii 

KEVIN FITZPATRICK, Staff Director 

EMILY MURPHY, Deputy Staff Director for Policy 

JAN OLIVER, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENT 

Page 

Hon. Steve Knight ................................................................................................... 1 

WITNESSES 

Mr. Don Rhea, Vice President, Clancy JG International, Lancaster, CA ........... 3 

Mr. Kirk Flittie, General Manager, Unmanned Systems, Simi Valley, CA ........ 5 

Ms. Virginia Villa, Owner, West Pacific Electric Company, Lemoore, CA ......... 6 

APPENDIX 

Prepared Statements: 

Mr. Don Rhea, Vice President, Clancy JG International, Lancaster, CA .... 23 

Mr. Kirk Flittie, General Manager, Unmanned Systems, Simi Valley, 

CA ................................................................................................................... 25 

Ms. Virginia Villa, Owner, West Pacific Electric Company, Lemoore, CA .. 27 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

None. 

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(1) 

CHALLENGES FOR SMALL DEFENSE 

CONTRACTORS 

TUESDAY, APRIL 5, 2016 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, SUBCOMMITTEE ON CONTRACTING AND THE WORKFORCE, Washington, DC. 

The Subcommittee met, pursuant to call, 2:00 p.m., at the 

Palmdale City Hall Chamber Room, 38300 Sierra Highway, 

Palmdale, California, Hon. Steve Knight, presiding. 

Present: Representative Knight. 

Also present: Representative Valadao. 

Mr. KNIGHT. Good afternoon. Thank you all for coming. This 

hearing will come to order. 

Before we begin, I would like to sincerely thank everybody for 

coming, and a special thanks to our witnesses for giving up some 

of their time today. I appreciate your willingness to take time out 

of your schedules and appear before this Subcommittee to talk 

about the barriers small contractors face when working with the 

Department of Defense. 

I would like also to extend a warm welcome to my friend and colleague, Congressman David Valadao, from the 21st District. He has 

a lot of Bakersfield and Hanford, and a lot of those other little cities that you drive by on the 5. 

[Laughter.] 

I appreciate David coming down and helping us out with this. 

Government contracting offers a unique opportunity to invest in 

small businesses while also stimulating our economy. Small businesses play a critical role in our economy and job growth, creating 

7 out of every 10 private sector jobs. With our economy continuing 

to sputter along, it is more important than ever to invest in the 

small firms that support our communities and provide opportunities for our families. It is difficult to build a strong economy when 

its foundation, America’s small businesses, is not strong itself. 

Small business contractors are good for the government and good 

for the economy. Small businesses tend to be more nimble, responding to market changes more rapidly than larger counterparts, and 

they drive the innovation sector that makes America more agile in 

the global economy. They increase competition and innovation, create jobs, and save taxpayer dollars, which is why there is a statutory goal of awarding 23 percent of prime contract dollars to small 

businesses. 

Having a healthy small business industrial base means that taxpayers benefit from the increased competition, innovation, and job 

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creation. It also means that we can securely support programs crucial to our national defense instead of relying on foreign-made 

goods. 

The percentage of dollars awarded to small businesses is a good 

measure of success, but it is not the only measure. Over the last 

4 years, while the percentage of dollars being awarded to small 

businesses was increasing, the number of contract actions with 

small businesses fell by almost 60 percent. At the DOD the number 

fell by almost 70 percent. The size of the average individual small 

business contract action increased by 230 percent during the period, and by nearly 290 percent at the DOD. The percentage of 

some contracted work going to small businesses has also fallen by 

nearly 2.5 percent. 

These statistics are all alarming in their own way, but one of the 

more clear-cut and disturbing figures is that there are over a hundred thousand fewer small businesses registered to do business 

with the Federal government than there were in 2012. These data 

points suggest we have a problem with our small business defense 

industrial base. 

Right here in California’s 25th district, we are in a unique position of having a huge presence of defense contracting companies as 

well as a large number of small businesses that are seeking government contracts. We have around 480 small businesses seeking 

to do business with the Federal government here in this district. 

This means there are many opportunities for small companies to be 

Federal prime and subcontractors, but there are also significant 

challenges and barriers for them. 

We have asked our witnesses today to discuss some of these barriers and suggest ways to reduce them. I look forward to hearing 

these ideas and taking their recommendations back to Washington 

where I can work with my colleagues to make things easier for 

small firms to enter the defense contracting arena and ensure a 

healthy, vibrant defense industrial base. Again, I want to thank 

each of our witnesses for taking the time to be with us today, and 

I look forward to hearing your testimony. 

We have three witnesses here today, and we do have some rules. 

We will abide by them as well as I can do. We have 5 minutes for 

you to chat, and when you start going over that, I will look at you. 

If you do not respond, then I will start going like this. 

[Laughter.] 

[Gavel.] 

At that point if you do not respond, we will escort you out. No, 

we will be as lenient as we possibly can, but if we can adhere to 

around 5 minutes, that would help us. 

Let us get right into it with our witnesses. A couple of the witnesses I know. I have worked with them, have been with their 

businesses, have seen what they do, and have talked with them. 

This is exciting for me to have two witnesses come in that I have 

a good relationship with. Then David will introduce our third witness. 

Our first witness today is Mr. Don Rhea, Vice President of 

Clancy JG International in Lancaster, California. Mr. Rhea has a 

bachelor’s degree from Chapman University followed by graduate 

study work at University of Southern California. His background 

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includes working for the National Aeronautics and Space Administration—‘‘NASA’’ for all of you—followed by a career as a contractor 

supporting the Department of Defense. 

His knowledge and experience includes engineering analysis, air 

traffic control, air space management, unmanned aircraft systems, 

simulation training, flight tests, test ranges, and business management. 

Clancy JG International has been awarded more than $18.5 million in private contracts since their inception in 2007. It is geographically diverse with locations across the United States as a 

Small Business Administration certified 8(a) program participant, 

and as a service-disabled veteran-owned small business. 

Mr. Rhea. 

STATEMENTS OF DON RHEA, VICE PRESIDENT, CLANCY JG 

INTERNATIONAL, LANCASTER, CALIFORNIA; KIRK FLITTIE, 

GENERAL MANAGER, AEROVIRONMENT UNMANNED SYSTEMS, SIMI VALLEY, CALIFORNIA; AND VIRGINIA VILLA, 

OWNER AND CEO, WEST PACIFIC ELECTRIC COMPANY, 

LEMOORE, CALIFORNIA 

STATEMENT OF DON RHEA 

Mr. RHEA. Thank you, Congressman Knight, Congressman 

Valadao. I appreciate you taking the time to entertain this topic, 

a very important one to us. 

I would like to open today by expressing my appreciation for all 

the small business specialists within the Department of Defense 

who tirelessly search and evaluate opportunities for small businesses to participate in government contracts. These individuals 

engage in active dialogue with the small business community on a 

regular basis through industry days, outreach events, and regular 

office visits by small businesses, and we’ve greatly benefitted by 

their support. 

I acknowledge that opportunities for small business participation 

in the Department of Defense acquisitions are present. Many opportunities result from the small businesses developing and submitting capability statements in response to sources sought and 

market surveys. Small businesses spend many hours traveling to 

customer facilities and networking to identify opportunities where 

our talents and expertise can contribute to the mission. 

With this approach, as stated, we have succeeded in building a 

business base. Roughly 80 percent of our 2015 revenues were as a 

prime contractor and with customers, as mentioned, from Alaska to 

Washington, D.C. We’ve done that because we have a committed 

and dedicated staff. 

I have direct experience working with small businesses that range from startups to more sizable ones around $30 million and 

above. As a services company, Clancy JG International targets 

technical support services opportunities with selected NAICS codes, 

North American Industry Classification System codes, which we 

also refer to as size standards. 

One of those that we pursue as a NAICS code is 48190, which 

is ‘‘other support activities for air transportation’’ with a size standard of $32 and a half million. To pursue opportunities under this 

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NAICS code, a company must have an average revenue over the 

most recent 3-year period of $32 and a half million or less. And as 

a company approaches a $32 and a half million average, they are 

much larger. They have more resources, and they enjoy a significant competitive advantage over companies our size; that is, companies of less than $5 million in annual revenues. 

It’s very difficult for a $5 million small business to compete with 

a $32 and a half million small business as a prime contractor. But, 

as you see, we’ve had some success. To overcome these challenges, 

small business will typically search for opportunities to provide 

subcontract support, thus increasing revenues and developing a 

corporate past performance portfolio, which is needed to be a credible prime. 

