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71–819 2011

SUBPAR SUBCONTRACTING: CHALLENGES FOR 

SMALL BUSINESSES CONTRACTORS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

CONTRACTING AND WORKFORCE 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

OCTOBER 6, 2011 

Small Business Committee Document Number 112–038 

Available via the GPO Website: www.fdsys.gov 


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(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

ROBERT SCHILLING, Illinois 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

JANICE HAHN, California 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 


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C O N T E N T S 

OPENING STATEMENTS 

Mulvaney, Hon. Mick .............................................................................................. 1 

Chu, Hon. Judy ........................................................................................................ 2 

WITNESSES 

Mr. Joseph G. Jordon, Associate Administrator of Government Contracting 

and Business Development, U.S. Small Business Administration, Washington, DC ............................................................................................................. 6 

Ms. Mary L. Kendall, Acting Inspector General, U.S. Department of the 

Interior, Washington, DC .................................................................................... 4 

Ms. Jennifer Bisceglie, President, Interos, McLean, VA ...................................... 22 

Ms. Jamie Borromeo, President, The E & J Commission, LLC, Washington, 

DC .......................................................................................................................... 25

APPENDIX 

Prepared Statements: 

Mr. Joseph G. Jordon, Associate Administrator of Government Contracting and Business Development, U.S. Small Business Administration, Washington, DC ................................................................................... 37 

Ms. Mary L. Kendall, Acting Inspector General, U.S. Department of 

the Interior, Washington, DC ...................................................................... 42 

Ms. Jennifer Bisceglie, President, Interos, McLean, VA ............................... 44 

Ms. Jamie Borromeo, President, The E & J Commission, LLC, Washington, DC ..................................................................................................... 50 

Questions for the Record: 

Chairman Mulvaney Questions for Mr. Jordan ............................................. 54 

Chairman Mulvaney Questions for Inspector General Kendall ................... 57 

Answers for the Record: 

Mr. Jordan Response to Chairman Mulvaney ............................................... 59 

Inspector General Kendall Response to Chairman Mulvaney ...................... 67 

Additional Materials for the Record: 

Ms. Borromeo Addendum ................................................................................. 73 

United Solutions and Services Statement for the Record ............................. 75 


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SUBPAR SUBCONTRACTING: CHALLENGES 

FOR SMALL BUSINESSES CONTRACTORS 

THURSDAY, OCTOBER 6, 2011 

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

The Subcommittee met, pursuant to call, at 10 a.m., in room 

2360, Rayburn House Office Building. Hon. Mick Mulvaney (chairman of the subcommittee) presiding. 

Present: Representatives Mulvaney, West, Ellmers, and Chu. 

Chairman MULVANEY. Folks, before we start officially today, 

thank you for coming. I was just pointing out to Ms. Chu that 

clearly the majority leader does not call the Subcontracting Workforce Committee to clear their schedule for votes with us. And we 

just received a note that we will be voting today at about 10:15. 

It will be a fairly long series of votes. It looks like there are three 

or four amendments plus a Motion to Recommit and then the vote 

on the underlying bill. So I would imagine the vote series will take 

someplace between a half an hour and 45 minutes. So we will go 

as far as we possibly can until they ring the bell and then we will 

adjourn the meeting and come back as quickly as we possibly can. 

I apologize in advance to the witnesses and to the folks who are 

here to participate and to watch, as those of you who have done 

this before know that this happens probably more often than not. 

So, with that, we will call this meeting to order. And we are here 

today to talk about small business and specifically, subcontracting. 

We are going to look at the challenges small businesses face when 

they are both the prime contractor, as well as when they are the 

subcontractor. Additionally, this hearing will examine the three 

systems the government uses to monitor and promote small business subcontracting. 

When a prime contract is set-aside for small business, the government wants to make sure that the small business is not simply 

a front for a large business. So the Small Business Act requires 

that the small business perform a certain percentage of the work. 

