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93–731 2015

CONTRACTING AND THE INDUSTRIAL BASE II: 

BUNDLING, GOALING AND THE OFFICE OF 

HEARINGS AND APPEALS 

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 17, 2015 

Small Business Committee Document Number 114–005 

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 

MARK TAKAI, Hawaii 

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. Joe Wynn, President, VETS Group, Inc., Washington, DC, testifying 

on behalf of VET-Force ........................................................................................ 4 

Mr. Robert Burton, Partner, Venable LLP, Washington, DC .............................. 5 

Mr. Alan Chvotkin, Executive Vice President & Counsel, Professional Services 

Council, Arlington, VA ......................................................................................... 7 

Mr. Damien Specht, Partner, Jenner & Block LLP, Washington, DC ................ 9 

APPENDIX 

Prepared Statements: 

Mr. Joe Wynn, President, VETS Group, Inc., Washington, DC, testifying 

on behalf of VET-Force ................................................................................. 24 

Mr. Robert Burton, Partner, Venable LLP, Washington, DC ....................... 31 

Mr. Alan Chvotkin, Executive Vice President & Counsel, Professional 

Services Council, Arlington, VA ................................................................... 45 

Mr. Damien Specht, Partner, Jenner & Block LLP, Washington, DC ......... 52 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

National Office Products Alliance (NOPA) ..................................................... 59 

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(1) 

CONTRACTING AND THE INDUSTRIAL BASE 

II: BUNDLING, GOALING AND THE OFFICE 

OF HEARINGS AND APPEALS 

TUESDAY, MARCH 17, 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, Knight, Curbelo, Hardy, 

Vela ́zquez, Chu, Meng, and Lawrence. 

Chairman HANNA. Good morning, everyone. I call this hearing 

to order. Happy St. Patrick’s Day. 

This is our first Subcommittee on Contracting and Workforce of 

the 114th Congress. I am happy to welcome Ranking Member 

Nydia Vela ́zquez. I am sure we are going to do important work together in the next couple of years. 

As Chairman Chabot stated in his hearing of February 12, 2015, 

having a healthy small business and industrial base means that 

taxpayers benefit from increased competition, innovation, and job 

creation. However, the testimony received by the Committee last 

month indicates that our small business technological and industrial base is at risk. With the percentage of prime contracting dollars awarded to small businesses is increasing, the number of small 

businesses seeking contracts with the Federal Government has fallen by over 100,000 since 2012. In the past four years, the number 

of contract actions with small businesses has fallen by 60 percent, 

and at the Department of Defense, the number of contract actions 

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

contract actions increased by 230 percent during that same period 

and nearly 290 percent at the DoD. The percentage of subcontracted work going to small businesses has also fallen by nearly 2.5 

percent. All of this data indicates that small businesses are at risk; 

yet the Small Business Administration gave the Federal Government—and this is a mystery—an A on its latest small business procurement scorecard. 

Today, we will examine how the government can be receiving a 

superlative grade when half of the dollar-base goals are not met, 

bundling and consolidation are increasing, small business subcontracting is decreasing, and size standards are being manipulated. 

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2 

Today’s witnesses are going to address specific recommendations 

to improve the competitive viability of our small business contractors. This is the second of a series of hearings we will be having 

on this topic—we will be back here in a couple of days, on Thursday. I expect that as a result of the testimony received today, the 

Subcommittee will actively pursue ways to increase opportunities 

for small businesses to compete for contracts. 

I look forward to working with each of you and hearing your testimony. I now yield to Ranking Member Vela ́zquez. 

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

valuable hearing. 

As this committee seeks ways to foster small business growth 

and expansion, we must always carefully consider what is being 

done to maximize entrepreneurs’ participation in the federal marketplace. As we all know, when small companies are awarded federal contracts, the result is a win-win. Small businesses provide 

quality goods and services at affordable prices, meaning a better 

deal for the government and the taxpayer. At the same time, it can 

mean significant growth opportunity for small businesses and even 

the need to hire new employees. With these benefits in mind, Congress, and this committee in particular, have long worked to ensure 

small businesses receive their fair share of federal contracts. 

There has been some progress in this regard. In Fiscal Year 

2013, the federal government finally met its statutory goal of providing 23 percent of federal contracting dollars to small enterprises. 

For Fiscal Year 2014, it appears as much as 25 percent of federal 

contracting dollars may flow to small companies. 

While this represents an improvement over previous years when 

these goals were not met, much work remains. For example, there 

continue to be reports of ineligible businesses receiving small business contracting dollars. Additionally, the scorecards issued by the 

Small Business Administration have been questioned as agencies 

continue to receive high grades despite failing to meet all of their 

small business goals. 

With budgets, time, and spending reduced due to the ill-advised 

policy of sequestration, there are simply fewer procurement actions 

to go around. This means it is more important than ever that agencies are doing everything possible to ensure legitimate small companies can tap into suitable federal business opportunities. 

One longstanding barrier to small business participation in the 

federal marketplace has been the practice of contract bundling. 

When federal agencies group smaller procurement actions together, 

they reduce competition by making projects too large for small companies to bid on. Publicly available data suggests that for every 

$100 worth of federal work that is bundled, small firms lose $33 

in revenue. 

Unfortunately, this practice is widespread. In Fiscal Year 2013, 

it was estimated that over $107 billion was awarded through consolidated or bundled contracts. That means small companies 

missed out on $35 billion worth of contracting opportunity. 

Considering the prevalence of this problem, it is vital we ensure 

the SBA is doing everything possible to prevent unnecessary bundling. This raises a number of important oversight questions for 

the committee, including whether the SBA has sufficient staff to 

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3 

monitor contracting actions and whether the agency is aggressive 

enough in challenging bundled contracts. Given how few contracts 

have been unbundled, the answer to both these questions would 

appear to be no. 

Today’s hearing will also touch on the jurisdiction of the SBA’s 

Office of Hearing and Appeals. This office has been integral to ensuring only legitimate firms receive small business contracts. However, the office, like many other parts of the agency, remains 

understaffed, and it is unclear how this will affect their caseload. 

Mr. Chairman, with overall government expenditures declining, 

the pool of contracts for small businesses to bid on will only further 

shrink in coming years. Given this phenomenon, it is all the more 

critical that this committee and the SBA work to remove barriers 

that prevent small firms from bidding on federal contracts. 

I look forward to hearing the witnesses’ perspectives on how we 

can best accomplish that task. I yield back the balance of my time, 

but first I would like to take a moment to say to all of you, thank 

you for being here. 

Chairman HANNA. Our first witness today is Joe Wynn, the 

president of VETS Group, a nonprofit organization that provides 

entrepreneurial education, federal procurement training, employment assistance, and other supportive services primarily for veterans, people with disabilities, and people with limited means. He 

is testifying on behalf of the Veterans Entrepreneurs Task Force, 

also known as VET-Force, which is composed of over 200 organizations and affiliates representing thousands of veterans throughout 

the United States and which monitor the impact of legislation on 

the veterans’ procurement programs. 

Sitting next to him is Rob Burton, a partner with Venable, LLP. 

Mr. Burton is a former deputy administrator for federal procurement property policy. He has also spent over 20 years as senior acquisition attorney with the Department of Defense. 

Our third witness is Alan Chvotkin, executive vice president and 

counsel for the Professional Services Council. Mr. Chvotkin previously served as counsel and staff director to the Senate Small 

Business Committee and counsel to the Senate Armed Services 

Committee. 

I yield to Ranking Member Vela ́zquez to introduce our fourth 

witness. 

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

It is my pleasure to introduce to the committee Mr. Damien 

Specht. He is a partner at Jenner and Block, LLP, here in Washington, D.C., where he represents clients in all facets of government contracting matters and is the co-chair of the firm’s Government Contracts Corporate Transactions Group. Additionally, he 

serves as a co-chair of the ABA’s Small Business and Other Social 

Economic Programs Committee and has been a speaker and an author on numerous small business topics. He was also named a 

Washington, D.C. Super Lawyer Rising Star for Government Contracts in 2014. Thank you for being here. 

Chairman HANNA. Mr. Wynn, five minutes. We want to hear 

what you have to say, so we will be lenient, but you know how it 

works, so go ahead. Thank you. 

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STATEMENTS OF JOE WYNN, PRESIDENT, VETS GROUP, INC.; 

ROBERT BURTON, PARTNER, VENABLE, LLP; ALAN 

CHVOTKIN, EXECUTIVE VICE PRESIDENT AND COUNSEL, 

PROFESSIONAL SERVICES COUNCIL; DAMIEN SPECHT, 

PARTNER, JENNER & BLOCK 

STATEMENT OF JOE WYNN 

Mr. WYNN. Thank you. Good morning, Chairman Hanna, Ranking Member Vela ́zquez. On behalf of VET-Force, VVA, and myself 

as an Air Force veteran, I want to thank you for the opportunity 

to appear before you here today. 

Over the years, VET-Force has been voluntarily conducting oversight of the legislation regulations policies programs intended to 

improve and increase the contract opportunities for veteran-owned 

businesses. When we come to know what is not working, we do not 

hesitate to bring that to the attention of the military departments, 

federal agencies, or to you, the members of Congress. Through 

VET-Force, we have also come to know that the federal small business procurement process is not only unkind to businesses owned 

by veterans, but is negatively impacting all small business 

groups—8(a), HUBZone, women-owned as well. 

In my testimony here today, I will highlight the impact of federal 

contract bundling and consolidation through the use of federal strategic sourcing initiatives on veteran and other small businesses. 

Many small businesses are struggling in the federal marketplace. 

New U.S. trade policies and changes in how contracts are competed 

and awarded have made it more difficult for small businesses to 

compete against and work with large prime contractors. In recent 

years, the government has been actively promoting the use of federal strategic sourcing initiatives in an effort to consolidate procurements. However, to us, the small business owner, federal strategic sourcing initiatives is just a more clever way of contracted 

bundling. 

VET-Force is concerned that by relying so heavily on a few large 

prime contractors, our country makes itself vulnerable to a catastrophic interruption in services and a lack of competitiveness, innovation, and imagination that small businesses provide. All federal agencies are supposed to identify if a contract is bundled or 

consolidated. There is a dollar threshold per agency, and certain 

criteria used to make this determination, and achieving reductions 

in administrative or personnel costs alone is not enough. 

In addition, there should be an assessment done to determine the 

impact on small businesses, but who within the procurement process actually makes this determination, and once determined, what 

happens? Agencies are required to provide the SBA’s procurement 

center representative (PCR) and the agencies’ own OSDBU with a 

statement explaining why the procurement has to be bundled. If 

the PCR objects to the agency’s rationale, the PCR can delay the 

procurement while SBA and the agency negotiate, although the 

agency will ultimately make the decision whether to move forward 

with the procurement as is or change the requirements. This process of checking the requirements by the PCR is not only flawed but 

by the mere fact that SBA has decreased the number of PCRs to 

about 50, it is highly unlikely that these few persons will be able 

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5 

to review thousands of procurements throughout the entire federal 

government. 

For years, administrations have attempted to streamline its policies in an effort to reduce costs and save taxpayer dollars. Reducing government employees has been one method that has been 

used a lot. In the 1990s, an estimated 15,000 government procurement positions were eliminated. 

So where then are we headed with federal strategic sourcing initiatives? While the policy may be endorsed and promoted by OMB 

and this and previous administrations, what has been and will continue to be the adverse impact on small businesses? 

GSA, for example, has several strategic sourcing vehicles that it 

uses. It awarded in one the janitorial sanitation supply vehicle, 18 

companies, 15 of which were very small businesses. However, these 

services were previously provided by 609 companies, 540 of which 

were small businesses. So that means that 525 small businesses 

will no longer be allowed to compete for federal contracts for janitorial services and supplies. They have other contracts that work 

similarly in fashion and are displacing many, many small businesses. 