Small businesses awarded contracts under any small business 

set aside or NAICS, regardless of the size standard, do not provide 

any subcontracting opportunities. However, if the contract is full 

and open in competition with a small business subcontractor requirement, then opportunities for small businesses do exist assuming that the company has the correct technical skill to contribute. 

We have seen prime contracts with as much one-third of the work 

designated for small business. These contracts provide opportunities for several small businesses to participate. 

Over the past decade, there’s been significant momentum towards contract consolidation. Small business contracts absorbed 

into large contracts, and multiple small business contracts consolidated into a sizeable small business contract. 

Over my career, I’ve been party to both of these scenarios. In the 

case of a large contract, a follow-on subcontract might be available. 

However, the opportunity for a small business to pursue the next 

step in becoming a prime contract has been eliminated. 

In order for a small business to grow as a prime contractor, they 

must have the ability to bid as a prime contractor. While contract 

consolidation still exists today, it is limiting small business opportunities. There have been recent instances within the Department 

of Defense where tasks were removed from small business contracts removed from a large business, set aside for a small business, which provided a great opportunity for a small business 

prime. We’ve seen some of that in the other direction, mostly the 

Navy. 

Finally, government regulations are causing significant challenges for small businesses. The Affordable Care Act is driving up 

the costs of healthcare. We have witnessed far greater increases in 

health insurance premiums than we saw in prior years before the 

ACA implementation with reduced coverage and much higher 

deductibles. The challenges in bidding a multiyear firm fixed price 

contract—as a services company that’s what we pursue—for indirect cost control is vital. 

Other challenges are associated with access to capital. Since the 

financial collapse in 2008, regulations have prevented small businesses’ access to capital through the typical borrowing route. As a 

result, many small businesses are faced with utilizing the services 

of receivables financing companies to fund expenses while waiting 

for invoices to be paid, which is an expensive proposition. 

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As small business leaders, we understand that these challenges 

exist. Small business leaders are typically entrepreneurs and are 

adept at solving problems and thriving. Addressing these challenges is becoming more difficult in recent years and deter many 

small businesses from pursuing Department of Defense contract opportunities. 

I appreciate the opportunity to testify and provide my real world 

insight into this topic and the challenges that face small business 

defense contractors. Thank you. 

Mr. KNIGHT. Thank you, Mr. Rhea. 

Second on the docket is Mr. Kirk Flittie, Vice President and general manager of Unmanned Aircraft Systems at AeroVironment, Incorporated. 

With more than 25 years of experience in the commercial and defense business segments, he was promoted to vice president and 

general manager for unmanned aircraft systems at AeroVironment 

in May of 2015. Before assuming his current position, he was Vice 

President for the HALE UAV business area. 

Prior to joining AeroVironment, Mr. Flittie worked for the American Rocket Company, a commercial space launch company, for 8 

years as an operations director, program manager, and senior engineer. Mr. Flittie also worked at Northrop Aircraft Corporation as 

a design and test engineer on the F–20 fighter, the Tigershark, several classified programs, and advanced hypersonic aircraft. 

He holds a Master’s of Science in aeronautical and astronomical 

engineering from the Massachusetts Institute of Technology and a 

Bachelor’s of science in aerospace engineering from the University 

of Notre Dame. 

Mr. Flittie. 

STATEMENT OF KIRK FLITTIE 

Mr. FLITTIE. Thank you, Congressman Knight and Congressman Valadao. Please allow me to thank you, Congressman Steve 

Knight, for inviting me to testify in front of the Small Business 

Subcommittee on Contracting and Workforce. I’m honored to represent the 650 proud employees of AeroVironment in Simi Valley, 

California. 

AeroVironment is a technology solutions provider that designs, 

develops, produces, supports, and operates an advanced portfolio of 

unmanned aircraft systems and electric transportation solutions. 

Agencies of the U.S. Department of Defense and allied military 

services use the company’s electric powered hand launched unmanned aircraft systems extensively to provide situational awareness to tactical operating units through real time airborne reconnaissance, surveillance, and communications. 

AeroVironment’s electric transportation solutions include a comprehensive suite of electric vehicle charging systems, installation of 

network services for consumers, automakers, utilities, and government agencies, power cycling and test systems for EB developers, 

and industrial electric vehicle charging systems for commercial 

fleets, and unmanned aircraft systems. 

With over 25 years of experience developing, supplying, and supporting small, unmanned aerial systems, AeroVironment is a prime 

contractor and supplier to all U.S. Department of Defense proSBREP-219A with DISTILLER

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grams of record for this category of unmanned aircraft systems, 

and has delivered more than 20,000 new and replacement air vehicles to customers in the U.S. and elsewhere. 

AeroVironment’s family of small U.S. air vehicles includes 

Raven, Wasp, Puma, and Strike. These backpackable manned portable hand-launched unmanned aircraft systems are carried and 

used by our armed forces, who frequently operate across large geographic areas, often far removed from their bases, and are dependent mainly on what they carry in their packs or vehicles. They deliver frontline real time situational awareness to increase combat 

effectiveness and force protection. 

By transmitting livestreaming, color, and infrared video from onboard cameras directly to a common hand-held ground control station with an embedded color monitor, AeroVironment’s aircraft systems provide real-time information that help U.S. and allied armed 

forces operate more safely and effectively. 

Mr. Chairman, thank you for the opportunity to be here today to 

discuss the opportunities and challenges of business for the Department of Defense. I’d be happy to answer any questions that you 

might have. 

Mr. KNIGHT. Thank you very much. Now, I will let Congressman Valadao introduce our third witness. 

Mr. VALADAO. Thank you, Chairman Knight. Our third witness 

is Ms. Virginia Villa, CEO of West Pacific Electric Company in 

Lemoore. In her capacity at West Pacific, Ms. Villa is in charge of 

day-to-day operations, purchasing, human resources, and development of technical proposals, among other tasks. Previously she was 

CEO of Covenant Services, Incorporated, in Lemoore, and the supervisor of D Electric also in LeMoore. 

A federal contractor for over 25 years, Ms. Villa is a member of 

the United States Women’s Chamber of Commerce and the Hispanic Chamber. Born and raised in Central Valley, Ms. Villa lives 

there with her husband and six children. 

Ms. Villa, thank you for being with us today, and welcome. 

STATEMENT OF VIRGINIA VILLA 

Ms. VILLA. Good afternoon, Congressman Knight and Congressman Valadao. I appreciate the invitation to testify here today, and 

I’m honored to provide you with insight into the obstacles faced by 

a small woman-owned defense contractor. 

My name is Virginia Villa, and I am the CEO of West Pacific 

Electric Company located in Lemoore, California. Located in California’s Central Valley, Lemoore is home to the Naval Air Station 

and surrounded by many rural communities that are traditionally 

underserved. The Central Valley is also home to many small business and minority-owned companies struggling to grow and provide 

jobs for their employees. 

My firm, West Pacific Electric Company, is an electrical firm 

which currently employs 11 full-time employees. Our services include all phases of electrical with a special emphasis on high voltage electrical distribution. Currently we bid on federal, state, municipal, and commercial projects throughout California and neighboring states. When opportunity permits, we bid as a prime contractor, but the majority of our bidding is as a subcontractor. 

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As Chief Executive Officer of West Pacific Electric Company, I 

have attended numerous events sponsored by various Federal 

agencies, such as the Society of Military Engineers, SAME, and the 

Minority Business Development Agency, also known as MBDA. I 

attended each of these events with the assumption that I would be 

given the same opportunities as other contractors to bid on Federal, State, and local contracts. 

While these events provided more insight and information regarding submitting bids for defense contracts and were marketed 

as providing opportunities for all interested in seeking government 

contracts, the reality is that each event shared one common message. It is recommended that the small defense contractors reach 

out to large contractors for subcontracting opportunities. 

As those of us here today understand, small businesses and businesses owned by minorities face unique challenges when competing 

for contracts and jobs for their employees. These challenges are 

most apparent when larger companies and major projects leave out 

the small business firms and ignore the potential to include them 

in this serious bidding process. 

I understand large contractors may find it easier to work with 

proven subcontractors, but this leaves out growth potential for 

qualified companies to compete. Many in my position wonder why 

small businesses are expected to pull on the coattails of large contractors just to get an opportunity to bid while it should be the 

large contractors reaching down into the large pool of small businesses that can perform the work. 