However, there are two problems with the current system. It is 

very hard to catch bad actors and very hard for small businesses 

who want to to comply. These problems make legitimate small 

businesses pay even more in compliance costs and in turn waste 

even more taxpayer money. 

While many of the contracts we will hear about today deal with 

the 8(a) program, especially the Alaska Native Corporations program, these problems are not limited to any single program. HowVerDate Mar 15 2010 23:02 Dec 23, 2011 Jkt 071819 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\A819.XXX A819

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ever, it is inevitable that the larger dollar contracts obviously attract more attention. By addressing these challenges, we hope to 

hold—hope to open up opportunities for legitimate small businesses 

to obtain government contracts. The government-wide goal, again, 

we have talked about many times in this Committee, for small 

business prime subcontracting dollars—excuse me, prime contracting dollars, is 23 percent and legitimate small businesses, not 

fronts for large corporations, deserve those contracts. 

There are also challenges when small businesses are the subcontractors. In Fiscal Year 2010, federal prime contractors subcontracted over $200 billion. The SBA has established a governmentwide goal of awarding 35.9 percent of those subcontracting dollars 

to small businesses, a goal that has decreased from 40 percent less 

than five years ago. To help small businesses compete for those 

$200 billion in subcontracts, large prime contractors are required 

to submit subcontracting plans. These plans detail how much a 

business will subcontract to each type of small business. Failure to 

make a good faith effort to comply with this plan is supposed to 

result in a fine; however, companies are failing to report to the government on their actual subcontracting achievements, and yet no 

prime contractor ever, ever has been fined as a result. So clearly, 

in the last five years, all of the almost 3,000 prime contractors 

have always perfectly submitted their subcontracting plans worth 

over $1 billion or we have a serious problem on enforcement. We 

need to address how to retool the subcontracting program. 

Finally, there are three systems that the federal government 

uses to monitor and promote subcontracting. First, the Federal 

Subcontractor Reporting System, which requires that all contractors report each subcontract above $25,000. Second, the Electronic 

Subcontracting Reporting System, which requires that firms with 

subcontracting plans report their subcontracts; and third, there is 

the SBA Subcontracting Network, which allows prime contractors 

to post subcontracting opportunities over $10,000 for small businesses to compete for. We need to examine duplication in these systems, as well as their effectiveness. 

Small business, both prime and sub, are good for government 

and good for the economy. They increase competition, increase innovation, create jobs, and save taxpayer jobs. As this Subcommittee 

considers today these issues surrounding small business and subcontracting, we want to learn how we can improve compliance 

without unduly unburdening—excuse me, unduly burdening, small 

firms. If we succeed at that goal, we will help businesses compete, 

create jobs, and save taxpayer dollars. 

I want to thank our witnesses in advance for their participation 

again today—it is good to see both of you—which will help us 

achieve these ends. 

I now yield to Ms. Chu for her opening remarks before introducing the witnesses. 

Ms. CHU. Thank you, Mr. Chair. 

Today, small businesses are looking for so many opportunities to 

grow stronger and expand. As the driving force behind nearly twothirds of new jobs, this is critical for the economy. One way that 

we can enhance small firms’ job creating power is through the federal procurement marketplace. In the last decade, the government 


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has doubled its contracting efforts to more than $500 billion per 

year. This makes the U.S. Government one of the largest single 

buyers of goods and services in the world. 

Typically, prime contracts are generally viewed as the most lucrative way for entrepreneurs to participate in this marketplace; 

however, subcontracts are nearly as important. I am so glad that 

today’s hearing is focused on this very important issue. In fact, last 

year, small businesses received $97 billion in prime contracts while 

receiving an additional $74 billion through subcontracting opportunities. For subcontracts, this totaled 35 percent of all contracts, just 

shy of the 35.9 percent goal. This reality is that subcontracting is 

a critical avenue for entrepreneurs to work with the government, 

particularly for those dealing with the current economic slowdown. 