Finally, small business competing for government contracts find 

themselves at a disadvantage in the federal marketplace and appear to be losing ground all the time. Large contractors have been 

awarded most of the bundled contracts with little to no repercussions for not including small companies in their subcontracting 

plans, and under federal strategic sourcing initiatives, yeah, a few 

small businesses will no doubt grow and prosper if they are one of 

the lucky few selected, but it is clear to see just from the math that 

there is definitely an adverse impact to far more small businesses. 

What about really cutting costs and boosting growth among the 

majority of our nation’s small business taxpayers and their families 

and not just for a few in this entity called the government. Let us 

secure our industrial base and the future of America. 

This concludes my statement, and I hope that I can answer any 

questions that you may have. 

Chairman HANNA. Thank you, Mr. Wynn. 

Mr. Burton, you may begin. 

STATEMENT OF ROBERT BURTON 

Mr. BURTON. Chairman Hanna, Ranking Member Vela ́zquez, 

and members of the Subcommittee, I appreciate the opportunity to 

testify today and discuss the growing decline of small business participation and federal procurements. Specifically, I would like to address the need to strengthen the federal contract consolidation and 

bundling regulations and provide several other recommendations 

for protecting small business interests and federal procurements. 

First, let me turn to the consolidation and bundling regulations. 

These regulations were designed to protect small businesses, but in 

practice, agencies have failed to fully implement and comply with 

these important regulations. For example, agencies are required to 

(1) provide a written determination that the use of a bundled or 

consolidated contract is justified, (2) report to SBA on the usage of 

bundled contracts, and (3) publicize or post the justifications for 

bundled procurements in a timely fashion. 

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Unfortunately, in the wake of a significant increase in consolidated and bundled contracts in the U.S. government, agencies have 

routinely failed to follow these basic requirements. Moreover, there 

are currently no regulatory requirements to post the written justifications for consolidated contracts or report data on consolidated 

contracts. The posting and reporting requirements are limited to 

only bundled contracts. 

Consequently, in my opinion, agencies are inclined to use consolidated contracts and are reluctant to ever categorize a consolidated 

procurement as a bundled contract, which is defined by the Small 

Business Act as a type of consolidated contract that is likely to be 

unsuitable for award to a small business. Consolidated contracts 

are generally suitable for award to small businesses, but there is 

little transparency into the growing number of these procurements. 

For example, on several occasions, I have submitted a Freedom of 

Information Act request on behalf of small business clients for the 

written justification supporting the use of consolidated contracts, 

only to find that the justifications do not exist. It is imperative that 

agencies comply with the requirement for written justifications, 

and that the justifications be publicized and posted on agency 

websites. Offerors, including small businesses, need advance notice 

of a contract that will be bundled or consolidated. This is critical 

because an offeror may only challenge and justify bundling and 

consolidation at the GAO prior to contract award. Therefore, agencies should post their justifications for both bundled and consolidated contracts concurrent with or prior to the release of the solicitations. Simply put, an agency’s failure to timely publicize the written justifications preclude small businesses from challenging consolidated procurements. 

To further strengthen small business participation in federal procurements, I recommend that SBA reports more thoroughly on the 

impact bundling and consolidation on the small business industrial 

base by aligning SBA’s scorecard methodology with the types of 

goaling provided for in the Small Business Act. Thus, instead of 

just reporting on agency procurement dollars going to small businesses, SBA should report on agency success in meeting: (1) industrial goals, which ensure the participation of small businesses from 

each industry category in agency contracts and subcontracts, and 

(2) utilization goals, which ensure that each type of small business, 

such as a woman-owned or service-disabled veteran-owned small 

business has the maximum practical opportunity to participate in 

the performance of agency contracts and subcontracts. These two 

small business goals—the industrial and utilization goals—recognize that simply looking at the dollars awarded to small businesses 

does not by itself ensure that small businesses are fairly represented in federal procurement. 

Turning now to organizational changes that could strengthen 

small business participation, I recommend that Congress consider 

establishing the Small Business Administration Office of Hearings 

and Appeals (OHA) in statute and giving it total independence 

from SBA. Currently, OHA reviews certain SBA program decisions, 

such as 8(a) and size determinations; however, if Congress established OHA as a totally independent body, it could also give it review authority over SBA’s establishment and modification of size 

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standards. Such authority for OHA would be particularly beneficial 

for small businesses who are currently unable to challenge the size 

standards except by filing a lawsuit in federal court, which is extraordinarily expensive and simply an unrealistic option. 

Finally, I recommend that Congress consider adding the Small 

Business Administration to the Federal Acquisition Regulatory 

Council, referred to as the FAR Council. The FAR Council has yet 

to implement several provisions of the Small Business Jobs Act of 

2010, which are designed to increase small business participation. 

I think the addition of SBA to the FAR Council could streamline 

and expedite the implementation process, allow for better coordination between SBA and the current agency members of the FAR 

Council, and perhaps facilitate concurrent rulemaking. 

I recall when I chaired the FAR Council, it was extremely difficult to coordinate the FAR and SBA rulemaking processes. In 

many cases, the FAR and SBA regulations cover the same procurement topics and have government-wide impact. Consequently, the 

need for close coordination and communication between the two 

rule-making bodies is critical, and SBA’s membership on the FAR 

Council would certainly facilitate the needed communication. 

In summary, it is critical for Congress to strengthen the consolidation and bundling regulations and ensure agency compliance 

with these regulations. In addition, Congress can expand the role 

of OHA and develop more meaningful and robust small business 

goals for the federal agencies. These legislative actions will undoubtedly protect small business interests and the future of the 

small business industrial base. 

Mr. Chairman, that concludes my statement. I will be pleased to 

answer any questions that you or the members of the Subcommittee may have. 

Chairman HANNA. Thank you very much, Mr. Burton. 

Just by way of information, Grace Meng had an amendment to 

the NDAA that passed the House last year that did at least part 

of what you are requesting. It requires agencies to publish justification with the solicitation. So those are the kinds of things we are 

talking about going forward with. 

Mr. Chvotkin, you may begin. 

STATEMENET OF ALAN CHVOTKIN 

Mr. CHVOTKIN. Chairman Hanna, Ms. Vela ́zquez, members of 

the Subcommittee, thank you for the invitation to appear today. 

PSC is a strong supporter of a balanced federal policy on small 

business. In my testimony, I address four important issues. First, 

on strategic sourcing. 

Strategic sourcing is not suitable for all of the government’s acquisitions. Our association is a strong proponent of well-designed 

strategic sourcing programs, as well as establishing and maintaining a strong industrial base, not just for small businesses but for 

businesses of all size. When considering the Federal Government’s 

move towards strategic sourcing and its interrelationship with 

small business contracting goals, it is clear that there are disconnects driven largely by how the Federal Government measures 

small business performance in the federal market, and the desire 

to foster a strong industrial base. 

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8 

In 2013, PSA president and CEO Stan Soloway testified before 

this Subcommittee about strategic sourcing and its impact on the 

industrial base. Then, as now, our view of strategic sourcing is centered on supporting an environment of robust competition, high 

performance, agility, innovation, and balanced opportunities for 

companies of all sizes. We recommended then and again today that 

the Federal Government must better align the number of small 

business providers and the total dollar value expended via small 

businesses as part of its overall strategic sourcing strategy. But it 

is also clear that improved data collection and analysis is necessary 

to improve future decision-making. The data today fails to consider 

whether there is an equitable distribution among small businesses 

and a balanced reliance on small business for certain categories of 

work. 

With respect to the imbalance in goal setting and small business 

attainment, as you well know, the SBA negotiates biannually with 

the federal agencies on their small business attainment goals for 

both prime contract awards from the federal agencies and for subcontracting goals to be achieved by federal prime contractors. 

While SBA is agnostic on how an agency achieves its goals, we 

have seen how agencies have skewered their performance to focus 

on some of the low-hanging fruit within their business opportunities and not looked across their entire enterprise for meaningful 

small business participation. As a result, agencies are in effect 

picking winners and losers in the small business market and in the 

agency’s larger industrial-based market through the small business 

goal-attainment decisions. 

Therefore, in the goal-setting process, SBA and the agencies 

must evaluate not only top-line small business goals, but also analyze and comment on changes in the agency’s business base and addressable market. Consideration should be given to setting goals 

for services and commodities to be sure that one segment of an 

agency’s market is not drawing a disproportionate share of the 

agency’s attainment efforts. 

With respect to data quality, in order to make informed decisions 

about federal small business contracting, better data that captures 

the full participation across the federal marketplace is necessary. 

While federal small business prime contracting expenditures in the 

aggregate are fairly accurate to the same level that any other data 

is accurate in the federal marketplace, there is significantly less 

visibility in the small business participation at the subcontracting 

level. PSA strongly believes that without meaningful data that can 

be used to provide an accurate picture of total small business participation, government risks making ill-informed small business 

contracting decisions that could place significant risk on small business contractors and could damage the larger industrial base. 

Finally, it has been a challenge to understand the impact of all 

of the regulatory actions on federal acquisition and on small businesses when the private sector is forced to comment on rules in 

piecemeal fashion. These rules and regulatory issuances create a 

challenge for analysis and commentary on the impact of any single 

rule on the overall regulatory scheme and how they will affect the 

market. Notwithstanding congressional interest and sometimes direction that implementing rules be issued within a reasonable peSBREP-219 with DISTILLER

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riod of time. As Mr. Burton said, we are still waiting for some final 

rules for key provisions of the 2010 Small Business Jobs Act, and 

that is unacceptable. 

We therefore make the following recommendations. First, more 

needs to be done to improve the data reporting to track federal 

prime and subcontract data. This is a significant challenge that 

will require close coordination between industry and government. 

Second, in the goal-setting process, SBA and the agencies must 

evaluate not only top-line small business goals but also analyze 

and comment on changes in the agency’s business base and addressable market. Consideration should be given to setting target 

goals for services and commodities to be sure that no one segment 

of an agency’s market is drawing a disproportionate share of the 

agency’s attainment. 

Third, agencies must fully implement and then comply with both 

the bundling and the consolidation reporting requirements that 

have been enacted. 

And finally, the viability of conducting past-performance assessments of first-year subcontractors should be thoroughly explored. 

Thank you again for the invitation. We look forward to continuing our longstanding work with this Committee, and I would 

be pleased to answer any questions you may have. 

Chairman HANNA. Thank you. 

Mr. Specht? 

STATEMENT OF DAMIEN SPECHT 

Mr. SPECHT. Chairman Hanna, Ranking Member Vela ́zquez, 

members of the Subcommittee, thank you for the invitation to appear today. In my testimony, I will address how consolidated contracting necessarily limits the number of small businesses in the 

federal marketplace. I will also briefly discuss the SBA’s rating 

methodology, and as a litigator who appears before the SBA Office 

of Hearings and Appeals, share some thoughts on that forum. 

From tool manufacturers to those working in support of our intelligence agencies, I have heard that bundling is a problem. However, because we largely rely on self-reporting, the government has 

little reliable data on where bundling is occurring and how many 

small businesses are being hurt by this practice. As a result, I join 

Mr. Burton in encouraging this Committee to require agencies to 

require bundling justifications along with solicitations. This will 

allow small businesses to understand the agency’s rationale and, if 

necessary, timely protest the bundled requirement. 

I will note, however, that bundling protests are rarely successful. 

In fact, it appears the primary way for an agency to lose a bundling 

protest is to fail to perform any analysis at all. As a result, in addition to increasing transparency, this Committee should consider 

raising the bar for justifying these decisions, which can currently 

be based on as little as 5 percent cost savings. 

In addition to bundling, this Committee should be highly skeptical of strategic sourcing initiatives. Strategic sourcing proponents 

have worked to maximize small business participation. That effort 

is commendable, but the problem is not one of intent or lack of effort. The problem is that strategic sourcing, at least when accomSBREP-219 with DISTILLER

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plished through large contract vehicles, is necessarily bad for the 

diversity of small contractors in the industrial base. 