As CEO of West Pacific Electric, accessing federal contracts is a 

challenge I face every day. In addition to attending informational 

events sponsored by SAME and MBDA, I also have taken the initiative to meet with small business representatives of various agencies to present my firm’s proposals and capabilities. Furthermore, 

I have aggressively worked to expand my own network in an effort 

to better position my company. I am a member of the United States 

Women’s Chamber of Commerce, MBDA, SAME, and the Hispanic 

Chamber of Commerce, which provides with networking opportunities to work with large contractors. 

To contribute to my qualifications, I hold the following certifications: Economically Disadvantaged Woman-Owned Small Business, CPUC, State of California Small Business, Small Disadvantaged Business, SDB, and GSA contract holder, all of which are 

contract vehicles when bidding on government projects. Despite 

these efforts, my company continues to face obstacles when applying for government contracts. I will provide you with one reoccurring example. 

When a large government contract is released, our firm does preliminary research to confirm that a subcontracting plan is incorporated within the solicitation. If a subcontracting plan is incorporated and my company decides to bid on the project, a lot of work 

and man-hours go into preparing a bid. We oftentimes later find 

out that the majority of the contractors that have been awarded a 

subcontract are large firms. This leads me to believe that subcontracting plan is ignored and discourages me from bidding on the 

next project. 

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While larger established companies have an advantage, there are 

still opportunities for small businesses and minority-owned companies throughout the state and in the Central Valley. It is critical 

that my company has access to projects close to home in the Central Valley. Potential projects include the development of the California high-speed rail, a $68 billion project, and the renovations at 

Lemoore Naval Air Station, $1.6 billion. General construction 

projects are a deal for businesses to participate in and help subcontracting and job creation opportunities. 

I believe there are many common sense solutions that should be 

considered in order to encourage the involvement of small businesses, and I’m happy to have the opportunity to discuss those further at today’s hearing. 

In closing, again, I want to thank you for the opportunity to testify before the Committee today. I hope that my testimony provides 

you with further insight and information regarding the challenges 

faced by small business defense contractors. Thank you. 

Mr. KNIGHT. Thank you very much. Part of what we do in this 

hearing is coming out to the district, coming out to southern California instead of having everybody go to Washington, D.C. to testify 

in front of Congress. It’s very beneficial. We get to hear right here. 

You can drive right to City Hall in Palmdale, and we did one in 

Pasadena this morning, and we plan on doing some of these across 

the State. And so, that makes it a little bit, well, less costly for you, 

less intimidating, and more down home, and just real answers to 

real problems. 

At our hearing in Pasadena today, we had four woman-owned 

small businesses. We talked about access to capital, some of the 

barriers, and none of them were defense companies, but all of them 

had the same exact barriers they were trying to get past. It was 

fruitful, and I think we are going to get something out of it, and 

we are going to work with something. That was very helpful that 

couple of hours that we spent in Pasadena. 

I will start off with Mr. Flittie. I understand that AeroVironment 

has had success internally developing innovative solutions that 

were embraced by the DOD and subsequently fielded by our U.S. 

forces. By getting the department’s focus on better buying power, 

are you finding the department recognizes the contributions of your 

internal investments and compensate you accordingly for your IP? 

Mr. FLITTIE. One of the approaches that we do at 

AeroVironment that we have done historically, is to invest heavily 

internal research and development funds. Typically about anywhere 10 to 15 percent of our revenue goes back into internal research and development to develop products, improve them, and 

position them to the point where we are ready to compete. 

One of the barriers that we find when we go into these competitions with much larger organizations than we are, is that oftentimes the requirements to compete are that we are required to 

share our intellectual property that we have developed on our 

IRAD with other companies to try to level the playing field. That 

is one of the reasons we used the IRAD to develop this is to bring 

it to high, what is called, technology readiness levels so that we are 

prepared to compete, but we also want to retain intellectual property as well as part of that. 

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That creates a barrier for us because it is seen as an unfair advantage for us especially when we are competing against much 

larger organizations. We have to be able to share the data rights 

in intellectual property of things that we developed internally. That 

is a barrier for us because it is that intellectual property, that intellectual capital that we use to grow our business. 

Mr. KNIGHT. Let me push a little further on that. Basically 

what you have created there is your intellectual property, and that 

is what you have developed; that is, the program or the product 

that has been developed by your company. To go a little bit further 

on that, if there is not a way of more or less protecting this without 

going into this process, what does that do to the company? You do 

not go out and try and produce or create something new, or change 

something and make it better? 

Mr. FLITTIE. Some of the protections that we will seek are traditional ones through patent protection, but oftentimes the protection is just an internal trademark or just protected intellectual 

property that we do not share. So what we will try to do is we will 

try to use that intellectual property and their designs in their competitions, and try to restrict it the best we can to be able to compete effectively without having to share it with our competitors. 

Mr. KNIGHT. I will go on to Mr. Rhea. About what is your success rate in winning contracts from the Federal government? Are 

there any particular agencies or particular part of the DOD that 

are better to work with than others, or maybe better services that 

are better to work with than others? 

Mr. RHEA. We won our first prime contract with the FAA in 

2009. We bid against six other companies, and it was a service-disabled veteran-owned small business set aside, and we were awarded the contract. That was our first prime contract award. 

Since then, the bulk of our awards have been as a result of briefings or sole sources through the 8(a) program. We do some work 

with the Army National Guard, and we do some work with the 

Navy China Lake. China Lake is the organization I mentioned earlier that has been taking work off of some of the large consolidated 

contracts set aside for small businesses. We have been up there 

several times giving briefings, and as a result of the briefings, they 

have selected somebody and then negotiate a contract with them. 

Even though it is an 8(a) set aside, it has been somewhat of a competition to get it. So those are the opportunities that I have seen 

only the Navy pursue. 

In my previous companies I have had work at Edwards Air Force 

Base, but most of that work had been consolidated with the large 

contracts, and there really are not opportunities for some contractor on a contract at NASA Armstrong. That is one of my two 

subcontracts. The other one I am a subcontractor to a company in 

Washington, D.C. for the FAA. The rest of our contracts with the 

DOD are all prime contracts, but they have been limited solicitations. 

It is really difficult. We have bid on a lot of contracts, back to 

your question on how many we have won. We have bid on a lot of 

larger contracts, but because we do not have relevant past performance, and they define ‘‘relevancy’’ in terms of the size of your company. Being a company of 30 employees and less than $5 million 

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in annual revenues, and you are bidding against somebody that 

has got several hundred employees, it is very difficult to compete. 

We just bid on fairly large contract at NASA Armstrong, but 

some of that is you just have to keep going. You bid on these knowing that you probably do not have a probability to win, but you 

want them to know you are interested so that when something else 

comes up, you may have another opportunity. 

As a small business you get really creative trying to get your 

name out, trying to get to know people, trying to influence what 

is coming out. We responded to a lot of market surveys. Some of 

them we decided to bid on when they come out. Some of them we 

do not. But you are trying to get people to know who you are and 

just get the word out there, because as small businesses we have 

a lot of talent. It is just getting through those hurdles of relevant 

past performance and similar contracts. 

I just got a solicitation this last week to bid on some transit alert 

stuff, which is not typically what we do, but it is our NAICS code, 

for 44 bases throughout the U.S. The way it was written, you had 

to have two contracts where you did the same exact work. When 

the contracting officer called and said are you going to bid it, we 

said, no, because you are too restrictive on your past performance. 

We can meet one requirement, which is past performance of similar 

contracts, but you required in addition to that two specific past performance citations, which we cannot meet, so we are not bidding. 

Those are the things that we have a challenge with. As small 

businesses, it is really difficult to find opportunities. When you bid 

them, you bid some of them knowing you do not have a chance of 

winning, but you bid them anyway just to get some experience, 

some knowledge, some insight. As a small company, when you have 

two or three people doing all the work, you have a very limited 

number you can bid on. So you are very selective as to which ones 

you pursue. 

Mr. KNIGHT. On a scaling percentage, how much more difficult 

is it on certain products, certain bids that you are trying to bid on 

because of the scale, because of some of the larger companies that 

can do these things, that can do four, five, six bids, and do multiple 

programs, and maybe some of those programs are similar, and so 

they can use similar things. They can use similar products, and 

that makes it easier for them to scale down maybe a price or something like that. 