Although subcontracts are an important entry point, more needs 

to be done to make them accessible to small firms, and today’s 

hearing will help us shed light on this. The preparation and enforcement of subcontracting plans is a critical area that needs to 

be strengthened. For businesses, like the ones here today, such 

plans are absolutely essential to winning work. However, given recent GAO reports, it is clear that more needs to be done to make 

these plans more effective. One of the main issues is that limiting 

the effectiveness of these plans is both a lack of SBA personnel, 

namely PCRs and CMRs, and I am glad that the Agency is here 

to address this point. 

An adequate and thorough review of these plans is important but 

there is simply not enough staff to do so. With more than three 

million contracting actions each year, the less than 100 staff assigned to these reviews is insufficient. Additionally, it is well understood that there is a lack of penalties and incentives regarding 

the implementation of a subcontracting plan. This means that in 

many cases small businesses will continue to be an afterthought 

rather than a primary focus. 

I am also looking forward to exploring the tools that exist for 

small businesses to become subcontractors. For example, the SBA 

operates a database called Subnet. Through this system, prime contractors can post subcontracting opportunities and small businesses 

can search through these entries. However, as posting is not mandatory, the website presents limited opportunities. A current 

search of the database reveals only 100 active solicitations. If we 

want to draw in more small businesses, particularly those that are 

not regular government contractors, we must improve mechanisms 

like this. 

Finally, in light of recent allegations about fraud and abuse in 

SBA’s contracting programs, it is worth talking about subcontracting from another perspective. Unfortunately, in some instances, subcontracts have become a means to defraud the government and take opportunities away from legitimate small businesses. To prevent those abuses from occurring, more resources 

must be directed to oversight and penalties have to be strengthened. 

Despite these challenges, subcontracting remains a vital means 

for small businesses to access government contracts. Channeling 

more procurement opportunities to them is a smart policy. Doing 

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place to more companies and communities. With the economic challenges on the horizon, this is more important than ever. While we 

are always talking about the need for diversification in business 

models, the slowdown has made this particularly important, especially for small firms. For these businesses, government contracts 

put another option on the table. By further opening the federal 

marketplace to small businesses, we can ensure that entrepreneurs 

have an opportunity to win new customers in a new market, and 

this is key because while our economy is showing promise, the recovery remains fragile. We will need to see significant job growth 

and this job growth can come mainly from small business. 

Chairman MULVANEY. Thank you, Ms. Chu. 

Just by way of logistics here, we have always been a little loose 

with the five-minute rule in this Committee, so what you will see 

is the green light in front of you as you begin your testimony. Yellow will go on when you have one minute left, and red, technically, 

when your five minutes is up. But until you hear me quietly banging the gavel, please feel free to continue. 

STATEMENTS OF MARY KENDALL, ACTING INSPECTOR GENERAL, DEPARTMENT OF THE INTERIOR; JOSEPH G. JORDAN, 

ASSOCIATE ADMINISTRATOR, GOVERNMENT CONTRACTING 

AND BUSINESS DEVELOPMENT, U.S. SMALL BUSINESS ADMINISTRATION 

Chairman MULVANEY. I will introduce the first panel now. The 

first witness is Mary Kendall, the acting inspector general for the 

Department of the Interior. Ms. Kendall spent much of her career 

as an attorney for federal law enforcement programs and as a state 

and federal prosecutor. Since 1999, she has served as the deputy 

inspector general. 

Sitting next to her is Mr. Jordan. Welcome back, Mr. Jordan. He 

served as the associate administrator of Government Contracting 

and Business Development at the U.S. SBA since March 2009. The 

Office of Government Contracting and Business Development 

works to create an environment for maximum participation by 

small, disadvantaged, and women-owned businesses and federal 

contract awards and large prime subcontract awards. It also plays 

a major role in the formulation of federal procurement policies and 

affects small business. 

Ms. Kendall, we are going to begin with you today, so fire away. 

STATEMENT OF MARY KENDALL 

Ms. KENDALL. Thank you, Mr. Chairman, Ranking Member Chu. 