This is the case for a few reasons. First, the large number of 

items be provided on each of these contracts makes it impossible 

for many businesses to bid. As demonstrated by the FFSI office 

supplies contract, it is often necessary for hundreds of small businesses to team together to fulfill the requirements of a single contract. 

A second negative consequence of strategic sourcing is that those 

businesses that do not receive awards will receive other contract 

opportunities disappear. To drive volume discounts, purchasing 

from strategic sourcing vehicles must be highly encouraged. That 

means that sales that would have gone to hundreds of small businesses are now focused on a dozen. This concentration of awards 

has a real impact. In fact, one of my small business clients recently 

told me that their sales volume has decreased by two-thirds since 

they were not chosen for a strategic sourcing award. 

A third problem with strategic sourcing is that it reduces the importance of federal supply schedule contracts. Traditionally, GSA’s 

FFS programs provided an access point for aspiring contractors. If 

we choose to shift the government’s purchases to strategic sourcing 

contracts and away from the remaining FFS holders, this entry 

point will be less attractive and we would lose a significant number 

of future contractors. 

Ironically, the award of a strategic sourcing contract is not always a benefit to the winners. This is the case because large 

awards can set up a hill and valley problem. A small business that 

receives millions in strategic sourcing awards is likely to expand its 

infrastructure to meet those needs. However, that firm’s dependence on a single contract will backfire if it loses the next competition. In the past, this concern was mitigated because businesses received more regular, but smaller, awards. 

In summary, there is nothing wrong with strategic sourcing; 

however, this Committee needs to look beneath the surface to judge 

whether these actions are consistent with building a diverse small 

business base. 

Despite the impact of bundling and consolidation, the Federal 

Government met its overall small business goals in 2013, and apparently, 2014. These are not minor achievements. This accomplishment is tempered by concerns that large contractors are being 

counted toward small business goals. Although this may be the result of honest mistakes, continued training of contracting officers 

and explanation of the complicated small business rules to the contracting community will be helpful in confirming that the proper 

numbers are being reported. 

Further, this Committee should be concerned that SBA assigned 

an A or A+ rating to 20 agencies when none met all their small 

business goals. One of those agencies, the Department of the Treasury, was assigned an A rating, despite a small business subcontracting rate of 6.8 percent. As this grade inflation demonstrates, 

this Committee should continue to closely examine the basis for 

SBA’s grades to determine where agency performance can be improved. 

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Shifting to my role as a small business litigator, I would like to 

address some of the issues related to SBA’s Office of Hearings and 

Appeals (OHA). Although I do not agree with every OHA decision, 

it has proven to be an efficient alternative to federal court. As a 

result, I support making OHA permanent through statute. Any 

such statute should, of course, recognize that small businesses may 

appeal OHA decisions to federal court if they so choose. 

This Committee should also act to eliminate the redundancy in 

the Small Business Act. Specifically, although OHA’s administrative judges have significant expertise, the Small Business Act assigns certain appeals to administrative law judges, of which OHA 

has none. This has led ALJs at other agencies to hear small business cases on behalf of OHA. Although I have no doubt this arrangement is effective, it makes more sense to centralize small 

business decisions in OHA as a statutory entity. 

Thank you for the opportunity to appear today, and I look forward to your questions. 

Chairman HANNA. Thank you. 

And I yield to Ranking Member Vela ́zquez for the first question. 

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

Mr. Wynn, despite the numerous safeguards in place, we continue to see the bundling and consolidation of contracts. In your 

opinion, what is it going to take to let these agencies know that the 

consolidation or bundling of contracts is not to be used to ease administrative burden? 

Mr. WYNN. Thank you for that question. 

As was noted and mentioned in my comments, one of the mechanisms that is being used right now through SBA is use of the PCR. 

Over the years, we have previously testified and made recommendations as for SBA to increase their budget to be able to employ more persons in this position. Yet, over the years, the number 

of people in this position has decreased. So we cannot quite understand how in the world they are going to possibly police all of these 

types of transactions and make recommendations to stop the procurement before it goes through. 

The other part of that is, as I understand it, once they are able 

to identify a procurement as being bundled and they want to question it, that discussion is had with the agency’s senior official or 

the acquisition chief of that agency, there seems to be still no real 

power from the PCR to actually stop the procurement completely. 

If the agency negotiates, has a discussion and justifies in their view 

why they feel it should go forward, it seems to continue to go forward. I think that, you know, more—there needs to be more teeth 

in the legislation to provide SBA more authority to actually stop 

these types of procurements. And also, they have got to increase 

the number of persons or we create some additional, some new position or persons to police these actions. 

Ms. VELA ́ ZQUEZ. Sure. Well, you know, sequestration and 

budget cuts come to mind. And both of them have consequences. 

I would like to ask the rest of the panel to comment. We have 

seen that enforcement actions are rare, and there is a need for defining realistic enforcement triggers. What would you recommend 

to be a sufficient trigger? Any of you. 

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Mr. CHVOTKIN. May I ask, enforcement actions regarding 

unbundling and consolidation? 

Ms. VELA ́ ZQUEZ. Yes. 

Mr. CHVOTKIN. I will start, Ms. Vela ́zquez. 

I think we start with a clear set of standards, and right now 

agencies have a lot of flexibility in determining—in making those 

determinations. Secondly, transparency will go a long way towards 

accountability. Without the real understanding, the marketplace 

will substantially police the federal agencies’ behaviors if they 

know what is going on in that marketplace, and today, most companies do not have that visibility. And so the competitive marketplace, particularly as contract spending is declining, will be a very 

powerful force. That competition drive will be a very powerful force 

in helping to police the agencies. 

Finally, I would suggest that we need a dependable and reliable 

place to challenge those actions, and OHA may very well be a good 

place to do that. 

Ms. VELA ́ ZQUEZ. Okay. Thank you. 

Mr. Specht, we have heard from numerous small businesses 

about the problem of contract bundling, and each one of you made 

reference. As a result of that practice, subcontracting and teaming 

has become the best option for small businesses that are unable to 

perform the entirety of these massive contracts. Yet, we also heard 

that this process is fraught with additional costs and dangers to all 

parties involved. I would like to ask you, do you believe that this 

is fair, that small businesses should be relegated to dispositions as 

a result of bundling? 

Mr. SPECHT. Thank you for the question. 

No, it is not fair, and it is not ideal for the federal marketplace. 

It is okay for small businesses to start out as subcontractors and 

start getting work that way because they can learn from the prime. 

But at some point, for their growth, it is necessary that they have 

direct customer contact and that they be doing work directly with 

the customer agency so that they can expand and learn and grow. 

Ms. VELA ́ ZQUEZ. So do you think that there is a fear that these 

contracts will get so large that even the subcontracts will be out 

of reach to small businesses? 

Mr. SPECHT. Absolutely. I think that these contracts get large 

and the items required get so diverse that you may have small 

businesses that are now second or third tier subcontractors. And it 

is just the truth of the matter that the further away you are from 

the federal customer, the less accountability there is and the easier 

it is to squeeze those small businesses when you are at a higher 

tier level. 

Ms. VELA ́ ZQUEZ. Thank you. 

Thank you, Mr. Chairman. I will have some other questions in 

the second round. Thank you. 

Chairman HANNA. Mr. Burton, Mr. Specht, there are two tracks 

here that I see both of them mildly conflicting but interesting to 

me in terms of you wanting to keep a viable supply chain, and 

when we want to multiply or add more small businesses and do 

less bundling, and how do you maintain a viable supply chain, and 

things that we regard as necessary, say to the national defense, 

and under these circumstances we are eliminating a lot of that. 

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And also, we are not doing what we are supposed to be doing, 

which is promoting small businesses, inviting them, helping them 

grow, helping them diversify, and we are allowing bundling to happen which probably sends more profit to the prime ultimately, and 

putting them in a position where they get beat up frankly for lack 

of a better term. My question is, how do you maintain a viable supply chain without some kind of rules, and what kind of danger does 

that present? If that is a fair question. 

Mr. Burton? 

Mr. BURTON. Well, I think the rules are very important. I 

mean, the government operates on a whole collection of rules. And 

that is why I think Congress has an opportunity here to actually 

improve those rules with respect to consolidated contracts in particular. There is no transparency. There is no compliance. And 

until that is seriously taken by the agencies, I think that the industrial basis is going to be weakened. As a matter of fact, we already 

see that happening right now with respect to janitorial services. 

Hundreds of companies have disappeared off the federal marketplace and more to come. And so it is a serious threat, and I am 

not sure the public fully understands how serious this is. And you 

do not hear much about these small businesses that are actually 

going out of business because of the consolidated procurements and 

strategic sourcing, which on its face sounds so good, and yet it is 

clearly putting small businesses—— 

Chairman HANNA. It is almost antithetical, is it not? 

Mr. BURTON. Absolutely. Absolutely. 

Chairman HANNA. Mr. Specht? 

Mr. SPECHT. So I agree with those comments. I think one of the 

interesting things about strategic sourcing is that we see headlines 

that, you know, 14 of 15 awardees are small businesses, or 86 percent of orders go to small businesses and are some of these FFSI 

strategic sourcing contracts. But what we are not focused on is exactly as you said or Mr. Burton said, that you are focusing your 

industrial base on those 14 or 15 winners. And everybody else gets 

nothing. And so I think we need to understand that strategic 

sourcing can be part of the solution, but we need to have diverse 

orders through the supply schedules or through other ordering 

means that are smaller orders that can go to small businesses, that 

can maintain these businesses, even if they do not get a strategic 

sourcing award. 

Chairman HANNA. Mr. Wynn? 

Mr. WYNN. Thank you. 

You know, we continue to hear that I guess the rationale for 

strategic sourcing, bundling, is supposed to save the government 

money. Save ultimately us, the taxpayer, money. Make our, you 

know, efficiencies, you know, make the procurement process more 

efficient. But when you have hundreds of small businesses who are 

factored out of the process, who is measuring the total loss to those 

businesses, their families, and the community who they, themselves, are the taxpayers. So who is it that we are really trying to 

support here? Is it this government entity? Is it this large corporation? Or are we really about, you know, the benefit of the people? 

Now, it sounds like, you know, in essence, you know, from the 

outside looking in, the government continues to function. The most 

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we are hearing in days now is that, you know, need for budget 

cuts, sequestration, you know, this kind of thing. And so some folks 

probably will feel that if there is a consolidation of services, that 

this is a practical use of the government’s time and efforts. But I 

do not, just like the gentleman Mr. Specht just said, I do not think 

we are emphasizing and letting the public know how many businesses are being negatively impacted by this type of process. 

The other thing, too, is the rules and regulations that govern 

these actions need to be strengthened in such a way that there is 

a stronger mechanism to review this process prior to the contract 

being awarded. 

Chairman HANNA. I take it everyone would agree with that. 

I am going to yield to Grace Meng for questions. Thank you. 

Ms. MENG. Thank you for being with us today. We appreciate 

all your expert insight on these issues important to our small businesses. 

Over the last decade, in Queens, New York, nearly 65.6 percent 

of the borough’s new business growth was from companies with 

less than five employees. In 2013, there were over 32,000 businesses with less than five employees. These small businesses, especially the ones recently created, have the potential for growth, and 

I want to ensure that we have policies in place to help these businesses that want to grow to reach their potential and continue contributing to our economies. 

In my district especially, to be blunt, goaling is very important. 

These goals have afforded businesses in my district opportunities 

that they may otherwise have not received. Although goals are usually unenforceable targets, do you have any insight into how we 

can hold the SBA and other agencies more accountable to their 

goals? 

Mr. BURTON. I do think that the goals are extraordinarily important, and there is too much emphasis on dollars to small businesses. This, I think, is a serious problem, and the government 

needs to deemphasize the dollars and start looking at the participation rate. You know, the objective of the Small Business Act was 

not just to get dollars to a few small businesses; it was to ensure 

maximum participation of the small businesses in the federal procurement system. That is simply in jeopardy now because of strategic sourcing and budget cuts and a ray of factors. But until the 

OMB, my former home, until OMB really at that level indicates 

how important it is for SBA and the other agencies to really look 

at more than just dollars, I think we are going to be handicapped. 