Mr. RHEA. The larger your base is, the more competitive you 

can be. In our case, we have a very small business base, so our 

ability to adjust our rates and become more competitive is very restrictive because there are certain costs of running the company. I 

mentioned the medical insurance. The cost of benefits is by far the 

largest expense we have, and if we cannot control indirect costs in 

our fringe costs, we have a tough time competing against the big 

companies. 

Most of these contracts are coming out firm fixed price. The ones 

that have been set aside have been time and materials converted 

to firm fixed price once we negotiated them. But most of them that 

are coming out, they want to put together a firm fixed price bid. 

That one I just mentioned, that we chose not to bid on, that was 

one of those that was going to be firm fixed price. 

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It is very difficult in this market to predict where things are 

going to be over the next 5-year period because they are all a base 

period and four options period. 

Mr. KNIGHT. Ms. Villa, again, we spoke this morning about 

some of the obstacles and some of the access to capital issues that 

have been happening with woman-owned businesses, with businesses that have not had a lot of access to capital, minority-owned 

businesses, disabled vet-owned businesses. Are you finding that 

that is an issue in your business? 

Ms. VILLA. Absolutely, it is an issue. In fact I get calls all the 

time from non-banking, Wells Fargo, and 20 percent interest, because they target us because as a small business we do not have 

access to the original type of working capital. 

Currently we are working with a bank to where they want to put 

a lien on the receivables; in other words, take the receivables as 

collateral. It is a struggle because that is a hard notion to bring 

into any type of federal agency or any other customer that you are 

working with is to let them know, there is a possibility that my receivables may be used as collateral; therefore, you have to send the 

money directly to the bank. 

It is a struggle. It is a continued struggle. 

Mr. KNIGHT. I am going to let Congressman Valadao ask the 

next series of questions if you would like. When it comes back to 

me, I am going to get a lot more specific on helping us help you. 

You have a couple of congressmen here that sit on several committees, so when I start asking the next series of questions, it will be 

on, because a lot of times we come in front of businesses, and businesses will say regulations are killing us, or this is killing us, or 

this or that. Then I say, okay, well, help us out with that, and they 

say, oh, well, it is just, you know, everything. Everything is killing 

us. I cannot go back and say, hey, everything is killing them. 

If we can delve down there, or as we move forward in the next 

week or 10 days and you have time to kind of push forward on, 

what is really stopping me from expanding my business, from getting more contracts. I cannot help you become bigger. I cannot do 

that, but we might be able to soften some of the barriers or get rid 

of some of the barriers. 

Mr. VALADAO. Since you have got the mic still, Ms. Villa, you 

mentioned some commonsense reforms that could be implemented 

to help small businesses. Can you expand on what some of those 

might be, and what can we do in Washington to help you with that 

process? 

Mr. KNIGHT. Eyes on your own paper. 

[Laughter.] 

Ms. VILLA. Absolutely. Very familiar term: accountability. It is 

all about accountability. As a contractor that traditionally bids 

maybe 20 percent prime, 80 percent subcontract, I am looking for 

accountability from contracting officers and general contractors. So 

when I see that there is an implementation within the solicitation 

for a small business utilization plan and it is not being met, and 

I go to a job site and I see all large contractors, it is frustrating 

because at the end of the day there are no sanctions, nothing being 

done, and it is continually happening. 

SBREP-219A with DISTILLER

12 

I have thought about this. I think about this every day. One 

thing that I think would work is in the construction industry, after 

we are awarded a project, we have what they call the submittal 

phase. In the submittal phase is when you turn into the government your environmental plan, safety plan, QC plan, the type of 

equipment that is in compliance with the solicitation. 

I think there also needs to be a plan that the general contractor 

has to submit to all the subcontractors that they are using. Show 

the contract amount. Show its discipline. Then, like all the other 

sections, it either gets denied or it gets approved. At the end of the 

project when you do the wrap-up, the warranty letter, all the other 

documents that you have to give to the federal government, do a 

follow-up plan with the steps. Make sure that there was not, we 

see commonly used a lot, a lot of the bait and switch. Make sure 

that does not take place. 

I think if general contractors and contracting officers see that 

they have to continue to do that, I think a lot will change because 

there is no room for error. They have to comply, and they have to 

be in compliance with the solicitation. I think that will help a lot 

of the small businesses. 

Mr. VALADAO. Mr. Rhea, how familiar are you with the SBA’s 

contracting assistance programs, and have they been helpful to 

you? 

Mr. RHEA. I am familiar with it, we have been down to some 

of their training programs. Having been a small business contractor for 30 years, we understand the environment. When we go 

down to a training class, it is really not very informative. 

The biggest challenge we have is not in learning how to be a 

small business and how to operate. It is identifying opportunities 

we can bid. We have demonstrated our ability to win as a prime 

and win in a competitive environment. There are just very few 

ducks to shoot at. We are always having the challenge of trying to 

identify those opportunities. We have recently put more emphasis 

into being a subcontractor because there are more opportunities 

there. 

I go to SBA meetings. In fact, I am going to one next month 

down in Anaheim. We participate because we are supportive of the 

small business community. Does it provide us much benefit? No. 

Even the PTAC, we do not get much out of the PTAC except for 

the ability to work with other companies and potentially find other 

opportunities. We go to those primarily to network, not because 

there is something we can gain from that. 

Part of the problem for us is we have been around here for a long 

time, so we do not need to learn how to do what we are doing. We 

just need to find more opportunities to go chase. 

Mr. VALADAO. Mr. Flittie, your company has been very successful contracting with the Defense Department. Can you offer any advice to some of our younger, smaller companies? 

Mr. FLITTIE. The key things that we have done as a small company, most of the competitions that we compete on, are under the 

NAICS code for aircraft manufacturing. Companies that are under 

1,500 employees or less are classified as small business even 

though we are much larger than most of my counterparts. We oftentimes compete with the Boeings, the Lockheeds, the very large 

SBREP-219A with DISTILLER

13 

aerospace companies. We face similar barriers in trying to take the 

next steps. 

The key thing that has helped us be successful. one thing I 

talked about earlier, is that we have found that to try to compete 

at the next level, trying to raise the capital as to IRAD or external 

capital to develop the products, and technologies, or services to a 

certain level where the Department of Defense is ready to adopt it. 

For example, they characterize it by, the technology readiness 

level. If we can get it to a TR level of 5 or 6, then the government 

is more willing to put in the incremental investment to take it to 

the next level then to put it out operationally. 

We found that to be a very successful model over the years, getting to that level, and then we can compete and win on programs 

both as prime and as suppliers to win contracts that basically take 

it to an operational level, to a much higher TR level. That is a 

strategy that we have used. 

We often faced similar things, too, trying to identify the opportunities out there. Some of the barriers that we face are, again, trying to identify opportunities that we can go pursue as a prime because we are oftentimes limited by not being considered large 

enough or having the capabilities to go to the next level. We are 

even limited to the prime opportunities, and so we oftentimes are 

pursuing subcontracting opportunities as well. 

Even though we are all different sized small businesses, there 

are similar barriers as we are all trying to grow to the next level 

in the Department of Defense. 

Mr. VALADAO. Do I have time for one more, Mr. Chairman? 

Mr. KNIGHT. You do. 

[Laughter.] 

Mr. VALADAO. I have been in Congress longer than him, and 

I have to ask him for permission. 

[Laughter.] 

He is loving this. Ms. Villa, have you utilized the Procurement 

Technical Assistance Center, PTAC, and what was your experience? 

Ms. VILLA. Yes, I have. Our local PTAC is out of Monterey. It 

has been favorable. In fact, the gentleman that I work with, he has 

offered a lot of insight, a lot of recommendations, and it has been 

helpful. In fact, I just signed up for bid matching. We will see the 

results of it. He does email me probably twice a month to see if 

there are any, needs, any way that they can help me, so it is favorable. 

Mr. VALADAO. All right, thank you. I yield back. 

Mr. KNIGHT. I am going to go back to Ms. Villa on accountability. So we did a bill in the California legislature that looked at 

roofing contractors. A lot of roofing contractors in California had 

not done the things that we expected of them. They did not have, 

unemployment insurance, or a business license, or, they just were 

not allowed to work. Yet they were doing an awful lot of roofing 

in California. 

The roofers were very upset at this, and they said, people have 

to play by the rules in order for our bid to be equitable because if 

I go in there and I bid and I have to do everything by the accords 

of law and some folks do not, I am never going to win a bid. 