Thank you for the opportunity to testify today about the challenges 

in the administration of contracts between the federal government 

and small businesses. 

The Office of Inspector General does not purport to know or understand all of the intricacies or challenges that attend to contracts 

between the federal government and small businesses, but we can 

comment on our findings relative to the Department of the Interior’s handling of several small business contracts which are, we 

believe, representative of some of the challenges that influence the 

management of federal contracts with small businesses. 


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During a recent review, we discovered a service contract with an 

8(a) small business, United Service and Solutions, LLC, (US2) that 

was not in compliance with the statutory subcontracting limitations which require the prime contractor to satisfy at least 50 percent of the personnel-based contract cost with its own employees. 

The Small Business Administration Participation Agreement requires that the contracting officer monitor and enforce that provision. US2, an Alaska Native corporation had been noncompliant 

with the 8(a) subcontracting limitations for more than two and a 

half years. The contracting officer told us that she believed the contractor on an indefinite quality, indefinite delivery contract, as was 

the case with US2, has the life of the contracting limit. 

To the contrary, the Code of Federal Regulations state that in 

order to ensure the required percentage of costs on an indefinite 

quantity 8(a) award is performed by the participant, the participant must demonstrate semi-annually that it has performed the required percentage to that date. The CFR goes on to say that the 

participant must perform 50 percent of the applicable costs for the 

combined total of all task orders issued to date at six-month intervals. In other words, US2 is required to perform 50 percent of the 

work every six months that the contract was in force. 

Our Recovery Oversight Office also addressed compliance with 

the 8(a) limitations on subcontracting in certain construction contracts funded by the American Recovery and Reinvestment Act 

monies. We found inconsistency in how and whether compliance 

with the limitations on subcontracting was assessed by DOI contracting officers. This inconsistency was found in compliance monitoring and absence of department-wide guidance and a lack of 

training for contracting officers. Confusion on the roles and responsibilities between SBA and DOI contracting officers contributed to 

our findings. 

In the US2 case, in particular, the contracting officer had identified potential problems with the limitations on subcontracting quite 

early in the life of the contract. SBA, however, indicated that it 

found US2’s plan to address these problems sufficient. Therefore, 

the contracting officer took this as a signal to continue with the 

contract. We found this confusion to affect the recovery-funded contracts as well. The Department of Interior has since issued department-wide guidance on the limitations on subcontracting, provided 

a worksheet with instructions to all contracting officers to assess 

a contractor’s compliance, and has agreed to provide annual training to the acquisition workforce regarding their responsibilities 

under the 8(a) partnership agreement between SBA and DOI. 

Even with a clear understanding of the roles and responsibilities, 

contracting officers are hampered in their monitoring efforts by receiving incomplete and inaccurate data from their 8(a) contractors. 

For example, US2 broke down labor costs by those incurred by US2 

and those incurred by its subcontractors, but did not break down 

other direct costs in the same way. Based on the other direct costs 

we reviewed, we believe that additional subcontractor labor costs 

were contained in this category, exacerbating the extent to which 

US2 was out of compliance with the limitations on subcontracting. 

In fairness to US2, we do not believe that such manipulation of reporting data is limited to this company but may well be happening 


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with other 8(a) contractors as well. Contracting officers are placed 

at a significant disadvantage to identify such data problems and 

correct them. 

Mr. Chairman, Ranking Member Chu, that concludes my prepared testimony. I would be happy to answer any questions you 

may have. 

[The statement of Ms. Kendall follows on page 42.] 

Chairman MULVANEY. Thank you, Ms. Kendall. And our practice 

here is to save all the questions until after the testimony of the 

witnesses. 

Mr. Jordan. 

STATEMENT OF JOSEPH G. JORDAN 

Mr. JORDAN. Thank you, Chairman Mulvaney, Ranking Member 

Chu, and members of the Subcommittee. Thank you for inviting me 

back here to testify today. 