And I think that this is where Congress can really play a beneficial 

role in getting agencies to focus on different goals besides just dollars. The participation rate in my view is key; how many small 

businesses are participating in federal procurement. 

Mr. SPECHT. I would second all of that and add that pressure 

from this Committee is obviously important in focusing higher-level 

folk at the agencies on these small business goals. And I also think 

that the SBA ratings, when an agency gets an A and does not hit 

all of its small business goals, that is sending the wrong message. 

The message here is hit your goals, get the A. Do not hit your 

goals, you do not get the A and you are going to get additional 

pressure. I think that that makes a lot of sense. 

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15 

Mr. BURTON. Just as a follow-up, I think that is one reason 

probably for the A, is that SBA was so pleased that the government 

as a whole made the 23 percent with respect to the dollars going 

to small businesses and said, ‘‘This is fantastic. We are going to 

give everybody an A across the board, even to the folk that are not 

doing so well.’’ So, again, that strengthens my point that there is 

too much emphasis on the dollar goal. 

Ms. MENG. And although not the specific topic of this hearing, 

I am also interested in your views on increasing the current 20 percent goal at the Export-Import Bank. Do you believe that an increase in this goal would help small businesses? Also, do you believe including indirect support in the 20 percent goal would be 

detrimental to small businesses that are already receiving assistance? 

Mr. CHVOTKIN. I do not have enough experience with the ExIm Bank to have an answer for you, Ms. Meng. 

Mr. WYNN. I do not have a lot of experience on the specifics regarding the Export Bank, but increasing the goals, whether it is for 

exports or just the goals in general, we have made recommendations previously to increase the small business goals beyond the 23 

percent level. And also, to emphasize that that is a floor. That percentage goal is a floor and not a ceiling. A lot of agencies tend to 

have the view that once we hit that 23 percent, we are there. We 

are great. And again, SBA then gives the agency a rating of an A. 

But perhaps that should be a C rating when you hit the 23 percent, 

and an A would be 50 percent, you know, where you have really 

shown and demonstrated that you have exceeded the floor of the 

goal. Thank you. 

Ms. MENG. Thank you. I yield back. 

Chairman HANNA. Mr. Curbelo? 

Mr. CURBELO. Thank you very much, Mr. Chairman. And I 

thank the witnesses for their testimony here today. 

My question has to do with subcontracting. The 36 percent goal 

for subcontracts set in 2009 has continuously failed to be met. In 

fact, over the past several years, it has declined from 35.4 percent 

in Fiscal Year 2010 to 34 percent in Fiscal Year 2013. 

Mr. Chvotkin, I am concerned that the percentage of dollars subcontracted to small business has dropped by about 3 percent since 

2010. I am also concerned that by holding only senior executive accountable for prime contracting goals we have sent the message 

that subcontracting perhaps is not all that important. What are 

your thoughts on this issue? 

Mr. CHVOTKIN. Mr. Curbelo, thank you. 

Our view is subcontracting matters, and it is very important. It 

is a good business strategy for small businesses. We talked about 

that today. Along with finding prime contracting opportunities. But 

the data and the collective insight into that small business subcontracting is sorely lacking as well. That is an area that we have to 

work on before we can—we need to be cautious in looking at root 

causes and then designing solutions. 

You may be aware, the new executive branch subcontract reporting system could launch next quarter, and I am hopeful that it will 

be an improvement over the current one; it has to be, although 

more may need to be done there. But while agencies often dictate 

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subcontracting percentages to prime contractors, the prime contractors’ choices of implementation are really part of its own technical 

solution that the agencies evaluate, and its business decision-making is outside the purview of federal agencies and senior executives. 

So I am concerned about imposing requirements that either cannot 

be effectively influenced, or that if they can be influenced, that influence risk politicizing the acquisition process. So I would welcome 

the opportunity to discuss that with you further after this hearing. 

But subcontracts matter, and we have to find a better way of identifying the right data across all of the tiers of small businesses and 

making sure that we are capturing that data and holding both the 

agencies, as well as the prime contractors accountable. 

Mr. CURBELO. Thank you. 

Mr. Burton, maybe you want to weigh in, too. In 2010, $74 billion in subcontracted dollars went to small businesses, a substantial amount of money. What can we do to make sure that our agencies pay attention to this issue? 

Mr. BURTON. Well, I think what you are suggesting is that 

agencies comply with the current rules, and I think that is absolutely critical. We are going to see more dollars going through subcontracts than previously to small businesses because of the nature 

of things, because of the fact that the prime contracting base is 

going to shrink and more small businesses are going to be eager 

to get subcontracting opportunities. The government is encouraging 

joint ventures, teaming. You are going to see more of this. And so 

therefore, I think it is absolutely imperative for agencies—SBA and 

OMB in particular—to start emphasizing compliance with the subcontracting goals. Not just meeting the subcontracting goals but 

the subcontracting goals as well. There has been virtually no emphasis on meeting subcontracting goals under the theory that small 

businesses would prefer to have prime contracts. But the reality is 

they also like to have subcontracts. And in this environment, it is 

critical for them to get subcontracts. 

I think in short answer to your question, agency senior executives have to be held accountable for both achievement of prime 

contracting goals and subcontracting goals. Quite frankly, some 

senior folks in the government do not even know that there are 

subcontracting goals that they have to comply with, and so this is 

very important to have from the top leadership down, emphasis on 

agencies meeting subcontracting goals. 

Mr. CURBELO. Thank you. 

I have about a minute left. Does anyone else want to weigh in 

on this issue? 

Mr. WYNN. I would like to make a quick comment. On subcontracting, you know, there are some obvious conflicts with regard to 

the process and the evaluation. It looks like, you know, even when 

we talked about the scorecard process, more emphasis is placed on 

the prime contracting than on the subcontracting. And what happens to an agency if they do not meet their subcontracting goals? 

We will just not meet them again next year, perhaps. 

The other thing, too, though, is that with the more and more 

bundling and consolidation, there are fewer opportunities that are 

going to be had by small businesses to subcontract if more and 

more agencies are encouraged to use these contract vehicles. So we 

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would like to see more subcontracting businesses. Small businesses 

want to make money. And it is the only way they are going to be 

able to grow and expand is that they get a contract, whether it is 

a subcontract or a prime. So more of that needs to be had, but the 

rules need to be strengthened to give them the opportunity to do 

so. 

Mr. CURBELO. Thank you. My time has expired. 

Thank you, Mr. Chairman. 

Chairman HANNA. Thank you. 

Ms. Chu? 

Ms. CHU. Yes. 

Mr. Wynn, as I understand, federal agencies are required to provide the SBA’s statement explaining why contract bundling is necessary if it knowingly proposes a bundled acquisition. These explanations are reviewed by SBA procurement center representatives 

and can be appealed if the PCR believes that bundling is not justified. However, data shows that only 28 appeals were filed in 2012, 

and only six resulted in the unbundling of contracts. 

Can you explain why these numbers are so low considering that 

there are millions of contracting actions that take place in a year 

and that many of them are bundled? 

Mr. WYNN. Well, I think it is partially due to the fact that it 

is such a few number of persons as I mentioned that are responsible or designated to intervene into these particular contract actions. Of the ones that I do again, it is my understanding that negotiations, discussions take place within the agency, and a decision 

is made on some cases. The contract may be pulled back. It may 

be changed in some way and then relet. And so you have fewer people challenging the award later on. But again, I just think it needs 

to be more people. The process needs to be strengthened for reviewing these type of actions. 

Ms. CHU. Thank you. 

Mr. Burton, you state in your testimony that it is common for 

agencies not to publish timely justifications for why they are choosing to consolidate or bundle a contract, and you attribute this to 

the lack of regulations requiring justifications to be released on a 

specific timetable. And you said that SBA therefore has no recourse 

to protest a bundled contract after the contract is awarded. How 

does this lack of authority impact the bundling review process? 

Mr. BURTON. Well, you know, terminology here is so very important, and we tend to speak in terms of bundled procurements. 

But in fact, most of the procurements that we are seeing are consolidated procurements. And the distinction is that a bundled procurement, there has to be a determination that it is unsuitable for 

small businesses. Well, quite frankly, small businesses can perform 

almost everything, especially in today’s world where what the government is procuring are primarily services, not big weapon systems. And so more than likely, most procurements are suitable for 

small businesses, which means there is not going to be a bundled 

procurement. Which I think goes to your question, why are we seeing so few bundled procurements be challenged? Because there are 

not that many bundled procurements. They are consolidated procurements, which is simply the combination of contracts, which 

small businesses can compete for. There is no transparency. There 

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is no requirement, except for a written justification that is stuck 

in the file somewhere. There is no requirement for any posting of 

justifications for consolidated procurements. There is no reporting 

requirement for consolidated procurements. 

So if you are an agency official, you are going to want to make 

sure that we are doing consolidated procurements. I mean, it is 

somewhat of a cynical view, but I think it is true that if you decide 

that it is a bundled procurement, there is more regulation and 

more red tape. And I think quite frankly, most procurements are 

consolidated. I think they are justifiably categorized as such. That 

is why I think it is so important for Congress to start having those 

transparency requirements imposed on consolidated contracts. And 

maybe we should even quit using the word ‘‘bundled,’’ because 

there is just not much in that category. It is consolidated procurements, and there is no transparency or regulatory requirements except for a mere written justification, and which I testified that 

when we have submitted FOIA requests to agencies to take a look 

at those written justifications, they are not to be found, and in my 

view, they were never done. And so I think it is absolutely critical 

that Congress, OMB, SBA, start saying it is very important that 

we have transparency and to consolidate the procurements. 

Ms. CHU. Such a good point. 

Mr. Specht, the SBA weighs 80 percent of its scorecard grade on 

prime contracting dollars, yet only 10 percent on subcontracting 

achievements. Do you believe the disparity between the weight of 

these two types of contracts should be this drastic? 

Mr. SPECHT. Absolutely not. As Mr. Wynn pointed out, small 

businesses want to make money. And it is probably for the best 

that they be prime contractors. It is probably the best circumstance 

for them, but it is not eight times better than being a subcontractor. And so, no, I do not think that that weighting makes sense. 

I think that more weight should be placed on subcontracting. And 

in addition, I think this point has been made that our transparency 

into the actual percentages that get subcontracted to small businesses is not very good, so we should put those two together. More 

weight in the scorecard on small business subcontracting, but also 

more transparency so we know that it is actually getting done. 

Ms. CHU. Thank you. I yield back. 

Chairman HANNA. Ms. Lawrence? 

Ms. LAWRENCE. Thank you, Chair, for holding this hearing. 

In Michigan, the state of Michigan, we are home to over 800 and 

500 small businesses and we employ over 1.7 million. In the first 

quarter of 2014 alone, over 11,000 small new businesses were established, and it is my sincere hope that all of them stay in business and grow. 

I hear a lot from the panel today about transparency and that 

there is a need for transparency. So I have two questions. What are 

some of the major challenges that these new small businesses will 

face when they compete against the more established small businesses with a history of consolidating and bundling? And then I 

want to hear from you as experts, what does transparency look 

like? You use that word as if it defines something, and I would just 

like for you to state what would transparency and what would the 

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areas be that would give us the transparency that you feel we 

would need? 

And Mr. Burton, if you could start. 

Mr. BURTON. Well, small businesses do have an opportunity to 

challenge certain actions. They can challenge certain things before 

OHA, for example. They can challenge at the GAO. They do have 

recourse. But they simply have no recourse if there is no transparency or view into the government decision-making process. 