SBREP-219A with DISTILLER

14 

If I get what you are saying about accountability and talking 

about prime contractors and them not following maybe a percentage or not following something, what happens there? 

Ms. VILLA. The problem is nothing. 

Mr. KNIGHT. Okay. 

Ms. VILLA. That is the complaint is because as a small contractor, I have limited resources in my estimating department. 

When it continually happens, you no longer bid to the general contractor. 

Mr. KNIGHT. I am an apples for apples kind of guy because if 

you are going to bid, then you have to be on the same level playing 

field. If you are not, then somebody is going to probably win a lot 

more bids than you if they are undercutting something, or they are 

not paying for something, or they are not doing something. 

I am going to move right down the line. I have been to 

AeroVironment several times, and even launched one of your vehicles that you said I could not hurt, and I did my best. I did not 

hurt it, but it did not launch because I did not do it correctly. You 

are dealing with an awful lot of the big companies and big contracts on kind of a small to medium level company. You are competing, and you are doing fairly well, probably not as well as you 

want to do. 

You have to put a lot of investment in certain projects and certain things that you want to go out there, and you have got to show 

a demonstrator, you have to show this, you have got to prove something. All of that is coming out of your pocket to do that in order 

to bid. How difficult is that to deal with a big, big company and 

you are trying to deal with these types of bids when you are 

leveraging your company quite a bit? 

Mr. FLITTIE. The types of investments we make, I mentioned, 

are IRAD type investments, like capital, or bid and proposal, the 

marking costs to pursue. We find that we have to be very selective 

on the ones that we go after because most of the prime work that 

we will try to compete for at the next level is against larger aerospace, and they do have larger resources to draw upon. We cannot 

go and pursue everything, so we have to be selective on the things 

that we think we can be very competitive on, then develop a good 

strategy, then deploy our investment resources, and go compete. 

The key is being very selective. We cannot go and pursue all the 

things. Even though we think we would be very competitive on a 

lot of them, we just do not have the resources to do that, to go be 

competitive on all of them. 

Mr. KNIGHT. That in itself becomes a problem for small business because you are going to put a lot of effort into bid. You just 

do not go over there and say, yeah, I can do this. It is a process, 

it takes manpower to do this, and it takes an awful lot of money 

and know-how. If you are only getting a bid out of 10 bids or something like that, then it is taking an awful lot of effort to continue 

to move on. I think that is one of the things that we understand 

with smaller businesses in the aerospace industry, especially in the 

defense industry. 

I will go back to this, and this could be for any one of you. Since 

I have been on the Armed Services Committee now for 16 months 

and I have seen all the services and what they do and what they 

SBREP-219A with DISTILLER

15 

do not do, and some do it better than others—I firmly believe 

that—is there someone that you work better with in contracting, or 

is there a service branch that has figured it out, because I can tell 

you just up front, the Air Force does things a lot differently than 

everybody else does, and not because we are an Air Force town, but 

I can say this, I think they do it pretty well. The Air Force does 

it pretty well. They do it completely different than the Navy and 

the Marines and the Army, or the Navy and the Army. 

Are you finding any of that? Are you finding anybody who does 

it better? 

Mr. FLITTIE. I am willing to go. We do find there is a large variation between services and how they approach the federal acquisition regulations and implement them and actually implementing 

their competitions. They all follow the law, but in how they actually implement them, there are large variances. 

We find that a lot of the customers that we tend to pursue are 

what we call for us early adopter customers. These are like intelligence agencies, NASA, DARPA, organizations that tend to have 

acquisition strategies that are more rapid and quick to field shorter 

cycles that are more culturally aligned with the way we try to do 

business and break in, whereas we see that we need to win those 

first to have a shot at the more traditional, the longer-term acquisitions because the longer-term acquisitions may go on for 5, 15 

years, and to go even go and compete on those. 

Those can be multiyear competitions, and so we are in a few of 

those right now where we have to have a sustained capture strategy investment for two or three years to position to compete on 

something. Again, you have to be very selective and you have to 

be very focused to go after that type of business. 

Mr. RHEA. I would make a couple of comments from the services 

side because we focus just on services contracts. Edwards has two 

primary large services contracts. One is just up for recompete now, 

and we managed to get on the team as a subcontractor for that 

one. The other is one of those extremely large small business contracts where there are no opportunities for subcontracting. 

We have found that as far as Edwards Air Force Base, we have 

not had many opportunities to go penetrate that market even 

though in my previous life I had gotten a $25 million sole source 

contract as an 8(a) company. There used to be more. Those had 

been consolidated 10 years ago when they pulled everything together and came up with these large consolidated contracts. 

We have had a little success in the Air Force. We have had a little bit more with the Navy because the Navy has done just the opposite of China Lake where they have pulled some of the large task 

order contracts, pulled some work off, set it aside for small business to compete as a prime. We have some small business primes 

less than $5 million that go for 5 years that have a few people on 

them. We have seen more out of the Navy than we have the Air 

Force as a prime. 

Ms. VILLA. My experience has just been with the Department of 

Navy, specifically NAS Lemoore. The majority of it, I am probably 

priming maybe 10 percent right with NAS Lemoore where the remainder is as a subcontractor. 

SBREP-219A with DISTILLER

16 

Mr. KNIGHT. Does that ever push down into the China Lake 

area or any of that with the Navy? 

Ms. VILLA. It does not. Previously my husband owned a firm 

back in 1991 where he used to be an 8(a) contractor, and we did 

have a lot of experience—China Lake, NAS Lemoore, NASA, Point 

Hueneme—all the agencies. But specifically now, no, it does not. It 

specifically just stays at NAS Lemoore. 

Mr. KNIGHT. Then lastly, my broad question, we just announced 

one of the biggest contracts in quite some time with the new bomber. As this unfolds this next year or year and a half, how does that 

unfold for small or subcontractors? Is it going to be released? Are 

there going to be jobs or parts that come down that can be bid on? 

Are there going to be subcontracting availabilities for certain parts 

of the new bomber, or is it going to be all cloak and dagger until 

the end? 

Mr. FLITTIE. It is interesting. For our business what we are seeing, that is, that we are saying with Northrop weighing that, that 

they are potentially abandoning some of their other markets because they want to focus on the long-range bomber and other stuff. 

There are opportunities for us to potentially move into some other 

markets and other competitions for things that they traditionally 

have been in because they are looking to focus on those. Not so 

much directly, but we are looking to subcontract components or 

systems on long-range bomber. 

But the shift in maybe their emphasis is potentially opening up 

other opportunities for us to compete, so maybe a different look at 

that. 

Mr. KNIGHT. Okay. 

Mr. RHEA. Our only opportunity would be probably in the flight 

test aspect of that, and it would be indirect. It would not be Northrop directly, but with our customers we support potentially with 

some opportunities of support to flight program. But other than 

that, there is nothing that we expect to be able to support because 

we are not in that business. We do not manufacturer anything. 

That is not really where the focus and where the money is going 

to be for quite a while. We do not expect to see anything that is 

going to benefit us except to keep—— 

Mr. KNIGHT. Quite a while. 

Mr. RHEA.—except to keep the flight test activity alive for a 

number of years in the future. 

Ms. VILLA. I have not researched any opportunity, so I have no 

information. 

Mr. KNIGHT. It was just an open-ended question since this is 

such a huge contract and this is going to go on for 35 years, that 

you would think that there would be opportunities there. 

Again, my homework is specific to us, of how we can change, how 

we can do better. I think we got a couple of ideas this morning 

from talking to the woman-owned businesses and talking about the 

barriers and the issues. We even talked about capital issues that 

are happening today with crowdfunding, and peer-to-peer, and 

groups like that that they can raise capital, and some of the businesses had done that. I know that probably does not fit your category at all, but it was a little bit of out of the box thinking there. 

SBREP-219A with DISTILLER

17 

Do we have businesses in the audience? I know this young lady 

has been shaking her head a whole bunch. Every time Ms. Villa 

says something, she is shaking her head. Here in the area that 

have had similar problems, similar barriers? You can come on up 

since I am the chairman. 

[Laughter.] 

I can do whatever I want. 

Ms. Robison Whitcomb. Good afternoon. Thank you for giving me 

the opportunity to come speak. My name is Rebecca Robison 

Whitcomb. I am the owner of She Marine Veteran Supply in Bakersfield. I am a service disabled veteran and small business. After 

22 years in the marines and combat tours, I decided to come back 

home and become a small business owner, and Kern County has 

been fantastic to me in that way. But I have been trying to make 

the decision about a move into Federal contracting and how do I 

get there from here as a retiree and as a small businessperson. 