As I told you when I was here a few weeks ago, and I sincerely 

mean, our top priority at SBA is to maximize opportunity for small 

businesses and ensure the benefits of our programs flow to the intended recipients. My office works each day to provide increased 

opportunities for eligible small businesses to compete for an win 

federal prime contracts, as well as subcontracts. We are always 

looking for ways to increase small business contracting opportunities, and in the two and a half years I have been in my position, 

the federal government has made significant improvements. For example, in Fiscal Year 2010, small businesses won nearly $100 billion or 22.7 percent of federal prime contracting dollars. Small 

businesses also won $74 billion or 35.4 percent of subcontracting 

dollars, which is a marked increase from the 28.6 percent they won 

in 2008 and the 31.8 percent in 2009. 

In terms of subcontracting, our focus at the SBA is on three main 

areas. One, working with agencies and prime contractors to make 

sure small businesses get their fair share of federal subcontracting 

opportunities; two, ensuring that when a small business is a federal prime contractor it complies with the limitations on subcontracting requirements; and three, developing and maintaining the 

tools, systems, and resources needed to monitor and track subcontracting achievements. 

I would like to take this opportunity share with you our initiatives to address each of these areas. First, one of our top priorities 

is to ensure that small businesses receive substantial federal subcontracting opportunities. For small businesses, subcontracting is 

not only a good source of revenue, but also allows them to gain relevant federal government contracting experience, which may be 

used as examples of past performance when they bid on future contracts. 

To help increase small business subcontracting and improve 

oversight of the process, my office has a team of commercial market 

representatives (CMRs), who are stationed across the country. 

Their responsibilities include counseling small businesses, conducting matchmaking events, providing training on the Subcontracting Assistance Program and conducting compliance reviews of 

large business prime contractors. 


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Additionally, the Small Business Jobs Act included several provisions specifically related to holding prime contractors more accountable to their subcontracting plans. In fact, we published these 

proposed subcontracting rules in the Federal Register just yesterday. The first provision is designed to prevent small business small 

contracting misrepresentations. The second provision is aimed at 

mitigating ‘‘bait and switch,’’ which is when a prime contractor references a small business as its subcontractor in bid or proposal but 

does not utilize the small business in actual performance. The last 

provision requires prime contractors to notify a contracting officer 

whenever they reduce a payment or are more than 90 days delinquent in paying a small business subcontractor. 

Our second area of focus in subcontracting is ensuring that when 

a small business is a prime contractor it meets the limitations on 

subcontracting. Statutes and regulations were developed to ensure 

that if a small business concern is awarded a set-aside contract, 

the fund will perform a substantial portion of the contract. Although monitoring compliance with limitations on subcontracting is 

the responsibility of the contracting officer, SBA is committed to 

working closely with the Office of Federal Procurement Policy and 

the federal agencies to ensure they have the appropriate training, 

tools, and resources needed to monitor compliance. 

My office also conducts surveillance reviews of contracting activities. These are periodic examinations to provide recommendations 

on how to increase opportunities for small businesses and to ensure 

contracting officers are in compliance with small business policies 

and regulations. As part of these reviews, my team evaluates compliance with subcontracting regulations and provides recommendations to agencies on how to improve these processes and procedures. In addition to these reviews, SBA takes action against firms 

that violate the limitations on subcontracting. Our comprehensive 

fraud and abuse prevention strategy has already had significant 

impact. For example, last year SBA suspended a large company 

based on evidence indicating a lack of business integrity and federal procurements involving small businesses and an intentional 

disregard for compliance with the limitations on subcontracting. In 

the last two years, SBA has initiated more government-wide suspension and debarment actions than it had in the previous 10 

years. 

Our third area of focus is ensuring agencies and contracting officers have the tools, systems, and resources needed to monitor and 

track subcontracting achievements. We work closely with the Office 

of Federal Procurement Policy and the General Services Administration to ensure these tools are available. The two primary systems used to capture federal subcontracting information are the 

electronic Subcontracting Reporting System (SRS) and the Federal 

Subaward Reporting System (FSRS). 