A perfect example was recently I had a small business client who 

felt like they should have won an award, and we had a debriefing 

by the agency and the debriefing said, ‘‘You were great. There was 

no deficiencies. Your price was reasonable, realistic.’’ And so they 

thought, ‘‘Well, I guess I should have gotten the award.’’ So they 

filed a protest, only to find out when we looked behind the curtain 

and looked at the government decision-making process, we find out 

that that particular contractor’s price was way high. It was off the 

charts. Had the agency communicated that basic fact that your 

price was not really reasonable or realistic, there would not have 

been a big protest. Small businesses have thirst for information, 

and that is just one example where the agency, for whatever reason, just does not want to share that information. 

With respect to the decision-making process on why an agency 

consolidates a procurement, when they consolidate a procurement, 

they are supposed to go through a decision-making process. Will 

this negatively impact small business if I consolidate this procurement? In many instances, it will. But there is no analysis. Even 

though it is required, there is no analysis, no documentation regarding that. If there is not even documentation regarding it, we 

never get to transparency because there is nothing to look at. But 

transparency into the decision-making process, there has to be a 

document that we can take a look at and small businesses can actually challenge. That is so critical for the health of the small business industrial base. 

Ms. LAWRENCE. Other panelists? Mr. Chvotkin? 

Mr. CHVOTKIN. Thank you, Ms. Lawrence. 

First of all, I say all too often that the only thing worse than not 

having a government contract is having a government contract, because the compliance burdens, particularly for small businesses, 

are significant, and very, very different than what they experience 

in the commercial marketplace. And for many, it is a real wakeup call and a real business risk because the government does look 

at and challenge the compliance capabilities of firms. So even for 

small businesses, even selling commercial items, even on a fixedprice basis, the rules that are imposed on prime contractors and 

often flow down to subcontractors can be significant and very atypical for what they are used to in the normal marketplace. 

And I think on the question of transparency, what does it look 

like? I think it looks like three things. First of all, clear documentation about what an agency’s decision-making is. Secondly, compliance with the existing rules. Many times we find that the agencies 

are ignoring or skirting those existing rules, so as Mr. Burton said, 

they never get to the documentation. And finally, senior level accountability for those activities. I think with those three piece parts 

together, there will be lots of attention in the marketplace, and the 

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competitive marketplace will help drive compliance because the 

companies themselves or advocates on their behalf will be watching 

how agencies are performing. 

Mr. SPECHT. And I will just add, as someone who represents 

small businesses in your state, that one of the primary challenges 

those businesses face is knowing about these opportunities, knowing how to get into the government contracting marketplace, and 

finding contracts of the size that they can handle at an early stage 

so that they can grow and they can build up the compliance regime 

and all the rest. 

Mr. WYNN. And just a quick follow-up on the transparency and 

small businesses succeeding in the federal marketplace, the transparency needs to be readily available for those of us out here to be 

able to see it. So whatever the decision-making process that they 

use, if they would make it readily available so that we can see it. 

There was an executive order at one time with regard to the increased opportunities for service-disabled vets that every agency 

would post on its website what the opportunities were, what the 

plan was to how they were going to increase opportunities for this 

group of businesses. That went well for a couple of years and then 

we ended up into the scorecard thing where now it is less transparent. So, thank you. 

Ms. LAWRENCE. Thank you. I yield my time. 

Chairman HANNA. Thank you. 

I am going to open another round of questioning if no one minds. 

I will start myself with some interesting and bad news. The SBA 

gave a buy-out to many of its procurement center representatives, 

which tells us that they are moving away from what we want, not 

towards it; right? The other thing is I think all of you are much 

kinder than you need to be over this. What is obvious from listening to you is that what we have here is a small war or maybe a 

large war of attrition that the difficulty associated with doing what 

we want people to do is high. And the ease of bundling and consolidation is just that, easy, in that it requires a great deal of effort 

to do what we are asking and expecting and have a right to expect 

some of these agencies to do. And they act with impunity. There 

are no consequences. Apparently, the appeal process is all but nonexistent. Our ability to monitor and understand is obfuscated by 

the fact that there are no reporting requirements, which my friend, 

Grace Meng, is trying to address. So knowing some contracting officers as I do in my past life, it does not necessarily have to be insidious, but the outcome is the same. 

Do you agree with that? I am making kind of a blanket statement about the agencies and the personalities and the people that 

run them, but I welcome you pushing back or just your kind of personal opinion. A lot of this boils down to personalities and people 

and the workload they have or do not have and their willingness 

to look at something like this and say, ‘‘Oh, this is a bunch of baloney. I am not going to go through with it. And by the way, nobody 

is going to do anything to me for doing it.’’ 

You are shaking your head there, Mr. Chvotkin. Go ahead. 

Mr. CHVOTKIN. Well, I have a couple of comments, Mr. Chairman. 

SBREP-219 with DISTILLER

21 

First of all, I think it is important to understand that the primary goal for the acquisition professionals at the agency is to acquire the goods and services they need to fulfill their agency mission. The acquisition system, the procurement process is an enabler. It is not an end-state in and of itself. So many of these requirements, in fact, inhibit from the agency’s view, their ability to 

in a timely manner get the goods and services they need. When you 

couple that with little clear regulations and little oversight, it is 

very easy to divert attention from these set of compliance rules and 

focus attention on—— 

Chairman HANNA. Yeah, but you have to agree that the loss of 

100,000 businesses in such a small period of time suggests that it 

is a crisis, not just—— 

Mr. CHVOTKIN. Except that the agencies are still, by and large, 

still getting what they need from the marketplace, but not from 

those small businesses. That is why the comment earlier from all 

of us was it is important to focus not just on the dollars but on the 

whole industrial base. The repetitive ability of the agencies to get 

goods and services from a diverse capability, rather than just from 

a limited number that are achieving the dollars. Couple that with 

workforce challenges in the federal marketplace, the skills of the 

current acquisition workforce, and the drive towards low price, all 

of these things end up having an impact on who is able to be a supplier to the Federal Government and how the government approaches that marketplace. 

Chairman HANNA. So you think there is some basic flaw in the 

process that could be dealt with? I mean, what you are saying is 

they are trying to do their job and all these requirements, quotas, 

goals, of the small business SBA are actually kind of counterintuitive to them. 

Mr. CHVOTKIN. No, that is not my point. I think these goals 

have a value to the agencies. They draw attention, and there is 

every reason to continue to support a robust small business program. Unfortunately, I think as we alluded to in my testimony, and 

maybe I said it more explicitly in my written testimony, the focus 

has been only on dollar achievement, and many agencies are using 

those goals as a way of establishing an industrial policy, picking 

winners and losers in the marketplace without regard to long-term 

impact of the industrial base. Reporting will help. Greater visibility 

into the entire supply chain as you suggested will be a help. But 

we just need to remember that the purpose of the acquisition system is to acquire those goods and services for the agencies. 

Chairman HANNA. But it is not the only purpose. 

Mr. CHVOTKIN. It is not the only purpose. 

Chairman HANNA. Anyone else? 

Mr. SPECHT. Well, I guess my perspective on it is that, you 

know, we are all talking about the stick, but maybe there is some 

carrot to be had, which is to say that what you could do is make 

sure that small business participation is one of the most important 

factors in a best value tradeoff in procurements going forward so 

that you incentivize large contractors to go out and find small businesses and find diverse small businesses to meet those needs. And 

so that is not a perfect solution, but it is a way to sort of push 

them to incentivize them to do that. 

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I think the other perspective is that I think many in the agency 

see the small business goals as a hassle, as something that is extraneous to their day job, which is buying things for the Federal 

Government. And the solution to that is to continue to evangelize 

about how small businesses not only add jobs and add value to the 

country, but also can offer unique needs, can offer better customer 

service, and can be a great asset for a buyer. 

Mr. WYNN. I would just add that let us not overlook the realities 

of the everyday working citizen, particularly within the federal 

marketplace, and that is that I want to do not as much as I can 

do, but only what I am required or have to do for real. And that 

means that if we have got fewer and fewer procurement officials, 

contracting officers, and where now the workload on me to get the 

same amount of goods and services requirements done for my agency still exists but there are fewer people to do them, if there is a 

way that I can consolidate these requirements and do fewer actions, I mean, for real. That is what the office is going to do. But, 

see, they are only doing that because they are allowed to do it. It 

is justified under the current state regulations. If the regulations, 

the laws, rules change, then they could not do that because they 

would be in violation. 

So it is incumbent upon you, upon Congress, that we really look 

at ways to change the way that they actually do what they do. 

Chairman HANNA. The appeal process that we are talking about 

here today, and transparency that we are talking about, and the 

requirement of explanations in advance in concurrent with awards 

and decisions and procurement, just those two items alone would 

go a long way. 

Mr. WYNN. Would go a long way. 

Mr. BURTON. And Mr. Chairman, I think it is important to note 

that priorities are important. The workforce is overburdened. It is 

shrinking. Forty percent of the federal workforce has less than five 

years experience. There is no question that there is huge challenges that may never be overcome in that area. But that is even 

why it is more important for Congress and others in leadership positions to clarify what is most important. And I do believe with respect to the goaling that we have a misplaced emphasis really on 

the dollars going to small business and a greater emphasis should 

be placed on actually how many small businesses are participating 

in the federal procurement process, and how strong is our small 

business industrial base? I think the emphasis needs to be more 

now on participation rate than actual dollars. 

And I know when I worked at the Office of Federal Procurement 

Policy, we were very focused on the dollars because we thought 

that was what was important to Congress and to the administration. And so consequently, that is the message that we sent to the 

agencies, to focus on the dollars. That message can change and the 

emphasis can change through leadership and through rules. 

Chairman HANNA. Sure. But that is so subjective. I mean, what 

supply chain is more important than another supply chain? Who 

makes that decision, and how do you talk about it? And how do you 

protect it and how do you justify spending more when maybe you 

could spend less? Because a dollar is the only thing that is truly 

measurable for most of us. 

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Mr. BURTON. Well, and the number of small businesses participating. I mean, I think that is measurable as well. 

Chairman HANNA. That would be one thing. Certainly. 

Anyone else? I took a little liberty. I am the last guy here. 

Go ahead. 

Mr. SPECHT. Well, I will just second Mr. Burton’s point in terms 

of diversity. And I do think that is measurable in terms of not only 

the subcategory goals but the numbers of businesses because eventually what is going to happen, if we keep consolidating contracts 

like this, is that only the large smalls will survive. They will be acquired by large businesses that want access to those contracts, and 

you are going to see an even more steep drop off in the number of 

small businesses participants. And those that you have will be 

stuck in second, third tier subcontract roles, and that is a significant problem that I think partially can be addressed by forcing justifications to be published, not only for bundling, but I think, as 

Mr. Burton said, for consolidated contracts, because consolidated 

contracts do not require the same justifications, and they are just 

easier. You have one small business that gets the work now on a 

multiple award contract as opposed to the dozens that used to have 

them, and you do not have to publish justification. And the publication will allow, to some extent, the private bar to step in and try 

to be private attorneys general, right, and try to enforce these 

things. The downside of that is, as I mentioned in my testimony, 

that those protests do not go anywhere. And I think one of the reasons why you see so few bundling appeals, even internally, is that 

the bundling standards are not very high. If I can demonstrate a 

5 percent savings, I can bundle. Well, the Congress needs to decide 

is 5 percent the right number? At what cost are industrial based? 

And if the number is 5 percent, that is great. But if it is not, we 

need to increase that. We may need to increase the cost of bundling 

contracts. 

Chairman HANNA. But also the 5 percent has to be justified by 

itself, so that would help. Just having the ability to look at that 

number and question the veracity of it would go a long way, which 

we do not have, as everyone has pointed out. 

I would ask that you watch the work of this Committee over the 

next few weeks, couple of weeks. These are the issues that we are 

dealing with. We have work that we are proposing that we would 

ask, if you can, to take a look at, give us some feedback. Some of 

it has already been written. 

I want to thank you for being here. You have all done a great 

job of explaining your case. 

I ask unanimous consent that members have five legislative days 

to submit their supporting materials for the record. Without objection, so ordered. 

This hearing is now adjourned. And again, thank you. 