I did participate in the Boots to Business and many of the Small 

Business Administration education programs to make veterans prepared to be small business owners because we are generally entrepreneurial and opportunistic by nature. And I have noticed just 

going out to Edwards Air Force Base the answer is, drop off your 

capability statement, your line card aligned with your NAICs 

codes, and do not call us, we will call you. 

As a small business that is a bummer because that is a 70-whatever mile drive from Bakersfield there, and you are hoping, okay, 

well, I am still going to look on fedbizopps, and I am going to look 

for all the regular resources that we have and mine for opportunity. But, as a super micro business that is really just starting, 

the answer is exactly what these colleagues of mine are saying, 

that unless you have some kind of coattail experience with another 

business, you are not going to get to emerge on your own. 

Then the State has been giving many different opportunities in 

terms of access to the marketplace that I think would benefit. To 

go to your question about specificity is that when you can report 

participation and you are not just requiring each individual report, 

but you are requiring the prime to report their disadvantaged business partners and how that goes, and establishing federally 

reinforceable teaming agreements. 

This is exactly what Ms. Villa said. In terms of the high-speed 

rail, they have decided that they are going to make the primes that 

win the different discrete contracts report who their small business 

partners are. I show up to those meetings routinely, and they do 

not actually want to commit to you because it is a designed build, 

and so they do not know how you are going to go about it. But you 

cannot progress in supporting them until you know if you are on 

the team, and you do not know if you are on the team. 

It is a very big stop and start situation, and it is no different 

when you get into the federal environment. I happened to be given 

the opportunity to be with one of the 8(a) companies that was nationally recognized as a woman-owned small business. They are 

coaching me before I am even making the decision to go into the 

8(a) program to make sure that it is the right step for me because 

am I more productive in California because the access to business 

in California is much greater than in the federal government for 

SBREP-219A with DISTILLER

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a brand new person like me. My company is a very, very small 

micro business, and I have six employees. 

Thank you. 

Mr. VALADAO. Do you mind if I ask a question—— 

Ms. ROBISON WHITCOMB. Yes, go ahead. 

Mr. VALADAO. I have known Ms. Villa for a long time and we 

have talked about other issues before in the same realm. Do you 

feel when you have an opportunity to talk to some of these or see 

some of these opportunities, do you feel like you are provided all 

the information you need to make a proper bid? 

Ms. ROBISON WHITCOMB. Occasionally yes. I have had much 

good fortune with some prime contractors, specifically Manson, 

even though I do not live on a waterway. Bakersfield is pretty far 

from a reasonable waterway. But Manson as a large firm has offered a lot of outreach to be able to participate in the RFP process 

and to be a competitive teammate for them. 

Even though you might not be a Manson type person, because I 

do some construction supply, it gave me that opportunity to go, 

okay, so how do I write so that I am in support of what the overall 

advantages are, or how do I make this better coming as a small 

business. I am not sure what other things I could individually do 

as a super tiny business. Just what you guys said a little earlier 

about being so small, like do you have enough money. 

I get opportunities every single day that come to my email, that 

says we want to DBE or we want a DBE to participate in a Cal 

Trans job, what have you. I call and I say, okay, I am interested, 

I checked the box, I sent back the email, what is the next step? I 

do not know. Then now you are past the time to put in your part 

of the participation, so is that participation actually real? Does it 

exist? 

Mr. VALADAO. Do you feel that they do that just so they could 

check the box about the woman-owned business? 

Ms. ROBISON WHITCOMB. Absolutely. Absolutely, because it 

takes it to the next step. It is just like anything else. If you do not 

want someone to come to the party, you give them the invitation 

the night before. It is. It is absolutely true. 

We get to the invitation to the party within 5 days of PB 

being—— 

Mr. VALADAO. Due, released. 

Ms. ROBISON WHITCOMB.—released—thank you—or submitted, and then you do not have the time to, prioritize that, where 

is that going to go. My development dollars for proposal writing, 

you are looking at my proposal writing shop. 

[Laughter.] 

That gets really tough because then you go, okay, I am going to 

call this guy and say is this a real opportunity or is this so you can 

say we looked and we could not find it. 

What I do know California has done, especially on the Federal 

part, in the National Guard for the State of California, because 

sometimes it is Title 10 money and sometimes it is state money, 

is that they just tell the prime contractors go back until you find 

them. 

When you are talking about accountability, I really appreciated 

that when I was in Sacramento and I said how do I qualify for a 

SBREP-219A with DISTILLER

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Title 10 opportunity and for State opportunity. They said, here is 

a list of every one that is a prime. They are looking for you. They 

have been helpful in helping to turn around, go back out to go find 

those opportunities, and they just will not accept you tried. You did 

not try enough. Try harder and continue to try until you get it 

right. I am proud of California for doing that. 

Thank you. 

Mr. VALADAO. Thank you. 

Mr. KNIGHT. Thank you. Anyone else? Come on up. It is your 

chance to testify in front of the City of Palmdale. 

[Laughter.] 

Mr. SHARKEY. Good afternoon. My name is John Sharkey. I am 

a retired NASA aerospace engineer. I used to work with Kirk several years back. Now I am an owner of a small business here in 

Palmdale, Sharkey Technology Group. It is basically a machine 

shop right now. 

I have two comments. One would be a small area, but it is specific, that you might be able to help with, and that is on the ITAR 

restrictions. In order for us to compete on a lot of the jobs, we have 

to have something called the DDTC registration. It costs $3,000 for 

a small company. I think it is the same fee that you have. 

There ought to be some mechanism for small companies like us— 

we are a million bucks a year—or waive the fee so we can get into 

the program and start getting some of the contracts. If we do not 

get, say, $50,000 back in business, it is kind of lost money for us. 

When I talked to the State Department about waiving those fees, 

they say, talk to your congressman, so I thought I would bring that 

up. 

Mr. KNIGHT. You just did. 

[Laughter.] 

Mr. SHARKEY. We make shafts, housings, you know, small components. I do not know why that is considered a munition or defense article, but they do, or at least the State Department says it 

is so. 

Mr. KNIGHT. We are talking about ITAR quite a bit, not so 

much that, but the restrictions of ITAR and all of the—— 

Mr. SHARKEY. It is complicated. 

Mr. KNIGHT.—problems that come. 

Mr. SHARKEY. It is complicated. It is hard for a small business 

because there is a lot of overhead that goes with it. But just getting 

into the door and getting through that DDTC registration thing, 

that would be helpful. 

Mr. KNIGHT. Okay. 

Mr. SHARKEY. I understand ITAR because when I was with 

Northrop Grumman and with NASA, I went through the whole indoctrination, and so I understand that part of it. But for a small 

company, it is on the other side. In fact, I thought it would be easier going from government, the primes, to being a small business 

owner. It is tough especially right now in today’s market. It is really tough. In fact, one thing that hit us really hard was the sequestration budget cuts in this area here. It really put a damper on the 

businesses here. 

Another problem that we had recently was with the HubZone. 

We have the HubZone, actually a pretty good one, here in Palmdale 

SBREP-219A with DISTILLER

20 

in Antelope Valley. We incentivize our employees to move into 

HubZone areas so we could qualify. We went through the process. 

About a year and a half into the approval process we were strongly 

advised to withdraw our application or they were going to kind of 

stonewall it forever and make sure we never got it through. 

I never quite understood what was behind it other than there 

was some complication on our profit sharing plan. They viewed it 

as an employee stock ownership plan. I could not get over that hurdle, and I know it is not. 

Mr. KNIGHT. Okay. 

Mr. VALADAO. They had a problem with you having—— 

Mr. SHARKEY. Basically I took my government retirement plan, 

my thrift savings plan, and used that to buy a business. They 

called that an employee stock ownership plan, which it is not. But 

because of that, every employee in our company had to be a U.S. 

citizen in the HubZone. 

I had to provide a lot of information on every employee whereas 

you only really have to provide information on 33 percent of your 

employees to be qualified. That went on for like a year and a half, 

and then they said, no, you better pull it out or you are never going 

to get through. We have been incentivizing employees for more 

than 2 years to live in the HubZone, but it has not paid out yet. 

Then the third thing I would like to bring up is on the machine 

shop side of things. We are a tier 5 contractor. You are a tier 1. 

Tier 2. 