GSA is currently undergoing an effort to combine the various 

procurement databases into one new system called the System for 

Award Management, which is being deployed in phases with the 

first phase scheduled to be available in the first half of 2012. As 

demonstrated by the initiatives and efforts described in this testimony, SBA is taking great strides to strengthen our small business 

prime and subcontracting programs. While we have made signifiVerDate Mar 15 2010 23:02 Dec 23, 2011 Jkt 071819 PO 00000 Frm 00011 Fmt 6633 Sfmt 6602 E:\HR\OC\A819.XXX A819

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cant progress, we continue to look for ways to identify further opportunities for improvement and to maximize small businesses’ access to this important source of revenue so they can grow their 

businesses and create jobs. 

Thank you for allowing me to share SBA’s views and initiatives 

with you today, and I will be happy to answer any questions you 

may have. 

[The statement of Mr. Jordan follows on page 37.] 

Chairman MULVANEY. Thank you, Mr. Jordan. And as our practice here, Ms. Chu will begin with her questions and then we will 

go down to the members and I will go last. 

So Ms. Chu, fire away. 

Ms. CHU. Mr. Jordan, as you know, there are these major kickback schemes that were discovered—the major kickback scheme 

that was discovered at the Army Corps of Engineers involving two 

8(a) firms. SBA should be at the vanguard of federal small business 

procurement and combat the misuse of these small business contract programs, yet the IG office at SBA reported that SBA itself 

had inadequately planned and inappropriately awarded these two 

8(a) sole source contracts. What tools does SBA need to enforce the 

federal contract standards and conduct better oversight? 

Mr. JORDAN. Well, I believe the case in which you are referring 

to was not where SBA had awarded contracts, but it did involve 

an 8(a) firm and a different agency actually awarded and monitored those contracts. 

It is hard for me to comment on an ongoing investigation, but 

what I can say is that that type of action is a real demonstration 

of the type of partnership we have with our inspector general and 

the Department of Justice, and evidence that this administration 

has absolutely zero tolerance for fraud, waste, and abuse. 

I have talked in the past about some of the enforcement actions 

that SBA can take, and these are suspensions, debarments, terminations and those types of things. We do not have subpoena power. 

We cannot prosecute. So what we do is we take all the actions that 

we can and then turn over all of that evidence not the inspector 

general and the Department of Justice so that they can investigate 

further and take appropriate action. I think that is what you saw 

the outcome of yesterday or over the last couple of days. 

Ms. CHU. Well, one issue has to do with who is responsible for 

monitoring compliance. There is the agency and then there is SBA. 

The Interior’s IG office previously indicated that the agency’s 8(a) 

program partnership agreement with SBA did not say which agency would oversee the subcontracting restrictions. So what is your 

comment? Who is responsible? 

Mr. JORDAN. The contracting officers have the primary responsibility for ensuring small businesses that they enter into contracts 

with comply with the limitations on subcontracting. That being 

said, SBA is fully committed to working with the agencies and the 

Office of Federal Procurement Policy to make sure they have the 

tools, training, and resources necessary to do that. Now, that is 

true in any small business set-aside context, be it 8(a) or any of the 

other small business set-aside programs. In the 8(a) contacts 

though we did see some areas where clarification would be helpful. 

So in March of this year we released the first comprehensive reviVerDate Mar 15 2010 23:02 Dec 23, 2011 Jkt 071819 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HR\OC\A819.XXX A819

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sion of the regulations—government program in more than a decade and made clear, especially in areas like joint ventures, what 

was permissible and what was not, clarified some of those rules, 

and bolstered some of the oversight. 

Also, just yesterday, we released three different subcontracting 

regulations that implement provisions that Congress passed in the 

Small Business Jobs Act. The first of those really reaffirms and 

makes it very clear that it is the contracting officer’s responsibility 

to monitor the limitations on subcontracting compliance when they 

enter into a set-aside contract with a small business. 