[Whereupon, at 11:18 a.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

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Good morning, Chairman Hanna, Ranking member and other 

members of this subcommittee. On behalf of VET-Force, VVA National President John Rowan and all of our officers and members 

we thank you for the opportunity for Vietnam Veterans of America 

(VVA) to appear before you today to share our views on the ‘‘Contracting & Industrial Base II: Bundling, Goaling, and the Office of Hearings and Appeals.’’ I ask that you enter our full 

statement in the record, and I will briefly summarize the most important points of our statement. 

Though my time of service was many years ago, as a veteran of 

the US Air Force with the 66th Strategic Missile Squadron, I still 

have very vivid memories of my military experience. I’ve served on 

the Executive Committee of the Veterans Entrepreneurship Task 

Force (VET-Force) since the passage of PL 106–50, the Veterans 

Entrepreneurship & Small Business Development Act of 1999. And 

having served as an Advisor to the Vietnam Veterans of America 

and Legislative Liaison for the National Association for Black Veterans also during that time, I am well aware of the challenges 

faced by many Veterans and especially Veteran Business Owners 

trying to do business in the federal marketplace. 

VET-Force members are of military service from all across the 

United States. They own businesses in every industrial sector. The 

members reflect the ethnic diversity of the country itself. The members are concerned for our free market system and believe that 

there hasn’t been a more important time to stand up for it and all 

it represents. We want the American military to successfully complete the missions that the Congress may ask of them and to make 

sure the American men and women in the service of our country 

are well trained and equipped and are able to come home safe 

when the mission is finished. 

Over the years, our organization, VET-Force, has been voluntarily conducting oversight of the legislation, regulations, policies, 

and programs intended to improve and increase the contracting opportunities for veteran and service disabled veteran owned businesses. When we come to know what’s not working, we do not hesitate to bring that to the attention of the Military Departments, 

Federal Agencies, or to you, the members of Congress. Just last 

year, I testified before this Committee about the VA’s overly burdensome verification process by the Center for Veterans Enterprise 

of veteran business owners who are seeking to participate in the 

VA’s Veterans First Contracting Program. For that issue, we supported the recommendation to move that process to the SBA, who 

we know is more uniquely qualified for such tasks. 

Through VET-Force, we’ve also come to know that the Federal 

small business procurement process is not only unkind to businesses owned by veterans but is negatively impacting all small 

business groups—8a, Hubzone, Women owned, as well. A few years 

ago, we conducted research and prepared a report entitled: ‘Breakdown! National Security Crisis in a Small Business World’ which 

basically showed that the Federal small business procurement 

process is in a state of breakdown and collapse, in conflict with 

U.S. law and policy. 

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In my testimony here today, I will draw from that report and evidence of federal policies and practices being used today, to highlight the impact of federal contract bundling and consolidation 

through the use of Federal Strategic Sourcing Initiatives on veteran and other small businesses. 

Many Small Businesses are struggling in the federal marketplace. New U.S. trade policies and changes in how contracts are 

competed and awarded have made it much more difficult for small 

businesses to compete against and work with large prime contractors. For example, many government requirements that could be 

set aside for small businesses are bundled together with other contract requirements and awarded to large companies. Only large 

companies can hope to win these contracts as the prime contractor 

due to the increased amount and varied scope of the work. As a result, small companies must work within the contract environment 

almost entirely at the discretion and advantage of the large corporation. 

In recent years, the government has been actively promoting the 

use of Federal Strategic Sourcing Initiatives (FSSI) among federal 

agencies in an effort to consolidate procurements in such a manner 

that reduces the costs of goods and services. However, to us, the 

small business owner, FSSI is just a more clever way of contract 

bundling. 

Under the Small Business Act, contract bundling is defined as 

consolidating 2 or more procurement requirements for goods or 

services previously provided or performed under separate smaller 

contracts into one large contract. This often results in the contract 

not being eligible for any one small business due to the size, scope 

and specialized requirements of the contract. While consolidation is 

defined a little differently, it still amounts to 2 or more contracts 

being combined into one new contract which may or may not be 

suitable for a small business. 

We know that the House Small Business Committee has heard 

the issue of contract bundling from small business owners before. 

And many legislators have agreed that there have been many instances wherein these policies and practices have limited the opportunities for many small businesses. But things aren’t getting 

any better, many small businesses find they are shut out of the 

contract process and eventually stop wasting time and money in 

the Department of Defense (DOD) procurement market and the 

country is the weaker for it. In a world crying out for a new diplomatic formula, Small Businesses are once again being left out. Real 

security begins in the grassroots with the kind of economic and political sanctuary provided by small business development. 

VET-Force is concerned that by relying so heavily on a few large 

prime contractors, our country makes itself vulnerable to a catastrophic interruption in services and a lack of competitiveness, innovation and imagination for our military that small businesses 

provide. New technologies combined with new trade laws create 

new supply chains and new models of efficiency to meet customer 

expectations for quality and ‘on time’ deliveries. Innovative ideas to 

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nomic and national security policies. Sometimes these efficiencies, 

as in bundled contracts, work better on paper than in actual practice. 

All federal agencies are supposed to identify if a contract is bundled or consolidated. There is a dollar threshold per agency and 

certain criteria used to make this determination; and achieving reductions in administrative or personnel costs alone is not enough. 

Measurable cost savings; quality improvements; reduction in acquisition cycle times; better terms and conditions; and other benefits 

must evident to justify the need to bundle or consolidate a procurement. In addition, there should be an assessment done to determine the impact on small businesses. But who within the procurement process actually makes this determination. And once determined, then what happens. 

As agencies continue to increase the use of these practices, it becomes more challenging to get an outside objective analysis of these 

types of procurements in a timely manner. Agencies are required 

to provide the SBA’s Procurement Center Representative (PCR) 

and the agency’s own Office of Small and Disadvantaged Business 

Utilization (OSDBU) with a statement explaining why the procurement has to be bundled. If the PCR objects to the agency’s rationale, the PCR can delay the procurement while SBA and the agency 

negotiate, although the agency will ultimately make the decision 

whether to move forward with the procurement as is or change the 

requirements. 

This process of checking the requirements by the PCR is not only 

flawed, but by the mere fact that SBA has decreased the number 

of PCRs to about 50, its highly unlikely that these few persons will 

be able to review 1000s of procurements throughout the entire federal government. In recent years, SBA has reported that they will 

collect more data on the number of contracts bundled and measure 

the impact on small businesses. However, without be directed by 

a specific legal requirement, their efforts to do so have been less 

than adequate. VET-Force has previously recommended that SBA 

increase its budget to include the hiring of more persons to serve 

as PCRs. We ask now that Congress approve legislation to ensure 

that SBA carries out these vital functions. 

The enduring policy of the United States has been to support the 

small business sector of the American economy for important economic and national security reasons. The Congressional goal is to 

ensure a high quality, competitive, innovative, efficient and diversified sources of goods and services in the marketplace, public and 

private. The Congress also has an interest in a geographically diverse marketplace, one that doesn’t concentrate economic and political power in any one region of the United States. 

For years Administrations have attempted to streamline its policies in an effort to reduce costs and save the tax payer dollars. Reducing government employees as been one method that has been 

used a lot. In the 1990’s, an estimated 15,000 government procurement positions were eliminated over a decade. One of the negative 

results has been contract bundling. Bundling many small contracts 

into one contract vehicle may have been designed as well-meaning 

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way to make government contracting more efficient and cost effective. Instead, contract bundling has proven to be inefficient and in 

direct conflict with U.S. policy for small business and national security. 

So where then are we headed with Federal Strategic Sourcing 

Initiatives? While the policy may be endorsed and promoted by 

OMB in this and previous Administrations, what has been and will 

continue to be the adverse impact on small businesses. The government claims that there is a definite improvement in procurement 

efficiencies and cost savings by using strategic sourcing procurement vehicles. However, it appears that the more these types of 

procurement vehicles are used, the larger the number of small 

businesses that are not used. 

GSA uses a number of strategic sourcing vehicles. Under the 

Janitorial-Sanitation Supply contract vehicle (JanSan), GSA 

awarded blanket purchase agreements (BPAs) to 18 companies, 15 

of which were small businesses. However, these services were previously being provided by 609 companies, 540 of which were small 

businesses. So that means that 525 small businesses will no longer 

be allowed to compete for federal contracts for janitorial services 

and supplies. Under GSA’s Maintenance, Repair and Operations 

(MRO) contract vehicle, 418 small businesses and 39 service disabled veteran owned small businesses were displaced. And yes 10 

of the 11 BPAs awarded were to small businesses. And while GSA 

projects that there will be a 12% savings by using this method of 

contracting, there are no projections on the percentage loss by the 

418 small businesses that were displaced. 

GSA has other contract vehicles of these types that are having 

the same consequences on hundreds of small businesses—Oasis 

and Oasis SB, intended to provide integrated, multidisciplinary 

professional services and ancillary services; and MOBIS, Mission 

Oriented Business Integrated Services. In 2014, under this contract 

vehicle, 1270 small businesses were not allowed to compete on various task orders. 

And there is another issue. If a company is awarded a GSA contract while that company is a small business, and that company 

subsequently becomes a large business, that company may still 

compete (via their GSA contract) as a small business for the remaining life of their GSA contract. VET-Force learned of a recent 

contract where, a New England business, lost to a large business 

on a small business set aside contract solicitation under these exact 

circumstances. 

Finally, small businesses competing for government contracts 

find themselves at a disadvantage in the federal marketplace and 

appear to be losing ground all the time. The large Prime contractors have been awarded most of the bundled contracts with little 

to no repercussions for not including small companies in their subcontracting plans. However, under FSSI that use consolidation 

strategies, a few small businesses will no doubt grow and prosper 

if they are one of the lucky few selected, but it’s clear to see just 

from the math that there is definitely an adverse impact to far 

more small businesses. 

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VIETMAN VETERANS OF AMERICA 

Funding Statement 

March 16, 2015 

The national organization Vietnam Veterans of America (VVA) is 

a non-profit veterans’ membership organization registered as a 

501(c)(19) with the Internal Revenue Service. VVA is also appropriately registered with the Secretary of the Senate and the Clerk 

of the House of Representatives in compliance with the Lobbying 

Disclosure Act of 1995. 

VVA is not currently in receipt of any federal grant or contract, 

other than the routine allocation of office space and associated resources in VA Regional Offices for outreach and direct services 

through its Veterans Benefits Program (Service Representatives). 

This is also true of the previous two fiscal years. 

For Further Information Contact: 

Executive Director for Policy and Government Affairs 

(301) 585–4000 extension 127 

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Testimony of 

Damien Specht 

Partner 

Jenner & Block, LLP 

Co-Chair, Government Contracts Corporate Transactions Practice 

Group 

BEFORE THE UNITED STATES HOUSE OF 

REPRESENTATIVES 

COMMITTEE ON SMALL BUSINESS 

SUBCOMMITTEE ON CONTRACTING AND WORKFORCE 

Regarding ‘‘Contracting and Industrial Base II: Bundling, Goaling, 

and the Office of Hearings and Appeals’’ 

March 17, 2015 

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Chairman Hanna, Ranking Member Vela ́zquez and Members of 

the Subcommittee, thank you for the invitation to appear today. It 

is a privilege to share my views on the ways we can maintain a 

strong industrial base of small business government contractors. 

My name is Damien Specht, and I am a government contracts partner with the law firm of Jenner & Block here in Washington, D.C. 

Before I begin, let me state that my comments are my own, and 

I am not speaking on behalf of my law firm or any specific client. 

I serve as Co-Chair of the firm’s Government Contracts Corporate Transactions Practice Group and as a Co-Chair of the American Bar Association’s Section of Public Contract Law Small Business & Other Socioeconomic Programs committee. In each of these 

roles, I work with small government contractors and entrepreneurs 

as they enter the federal market, navigate size protests, and, 

through hard work, develop thriving mid-size businesses. I also assist small businesses in corporate transactions with large contractors and investors. 