We are tier 5, so Boeing and Honeywell, Parker Hannifin, Stork 

Aerospace, S–4. We are the parts. We are down at the part level, 

tier 5. A lot of the business in that the tier 4, tier 5, they go overseas to get all their stuff, so we are really competing with Mexican 

shops, Indonesian shops, for DOD work. To me, it is really hard for 

us to compete. We have to compete with a part that maybe takes 

us 10 bucks a part to make and they are going to do it for 2 bucks 

for a U.S. job. It is really hard to understand. 

A lot of those companies, they are doing the reshoring or they are 

bringing it back onshore, but they still want the same rate that 

they got before because they have the contract before. But it is very 

difficult for us to compete with that kind of sourcing. 

Mr. KNIGHT. Okay. Make sure you get us your information— 

Lisa back there in the red jacket—and we can follow up with you. 

Mr. SHARKEY. On the HubZone thing? 

Mr. KNIGHT. On everything you just said. 

Mr. SHARKEY. I can send you a letter or something? 

Mr. KNIGHT. No, we are not going to ask for a dissertation. We 

are going to follow up with you. 

[Laughter.] 

Mr. SHARKEY. Okay. 

Mr. KNIGHT. I know you are an engineer, and we do not want 

that. 

[Laughter.] 

Mr. SHARKEY. Somebody told you about me in advance. No, you 

are right about that. Thank you for your time. 

Mr. KNIGHT. Thank you. Sir? 

Mr. FLITTIE. I would like to make one comment on Mr. 

Sharkey’s comment about the ITAR. A big part of our supply chain 

SBREP-219A with DISTILLER

21 

in our environment is small business primarily here in the southwestern United States, and we do see that one of the big barriers 

for them, a supplier to us, is the ITAR controls, on parts that really 

do not need to be ITAR controlled. 

As you know, all the FAR requirements, ITAR, they all have to 

flow down to the lowest level. We are figuring out a way where we 

can help even the smaller businesses that we use in our supply 

chain as well as be able to compete, not only cost competitive, but 

there are enormous costs associated with being ITAR compliant, all 

the documentation and things. If there is a way to reduce those 

burdens on the small business, that is another way to help make 

them more competitive so they can be part of the broader supply 

base as well. 

Mr. KNIGHT. If it is a part, why do we need the ITAR controls? 

Mr. FLITTIE. It is a long, complex thing, but it is—— 

Mr. KNIGHT. Is it is a long, complex thing that I am going to 

understand, or is it a long, complex thing that I am going to go 

why we do need it on the part? 

Mr. FLITTIE. The latter. 

Mr. KNIGHT. Okay. 

[Laughter.] 

Mr. FLITTIE. The latter. 

Mr. SHARKEY. I believe it is in the definition, and maybe it was 

published in the Commerce Business Daily or somewhere. It is the 

definition. 

Mr. KNIGHT. I understand the restrictions for many of the 

things that go into our products, but on a part, I am a little lost. 

Okay. Yes, ma’am? 

Ms. CHAVEZ. I believe—— 

Mr. KNIGHT. Come on up. 

Ms. CHAVEZ. Thank you. 

Mr. KNIGHT. You have a few minutes. 

Ms. CHAVEZ. Thank you very much. My name is Marilupe Chavez. I am with JCJ Chavez. We are also a woman-owned small 

business in construction. I understand where Ms. Villa is coming 

from. 

Mr. KNIGHT. Here? 

Ms. CHAVEZ. I am actually out of Ridgecrest, China Lake. 

Mr. KNIGHT. Okay. 

Ms. CHAVEZ. I just recently received my 8(a) certification, and 

there are a lot of areas. Part of it is bonding. I want to compete 

as a prime contractor. I have a past performance as a subcontractor. But the bonding, it is now my dilemma. 

I have certain amount of bond, but in order for me to get a job 

contract or an IDIQ, I have to be at a higher bond. I believe that 

being a small business, and, again, I do not call myself a small 

business. I actually call myself a micro business still. I feel that 

there should be a cost set aside for companies like mine that are 

just coming up in the construction business. 

Everything that Ms. Villa said, I am 100 percent there. 

Mr. KNIGHT. She was a good witness. 

Ms. CHAVEZ. Yes. All the barriers that she talked about, I am 

facing all those barriers also. 

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22 

Mr. KNIGHT. Okay, thank you. Thank you all for coming today. 

I want to thank our witnesses. It is very important that Congress 

gets to hear from the people who are actually doing the day-to-day 

business from the businesses that are dealing with the dilemmas, 

the barriers, the problems, from the shops that have two people in 

there to the shops that have 499 or 699 people in there. 

We want to know what the barriers are because if you continue 

to have those barriers, that means you continue to not be able to 

create more opportunities, and opportunities are jobs, and opportunities are a better place for someone to learn a trade, learn a skill, 

or use their education. If that is not there, then they look elsewhere, and sometimes elsewhere is not inside the United States of 

America, and we do not want that to happen. 

As this hearing comes to a close, I want to thank Mr. Valadao 

for coming all the way up here. I am going to take him over and 

see the joint strike fighter line now so he can see that and see some 

of the things that happen here in Palmdale, but also happen in 

southern California and affect his district, and affect his businesses 

on a daily basis. 

A strong defense industrial base is critical to both our national 

security and to our economy, and a strong industrial base is only 

strong when it comprises a robust and active small business component. Small firms are ready, willing, and able to quickly provide 

the DOD with new technologies that can save lives on the battlefield and provide a better return on investment for our taxpayers. 

I look forward to going back to Washington, D.C. and to discussing 

these issues with my colleagues. I look forward to hearing from all 

of you on issues that we can work on in Congress. 

I will leave you with this. Understand that Congress has a lot 

of people that are doing a lot of different things, and the more specific you get with us, the better it is. The better you can put a pin 

on that issue and say if you helped us with this, it would help our 

industry, the easier it is for David and I to go back and get a coalition and to work together with people to make sure that we can 

do something better. I know that David’s and my goal is to make 

things better, not to stand in the way of opportunities. 

Unless anyone else has anything to say, I ask unanimous consent 

that members have 5 legislative days to submit statements and 

supporting materials for the record. 

Mr. KNIGHT. Without objection, we are adjourned. Thank you 

all. 

[Whereupon, at 3:10 p.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

FIELD HEARING - APRIL 5, 2016 2:00 P.M. 

Committee on Small Business Subcommittee on Contracting and 

the Workforce 

Hearing: Challenges for Small Defense Contractors 

Witness: Donald C. Rhea, Vice President, ClancyJG International 

Thank you, Chairman Hanna and Members of this Subcommittee 

for the opportunity to testify. 

I’d like to open today by expressing my appreciation for the small 

business specialists within the Department of Defense who tirelessly search and evaluate opportunities for small businesses to 

participate in Government contracts. These individuals engage in 

active dialog with the small business community on a regular basis 

through industry days, outreach events, and regular office visits by 

small businesses, and we have benefited greatly from their support. 

I acknowledge that opportunities for small business participation 

in Department of Defense acquisitions are present. Many opportunities result from the small business developing and submitting capability statements in response to sources sought solicitations and 

market surveys. Small businesses spend many hours traveling to 

customer facilities and networking to identify opportunities where 

our talents and expertise can contribute to the mission. With this 

approach ClancyJG International has succeeded in building a business base with approximately 80% of our fiscal year 2015 revenues 

self-performing as the prime contractor, with customers from Alaska to Washington, DC., and a committed and dedicated staff of talented individuals. 

I have direct experience working with small businesses that 

range from startups to more sizeable small businesses with more 

than $30M in annual sales. As a services company, ClancyJG 

International targets technical support service opportunities within 

selected North American Industry Classification System (NAICS) 

Codes, also referred to as size standards. These size standards define the small business criteria in terms of annual revenues and/ 

or number of employees. For example, one of many NAICS Codes 

we perform services under is 488190, Other Support Activities for 

Air Transportation with a size standard of $32.5M. To pursue opportunities under this NAICS Code a company must have an average revenue over the most recent three fiscal years under $32.5M. 

A company with revenues approaching the $32.5M average is much 

larger, has more resources, and enjoys a significant competitive advantage over companies of our size, that is companies with revenues of less than $5M. It is very difficult for a $5M small business 

to compete against a $32.5M small business as a prime contractor, 

but we try and as you can see have had some success. 