In my testimony, I will address how consolidated contracting, 

whether through bundling or strategic sourcing, reduces competition and necessarily limits the number of small businesses in the 

federal marketplace. I would also like to briefly discuss the Small 

Business Administration’s scorecard rating methodology and, as a 

litigator who regular appears before the Small Business Administration Office of Hearings and Appeals, share some thoughts on 

that forum. 

Bundling Reform 

Anecdotally, I have heard from many of my small business clients that bundling is a problem. For example, facilities operation 

contractors have complained that general maintenance services 

have been bundled with logistics and food services and hardware 

contractors have been excluded from competitions when a series of 

additional items were added to the contract requirements. However, because we largely rely on self-reporting, the government has 

little reliable data on where bundling is occurring, how many contractors are being affected by bundling, and the impact that bundling and consolidation are having on the small business community. 

As a result, I support the efforts of this subcommittee to increase 

transparency and reporting of data related to bundling. In particular, I support the idea that agencies should be required to publish bundling justification along with issued solicitations. In other 

circumstances where agencies limit competition, such as sole-source 

awards, we require publication of a justification; bundled requirements, which can eliminate small business opportunities, should be 

no different. This added transparency will allow small businesses 

to understand the agency’s rationale and, if necessary, to protest 

the consolidated requirement. 

I will note, however, that bundling protests are rarely successful. 

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1 B.H. Aircraft Company, Inc., B–295399.2, July 25, 2005, 2005 CPD ¶ 138. 2Sigmatech, Inc., B–296401 Aug. 10, 2005, 2005 CPD ¶ 156 (sustaining a protest ‘‘where agency failed to perform bundling analysis’’). 3 Currently, FAR 7.107 provides that bundling may be permissible if it results in ‘‘cost savings 

or price reduction, quality improvements that will save time or improve or enhance performance 

or efficiency, reduction in acquisition cycle times, better terms and conditions, and any other 

benefits.’’ Cost savings must be substantially equivalent to ‘‘(1) Ten percent of the estimated contract or order value (including options) if the value is $94 million or less; or (2) Five percent 

of the estimated contract or order value (including options) or $9.4 million, whichever is greater, 

if the value exceeds $94 million.’’ Id. 

countability Office that include bundling allegations and could only 

find a small handful that were sustained on that basis. This is the 

case because the GAO gives agencies significant deference and only 

requires ‘‘a reasonable basis for its contentions that bundling is 

necessary.’’ 1 This is not a high bar and, as result, it appears that 

the primary way for an agency to lose a bundling protest is to fail 

to perform the statutorily required bundling analysis at all.2 As a 

result, in addition to increasing transparency surrounding bundling, this committee should consider raising the bar for justifying 

these decisions, which can currently be based on as little as a five 

percent cost savings.3

The Downside of Strategic Sourcing 

Although strategic sourcing is technically consolidation and not 

bundling, it can have the same effect of weakening the small business government contracting base. 

Strategic sourcing means many things to many people, but the 

basic process includes identifying needs across government agencies and consolidating purchases through industry or item-focused 

contract vehicles to achieve cost savings. The public record is clear 

that proponents of strategic sourcing have worked with small business stakeholders to maximize small business participation on 

these contracts. In fact, most of the awardees under the GSA’s Federal Strategic Sourcing Initiative (FSSI) program are small businesses. That effort is commendable, but the problem with strategic 

sourcing is not one of intent or lack of effort to include the small 

business industrial base. The problem is that strategic sourcing, at 

least when accomplished through large contract vehicles, is necessarily bad for enhancing the diversity of small government contractors in the industrial base. This is the case for a few reasons: 

First, the number of offerors that can compete for strategic 

sourcing contracts is limited. As a result, it is not at all clear that 

the Government is getting the best pricing on each item or that it 

is honoring its commitment to full and open competition. When the 

government’s solicitation requires offerors to provide hundreds of 

different items in significant bulk, as it must to gain the benefits 

of a strategic sourcing contract, that contract structure all but 

eliminates offerors who provide some of the required items but cannot deliver in the tremendous quantities required for a government-wide purchasing vehicle. As demonstrated by the FSSI Office 

Supplies contract, it is often necessary for hundreds of small businesses to team together to fulfill the requirements of these large 

contracts. As you might imagine, these broad coalitions among 

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competitors are rare and result in significant administrative challenges. This is a real barrier to entry for small businesses that 

could provide some, but not all, items or lack the immediate infrastructure to deliver hundreds of thousands of items. These same 

small businesses could fulfill the government’s needs if smaller, 

more focused contracts were opened for competition among the full 

breadth of the small business base. 

Second, those businesses that do not receive strategically 

sourced awards may find other contract opportunities disappear. To 

drive real volume discounts, purchasing from strategic sourcing vehicles, like the FSSI contracts, must be mandatory or, at least, 

highly encouraged. That means that there are a small number of 

significant winners and a far larger number of losers. 

For example, in June 2010, GSA awarded the previous generation of its FSSI Office Supply blanket purchase agreement to 15 

companies. Although there were 15 awardees, most of which were 

small businesses, those awardees must be balanced against the 

thousands of possible firms that could have met the Government’s 

needs had these requirements been solicitated in less volume. This 

number includes 569 holders of GSA Schedule for Office Solutions 

that could have met the Government’s needs through a simple Federal Supply Schedule order. All of those other businesses, large and 

small, became holders of an essentially useless supply schedule 

contract. 

As this example demonstrates, small bushiness participation percentages reported as part of strategic sourcing do not report the 

whole story. For example, GSA has reported that small business 

participation on its office supply contracts increased from 67 percent to 76 percent of spending in fiscal year 2014. If the goal of 

small business programs were simply to achieve certain metrics, 

these numbers would show clear and convincing progress. However, 

I believe that the purpose of small business programs is to create 

a vibrant and diverse base of small businesses that can offer innovation and creativity to the federal marketplace while creating jobs 

in communities across the country. Judged by that standard, a 

higher percentage of spending that is isolated within a smaller 

number of firms is not a step in the right direction. 

Third, because strategic sourcing contracts are likely to reduce 

the number of sales available to Federal Supply Schedule holders, 

these large contracts may also dissuade small business from becoming federal contractors. Traditionally, GSA’s Federal Supply 

Schedule program has provided a low barrier to entry access point 

for aspiring government contractors. In fact, the overwhelming majority of my small business clients hold at least one Federal Supply 

Schedule contract. The appeal of these contracts is obvious: Instead 

of putting together RFP responses for specific procurements and 

expending significant bid and proposal costs, a small contractor 

looking to enter the federal space can put together a single schedule proposal and place its entire catalog online. If this low-cost 

entry is successful, the firm can then expand its offerings and compete for other federal contracts. If we choose to shift the Government’s purchases to strategic sourcing contracts and away from the 

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rest of Federal Supply Schedule holders, as appears to be the case, 

this small business entry point will be less attractive, and we will 

lose a significant number of possible federal contractors. 

Fourth, the award of a strategic sourcing contract is not always 

a benefit to the winners. This is the case because large awards can 

set up a ‘‘hill and valley’’ problem for small contractors. A small 

business that receives millions in strategic sourcing awards over 

the contract term is likely to expand its infrastructure and employee base to meet those needs. However, a firm that remains dependent on a single contract for a large portion of its revenue may 

be unable to maintain that infrastructure if it is unable to win the 

next iteration of that contract. As a result, there is the real risk 

that today’s winners will face significant difficulties in a few years 

when these large awards have expired, while a business that receives regular, but smaller, awards under a traditional contracting 

model will not face the same challenges. 

In summary, there is nothing inherently wrong with strategic 

sourcing or purchasing in bulk through large multiple-award contracts. However, this committee needs to look beneath the surface 

of overall small business participation numbers and judge whether 

these actions are consistent with stated small business policy goals, 

such as building a diverse small business base. 

Agency Scorecards 

Despite the impact of bundling and consolidation, the Federal 

Government met its overall small business goals (and many subcategory goals) in fiscal year 2013. It appears that feat was repeated in 2014. These are not minor achievements. For years, 

many of us in the private bar assumed that the failure to meet 

small business goals was going to be the status quo. Now, we are 

hopefully at the beginning of a new normal where these goals are 

achieved on a regular basis. 

This accomplishment is tempered by persistent concerns that 

large contractors are receiving set-aside awards and being counted 

toward small business goals. In my time working in this area, I 

have seen instances where public records indicated a set-aside 

award to a contractor that may not have been a small business 

during the relevant period. Although these may have been honest 

mistakes or data entry errors, continued training of contracting officers and explanation of the complicated small business rules to 

the contracting community will be helpful in confirming that the 

proper numbers are being reported. 

Further, although achievement of the overall small business goal 

is unquestionably good news, there is still room for improvement 

on an agency by agency basis. As a result, it is somewhat misleading for SBA to assign an ‘‘A’’ or ‘‘A+’’ rating to 20 of the 24 

agencies reviewed. This is particularly troubling when no agency 

hit all of its goals. For example, eight agencies received an overall 

‘‘A’’ grade while failing to meet their overall small business subconSBREP-219 with DISTILLER

57 

4 Each of the Department of Veterans Affairs, State Department, Department of Treasury, 

Small Business Administration, Department of Homeland Security, Agency for International Development, Department of Education and Department of Health and Human Services received 

an overall ‘‘A’’ grade while missing their overall small business subcontracting goal. 5See 15 U.S.C. § 637(a)(9)(A). 

tracting goal.4 One of those agencies, the Department of the Treasury, was assigned an ‘‘A’’ rating despite subcontracting to small 

business at only a 6.8% rate. The SBA’s underweighting of small 

business subcontracting goals is not a mistake. SBA’s stated grading formula weights prime contract goals achievement as eight 

times more important than subcontracting goals. Although I agree 

that prime contract opportunities may be more beneficial to small 

businesses, it is not clear why the weighting disparity should be 

this significant. 

Despite the details of SBA’s weighting formula, agencies should 

be congratulated for their efforts in meeting the government’s overall small business goal. However, this committee should continue 

to closely examine the basis for those grades to determine where 

this performance can be improved. 

Office of Hearings and Appeals 

Shifting to my role as a small business litigator, I would like to 

address a couple of issues related to SBA’s Office of Hearings and 

Appeals (OHA) that are important to small contractors. 

Although I certainly do not agree with every decision issued by 

OHA, there is no doubt that it has proven to be an efficient alternative to full-scale litigation in federal court. As a result, I support 

making OHA permanent through statute. Any such statute should, 

of course, recognize that small businesses may appeal OHA decisions to federal court if they so choose. 

Action to formalize the existence of OHA should also eliminate 

an unnecessary redundancy in the Small Business Act. Specifically, 

although OHA’s administrative judges have developed significant 

small business expertise, the Small Business Act assigns certain 

appeals, including those related to 8(a) program admission and termination, to Administrative Law Judges (ALJs), of which OHA currently has none.5 This has led to a peculiar arrangement where, 

pursuant to tan Interagency Agreement in effect beginning October 

1, 2012, ALJs at the U.S. Department of Housing and Urban Development hear these cases on behalf of SBA. Although I have no 

doubt that this arrangement is effective, it makes more sense to 

centralize small business decisions in OHA as a free-standing statutory entity. 

I also understand that the committee is considering expanding 

OHA’s jurisdiction to include pre-solicitation requests from the contracting officer that OHA assign an appropriate NAICS code. This 

would be a significant change from OHA’s current rule, which allows NAICS code appeals only after a solicitation has been issued. 

An expansion of OHA’s jurisdiction in this manner raises a number 

of concerns that should be addressed. 

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It is my belief that the contracting officer is in the best position 

to understand the nature of a given procurement beyond the text 

of the solicitation. As a result, the contracting officer should be 

charged with assigning the correct NAICS code to a solicitation in 

the first instance and should not be allowed to delegate that decision to OHA. 

Further, allowing such a delegation could create a scenario 

where contracting officers may seek to ‘‘protest-proof’’ each solicitation by running it through OHA. This would, of course, overwhelm 

OHA with unnecessary cases. 

Finally, I believe that the NAICS code appeal process benefits 

from the input of small business contractors. This process could be 

undercut by a pre-solicitation process initiated by the contracting 

officer. Whether they are protestors or intervenors, small businesses must be allowed to review the text of a final solicitation to 

raise different perspectives and applicable NAICS codes to OHA. In 

fact, it may be beneficial to expand the filing deadline for NAICS 

appeals, which currently stands at 10 days after issuance of a solicitation, to allow small businesses to become aware of and review 

the extensive solicitations that support modern procurements. 

Conclusion 

In conclusion, I would like to commend this committee for going 

beyond small business metrics to focus on the diversity of a healthy 

small business subcontracting base. I look forward to your questions. 

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59 

Chairman Hanna, Ranking Member Vela ́zquez, and members of 

the Subcommittee, I am Rod Manson, President of the National Office Products Alliance (NOPA), and owner of Office Advantage, a 

small office supply company located in Poway, California. 

The National Office Products Alliance (NOPA) is a not-for-profit 

trade association established in 1904 that represents and serves 

more than 1,000 small independent commercial dealers throughout 

the United States, along with their key suppliers. 

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Insert offset folio 59 here 93731.024
60 

I appreciate the opportunity to offer this statement for the record 

today about the need to ensure that small businesses in our industry have fair, ongoing access to opportunities in the federal market. 

There have been a number of developments since 2010 with respect 

to management of the GSA Schedule 75 program in general, and 

implementation of the ‘‘third-generation’’ Federal Strategic 

Sourcing Initiative (FSSI) for office supplies in particular that have 

broadly impacted our members and what we consider to be the new 

contract bundling. I will highlight these developments in my statement today. 

First and foremost, NOPA is greatly concerned about the abrupt 

and widespread impact on small businesses in our industry due to 

the General Services Administration’s (GSA) implementation of the 

current FSSI program for office supplies. We acknowledge that the 

FSSI program has generated new opportunities for some small 

businesses in our industry, including some of our very capable 

members. At the same time, there are many other members who 

have invested with government encouragement in obtaining their 

own Schedule 75 contracts, only to see their current opportunities 

eliminated as a result of the near-mandatory, government-wide implementation of FSSI (or contract bundling 2.0). 

Given the government-wide scope of this FSSI and the large 

number of small businesses that were participating in this market 

in FY2010, NOPA was surprised that GSA did not undertake a 

small business impact study before launching its second and third 

generation FSSI’s for office supplies. It then went a step further 

and—without any such study as required under the Regulatory 

Flexibility Act—published a proposed rule in June 2011 that called 

for creation of a special preference for federal strategic sourcing initiatives within the FAR. 

As an association, we have worked to find the ‘‘middle ground’’ 

within our membership on this issue. We do not wish to impair the 

new opportunities of members who competed for and were awarded 

FSSI blanket purchase agreements (BPAs). At the same time, we 

would be remiss if we did not highlight our concerns about how 

FSSI has been implemented. 

After monitoring FSSI implementation of OS2 and seeing its farranging impacts, we agreed within the NOPA Board to urge GSA 

and the Administration as a whole to issue a Statement of Administration Policy (SAP) to clarify to federal agencies what our industry has been told by GSA and the Administration just prior to the 

bid process: that FSSI would be implemented on a non-mandatory 

basis, allowing non-awarded GSA Schedule 75 holders to continue 

to compete for federal business. 

Since that time, it has become clear that FSSI volume and its 

share of total federal spending on office supplies would continue to 

grow as more and more major agencies issued guidance to buyers 

that FSSI use was mandatory except in unusual situations. 

NOPA has maintained a dialogue with GSA and the Office of 

Federal Procurement Policy (OFPP) on FSSI implementation since 

2010 and I am here today to urge this Committee, the full Congress and the Administration to acknowledge and address the imSBREP-219 with DISTILLER

61 

pact of strategic sourcing (or contract bundling 2.0) has had on our 

industry in a forthright way. The solution is simple and relies on 

allowing more competition and flexibility in purchasing as ways to 

achieve FSSI’s goals and reduce job loss pressures in our industry. 

First, the Administration needs to issue a very clear Statement of Administration Policy (SAP) that restores full competition within the federal market for our industry’s products. This approach, if communicated and implemented broadly, 

will help ensure genuine ongoing choice of procurement vehicles for 

agencies and will help the Administration achieve the overall budgetary savings it hopes to achieve through the FSSI program. 

Mandatory implementation of FSSI on a government-wide basis 

represents a massive form of ‘‘contract bundling’’ which has and 

will continue to reduce the opportunities and the ultimate level of 

small business participation and healthy, long-term competition in 

federal markets. 

Second, there needs to be more flexibility to allow individual dealers with their own GSA Schedules to participate 

in FSSI as ‘‘Consortia’’. Consortia should be subject to reasonable 

ground rules, but this should not mean they must give up their 

rights to compete for non-FSSI federal business opportunities using 

their regular GSA schedule contracts. This is essential, since Consortia will need to bear significant administrative fees from GSA 

and their chosen FSSI BPA holder partners, as well as normal 

costs associated with properly servicing federal accounts. 

NOPA had numerous meetings and conversations with 

GSA regarding the Consortia model and we ask this Committee to strongly encourage them to work toward an expeditious and balanced conclusion. 

We hope that this Committee will reflect on the history of FSSI 

implementation in our industry and consider how the small business impacts can be mitigated in the future. At the end of FY 2010, 

there were 550, most small, companies and a few dealer-based organizations competing for federal business with one or more departments and agencies under the regular GSA Schedule 75 contract program and/or using individual agency blanket purchase 

agreements (BPAs). Today those numbers have and continue to 

shrink at an alarming rate. 

However, with the rapid, GSA/OFPP-orchestrated push for use of 

FSSI on a government-wide basis using just 1 large (and I must 

point out that with the recent merger of Office Depot and Staples 

there will be only 1 large corporate company in this industry thus 

meaning they will almost automatically be given an FSSI award in 

the future if the past OS solutions are any indicators), 22 small 

vendors, and 1 Consortia, the economic fallout has been swift and 

dramatic for most of the remaining Schedule 75 contract holders. 

With more competition, GSA and all Federal agencies can enjoy 

better pricing and faster, more customized service in local areas 

throughout the country where they operate. If additional qualified 

dealer consortia with experienced vendor members are able to participate in the next FSSI program, our industry will be able to proSBREP-219 with DISTILLER

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vide more reasons for agencies to utilize the FSSI program on a 

broader scale, as well as improvements in overall program efficiencies. In short, there will be more qualified small businesses 

with a vested interest in the FSSI program’s long-term success. 

In today’s budget-constrained and fast-paced environment, GSA 

and other federal agencies seek to minimize the number of separate prime contractors with which they work, while maximizing the 

quality and local responsiveness of delivery and other services received. NOPA believes that dealer consortia—consisting of small 

business dealers, many who meet defined socio-economic criteria— 

offer an ideal solution for many federal agencies, particularly those 

with facilities and employees operating in different parts of the 

country. 

The industry needs a clear and concise statement from 

GSA that they do not plan to cancel or eliminate Schedule 

75 as indicated by GSA to industry officials. In fact, GSA 

needs to reopen Schedule 75 so new small businesses can 

have access to the government market. 

Early GSA communication and guidance to GSA Schedule 75 

contractors and others in the industry with respect to the FSSIOS3 bid process and required technical qualifications is an essential part of expanding qualified small business competition in the 

next-generation acquisition. GSA has maintained a moratorium on 

acceptance of new Schedule 75 offers since October 2010 and there 

are at least a few individual dealers and at least one major dealer 

consortia that NOPA believes are likely to apply for a Schedule 75 

contract if the opportunity is provided. 

Based on our industry’s experience, the Schedule 75 application 

process has required several months to complete. For this reason, 

NOPA suggested to GSA that they provide advance notice as soon 

as possible of the expected timing and requirements of any planned 

lifting of the moratorium on acceptance of Schedule 75 applications. 

Advance notice of GSA’s plans will allow non-schedule holders 

(whether individual companies or dealer consortia) to determine 

whether they are qualified to become Schedule 75 contractors and, 

if so, to begin the process of preparing and filing Schedule 75 contract applications. 

To continue to grow the FSSI program’s cost savings and federal 

agency participation, NOPA believes the most qualified small business participants should be in a position to bid. To ensure GSA and 

federal agencies have access to the most qualified, competitive and 

committed small businesses—many of which are now members of 

three established dealer consortia in the office products industry— 

it is appropriate to maintain a high standard of technical and performance requirements that broadly meet federal government agencies’ needs. Those outlined for the FSSI-OS3 bid process offer a logical starting point, but we anticipate that GSA and OFPP also will 

review more recent experiences agencies have had during the first 

three years of the FSSI-OS3 BPA program and incorporate new 

ideas into the requirements. 

To make this type of solution widely available and as competitive as possible, NOPA encourages GSA and OFPP to 

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consider establishment of a separate ‘‘bid pool’’ in which 

qualified dealer consortia could compete for multiple BPA 

awards in the FSSI acquisition process. 

By NOPA’s definition, a qualified ‘‘dealer consortia’’ has the following characteristics: 

• The consortia is self-formed among small business members for the explicit purpose of providing national account services effectively to large and geographically dispersed customers, whether governmental, institutional and/or commercial; 

• Provides a strong administrative and technical infrastructure, including a centralized, integrated customer-facing 

website and a comprehensive ordering, fulfillment, billing and 

customer service interface with national/regional customers; 

and 

• Has a systematic training and compliance program in 

place to ensure its small business members consistently understand and meet all customer technical and service performance 

requirements. 

This three-part profile and strong infrastructure distinguish a 

qualified ‘‘dealer consortia’’ from other small dealer groups that 

may not have all of those elements fully in place, and/or which may 

have been formed to pursue a single federal or other bidding opportunity. While such dealer groups may be competitive, they may 

lack the performance discipline and administrative/technical infrastructure of dealer consortia whose national account purpose is 

more broadly developed and/or whose members have long-standing 

relationships that foster positive operating synergies benefitting 

their customers. 

Ironically, this situation is occurring in a commodity area where 

small businesses owned and operated by women, minorities, service-disabled veterans and second- and third-generations of entrepreneurial families have been well represented and highly successful against much larger national competitors. 

GSA Should Not be in the Business of Dictating Price 

As vendors we are asked by the government to provide them 

with our best prices. During the bid process we do just that. When 

deciding on awards we assume GSA looks at those vendors who are 

prepared to offer the government the best price. Once binds are 

awarded and contracts signed, GSA should be required to live up 

to the terms of those contracts. Under the current practice, GSA 

has been going back to vendors and requiring them to lower their 

price. Shouldn’t GSA be asking that during the selection process 

and not after they award and sign contracts with vendors? We are 

concerned that GSA in a sense is fixing prices and not allowing for 

competition to dictate prices. GSA should not be in the business of 

using a generic formula to decide what is the average price of a 

product. That is what the market is for. If GSA doesn’t like a vendors pricing it should not have selected that vendor and signed a 

contract with them. We are asked to give the government the best 

prices we offer our top commercial clients. When we do that and 

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GSA signs a contract to buy items at those prices they should not 

after the fact be able to pressure or threaten to take our contracts 

away if we do not lower our prices to a threshold they deem reasonable. 

We do not believe that this result—a net economic loss for small 

business—is what Congress or the Administration intended or is 

what our Nation needs as our economy is showing uneven signs of 

recovery. More competition—not less—is the solution and can be 

readily restored in the federal market for office products by making 

the FSSI program truly one option, rather than a mandatory or 

quasi-mandatory option, among those that have been in place and 

working effectively for some time. 

Thank you again for allowing me to submit this statement for 

the record on behalf of NOPA and our industry. 

Æ 

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