To overcome this challenge, a small business would typically 

search for opportunities to provide subcontract support, thus increasing revenues and developing a corporate past performance 

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24 

portfolio which is needed to be a credible prime contractor. Small 

businesses awarded contracts under any small business set-aside, 

regardless of the NAICS Code and associated size standard, do not 

provide subcontracting opportunities. However, if the contract was 

a full and open competition with a small business subcontracting 

requirement then opportunities for small business exist, assuming 

they have the correct technical skill set to contribute. We have seen 

prime contracts with as much as one third of the work designated 

for small business. These contracts provide opportunities for several small businesses to participate. 

Over the past decade there has been significant momentum toward contract consolidation, small business contracts absorbed into 

a large contract and multiple small business contracts consolidated 

into a sizeable small business contract. Over my career I have been 

a party to both of these scenarios. In the case of the large contract, 

a follow-on subcontract effort was available. However, the opportunity for a small business to pursue the next step in becoming a 

prime contractor was eliminated. In order for small businesses to 

grow as a prime contractor they must have the ability to bid a 

prime contractor. While contract consolidation still exists and is 

limiting small business opportunities, there have been recent instances within the Department of Defense where tasks were removed from a large contract and set-aside as a small business 

prime, a great opportunity for entry into the market by a small 

business. 

Finally, Government regulations are causing significant challenges for small business. The Affordable Care Act (ACA) is driving 

up the cost of health care. We have witnessed far greater increases 

in health insurance premiums than what we saw in the years prior 

to the ACA implementation, with reduced coverage and much higher deductibles. The challenge is in bidding a multi-year firm fixed 

price contract where indirect cost control is vital. Other challenges 

are associated with access to capital. Since the financial collapse of 

2008 financial regulations prevented small business access to capital through the typical borrowing route. As such small businesses 

are faced with utilizing the services of a receivables financing companies to fund expenses while waiting for invoices to be paid, an 

expensive proposition. 

As small business leaders we understand that these challenges 

exist. Small business leaders are typically entrepreneurs and adept 

at solving problems and thriving. Addressing these challenges is 

becoming more difficult in the recent years and deter many small 

businesses from pursuing Department of Defense contract opportunities. I appreciate the opportunity to testify and provide my real 

world insight as to the challenges that face small defense contractors. 

Thank You. 

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Insert offset folio 27 here 99715.001
26 

Please allow me to thank Congressman Steve Knight for inviting 

me to testify in front of the Small Business Subcommittee on Contracting and the Workforce. I am honored to represent the 650 

proud employees of AeroVironment. 

AeroVironment is a technology solutions provider that designs, 

develops, produces, supports and operates an advanced portfolio of 

Unmanned Aircraft Systems (UAS) and electric transportation solutions. Agencies of the U.S. Department of Defense and allied 

military services use the company’s electric-powered, handlaunched unmanned aircraft systems extensively to provide situational awareness to tactical operating units through real-time, airborne reconnaissance, surveillance and communication. 

AeroVironment’s electric transportation solutions include a comprehensive suite of electric vehicle (EV) charging systems, installation and network services for consumers, automakers, utilities and 

government agencies, power cycling and test systems for EV developers, and industrial electric vehicle charging systems for commercial fleets. 

Unmanned Aircraft Systems 

With more than 25 years of experience developing, supplying and 

supporting small UAS, AeroVironment is a prime contractor and 

supplier to all U.S. Department of Defense (DoD) programs of 

record for this category of UAS and has delivered more than 20,000 

new and replacement air vehicles to customers in the U.S. and 

elsewhere. AeroVironment’s family of small UAS includes Raven®, 

WaspTM, PumaTM and Shrike VTOLTM. These back packable/man 

portable, hand-launched unmanned aircraft systems are carried 

and used by armed forces—who frequently operate across large geographic areas, often far removed from their bases and dependent 

mainly on what they can carry in their packs or vehicles—and deliver front-line, real-time situational awareness to increase combat 

effectiveness and force protection. By transmitting live, streaming 

color and infrared video from onboard cameras directly to a common, hand-held Ground Control System with an embedded color 

monitor, AeroVironment’s UAS provide real-time information that 

helps U.S. and allied armed forces operate more safely and effectively. 

Mr. Chairman, thank you for the opportunity to be here today to 

discuss the opportunities and challenges of business with the Department of Defense. I would be happy to answer any questions. 

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27 

Good Afternoon Chairman Chabot and Ranking Member Nydia 

Velazquez. I appreciate the invitation to testify here today and I 

am honored to provide you with an insight into the obstacles faced 

by a Small Women Owned Defense Contractor. 

My name is Virginia Villa, and I am the CEO of West Pacific 

Electric Company, located in Lemoore, California. Located in California’s Central Valley, Lemoore is home to a Naval Air Station 

and surrounded many rural communities that are traditionally underserved. The Central Valley is also home to many small businesses and minority-owned companies struggling to grow and provide jobs for their employees. 

My firm, West Pacific Electric Company, is an electrical firm 

which currently employs eleven full time employees. Our services 

include all phases of electrical work with a special emphasis on 

High Voltage (Electrical Distribution). Currently, we bid on Federal, State, Municipal, and Commercial Projects throughout California and neighboring States. When opportunity permits we bid as 

a Prime Contractor, but the majority of our bidding is as a Subcontractor. 

As Chief Executive Officer of West Pacific Electric Company, I 

have attended numerous events sponsored by various federal agencies such as the Society of Military Engineers (SAME) and the Minority Business Development Agency (MBDA). I attended each of 

these events with the assumption that I would be given the same 

opportunities as other contractors to bid on federal, state, and local 

contracts. 

While these events provided more insight and information regarding submitting bids for defense contracts, and were marketed 

as providing opportunities for all interested in seeking government 

contracts, the reality is that each event shared one common message: it is recommended that small defense contractors reach out 

to large contractors for subcontracting opportunities. 

As those of us there today understand, small businesses, and 

businesses owned by minorities, face unique challenges when competing for contracts and jobs for their employees. These challenges 

are most apparent when larger companies and major projects leave 

out small business firms and ignore the potential to include them 

in the ‘‘serious’’ bidding process. 

I understand large contractors may find it is easier to work with 

proven sub-contractors, but this leaves out growth potential for 

qualified companies to compete. Many in my position wonder why 

small businesses are expected to pull on the ‘‘coat tails’’ of large 

contractors just to get an opportunity to bid, while it should be the 

large contractors reaching down into the large pool of small businesses that can perform the work. 

As CEO of West Pacific Electric, accessing federal contracts is a 

challenge I face every day. In addition to attending informational 

events sponsored by SAME and MBDA, I have also taken the initiative to meet with small business representatives of various agencies to present my firms’ proposals and capabilities. Furthermore, 

I have aggressively worked to expand my own network in an effort 

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to better position my company. I am a member of the United States 

Women Chamber of Commerce, MBDA, SAME, and the Hispanic 

Chamber of Commerce, which provides me with networking opportunities to work with large contractors. To contribute to my qualifications, I hold the following certifications: Economically Disadvantaged Women-Owned Small Business, CPUC, State of California 

Small Business, Small Disadvantaged Business (SDB) and GSA 

Contract Holder—all of which are contract vehicles when bidding 

on government projects. 

Despite these efforts my company continues to face obstacles 

when applying for government contracts. I will provide you with 

one reoccurring example: 

When a large government contract is released, our firm does 

preliminary research to confirm that a subcontracting plan is 

incorporated within the solicitation. If a subcontracting plan is 

incorporated, and my company decides to bid on the project, a 

lot of work and man hours go into preparing a bid. We oftentimes later find out that a majority of the contractors that 

have been awarded a subcontract are large firms. This leads 

me to believe the subcontracting plan is ignored and discourages me from bidding on the next project. 

While, larger, established companies have an advantage, there 

are still opportunities for small businesses and minority owned 

companies throughout the state, and in the Central Valley. 

It is critical that my company has access to projects close to 

home, in the Central Valley. Potential projects include the development of the California High Speed Rail ($68B) and the renovations 

at Lemoore Naval Air Station ($1.6B). General construction 

projects are ideal for small businesses to participate in, and help 

develop sub-contracting and job creation opportunities. 

I believe there are many common-sense solutions that should be 

considered in order to encourage the involvement of small businesses and I am happy to have the opportunity to discuss those 

further throughout today’s hearing. 

In closing, I again want to thank you for the opportunity to testify before the committee today. I hope that my testimony provides 

you with further insight and information regarding the challenges 

faced by Small Business Defense Contractors. 

Æ 

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