Ms. CHU. So you are saying the agency is responsible? 

Mr. JORDAN. The contracting officer is. Yes. But we definitely 

want to partner with all of the agencies to ensure that that is happening, that they have the training and awareness about what 

their responsibilities are, the tools to, you know, fulfill their responsibilities, and that the oversight is happening. 

Ms. CHU. But is not SBA ultimately responsible? 

Mr. JORDAN. The contracting officer is ultimately responsible for 

those clauses in a contract that they are entering in, but SBA 

wants to work to makes sure that the policies are set up to ensure 

compliance and robust oversight and work with those agencies to 

make sure that they have the tools necessary to do that. 

Ms. CHU. And Ms. Kendall, is that your understanding? 

Ms. KENDALL. My understanding is that in the agreement between SBA and the agency, at least with Interior, the contracting 

officer is, in fact, ultimately responsible. I think what we were 

pointing out in the US2 example, however, was that there was 

some review conducted by the SBA that indicated that US2’s plan 

to come into compliance was adequate. While US2 never did come 

into compliance but the contracting officer took that signal by SBA 

as an okay to continue with the contract. I think that is where the 

confusion lay. 

Ms. CHU. And how could that be corrected? 

Ms. KENDALL. Well, I think just clearer communication between 

SBA and the contracting officers would be one of the very simple 

ways in this case. And I can really only speak on this case. And 

I think there was responsibility on both sides quite frankly for the 

contracting officer to push back in their communications with SBA 

and SBA to be perhaps more clear in terms of what they meant by 

‘‘the plan was sufficient.’’ 

Ms. CHU. Okay. Ms. Kendall, last year your office found a U.S. 

Geological Survey contract that did not contain the subcontracting 

limitations provisions and this clause is there to ensure that small 

business contracts do not act as a pass-through to large firms. So 

why is this clause being left out of contracts? 

Ms. KENDALL. I am not familiar with the instance that you are 

referring to but I would say probably human error. The contracting 

officers are, like many people, working as hard as they can with 

the tools that they have, but many of them are overworked, they 

have more responsibilities in terms of oversight than sometimes 

they can actually carry out, and again, I do not know which case 

you are talking about but I would guess that it was probably just 

a matter of human error. 


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Ms. CHU. This was in the October 2010 IG Report by the Department of Interior which said that the agency was not including the 

limitation on subcontracting clause in their contracts. And it seems 

like it should be standard practice. 

Ms. KENDALL. It should be. Yes, you are right. 

Ms. CHU. And not something that is due to human error but 

something that should be a practice. 

Ms. KENDALL. No, I absolutely agree. Again, I am sorry that I 

am not familiar with the report that you are talking about. Perhaps what I could do is review it after the hearing and get back 

to you on what the result of that report was. I would hope that we 

recommended that there be some sort of process or a checklist 

where this is always included. And I am just not sure if USGS had 

done that but I can certainly get back to you about that. 

Ms. CHU. Okay. Also in your testimony you discuss how US2 

broke down its own costs and the costs of its subcontractors for 

only some categories. And it hid additional subcontracting costs 

where they were actually doing less work than was required. And 

part of the reason why it seems so easy to circumvent the system 

is because the accounting and other measures are also so complex. 

How could we simplify the system so that anyone can figure out 

whether or not someone is in compliance? 

Ms. KENDALL. Ooh, I wish I could answer that question for you. 

Perhaps the reporting process would need to be simplified and 

clarified. In this case, and I am really only familiar with what happened precisely in this case, but in the category of ‘‘ Other Direct 

Costs,’’ US2 was putting subcontractor labor costs into that category. A careful review of this by my office revealed that, in fact, 

the individuals that were contained in other direct costs were subcontractors, but it would not be apparent necessarily to a contracting officer without some greater scrutiny. So there may be a 

way to simplify the other contract or the other direct costs category 

or require them to break it out more thoroughly where it would become more apparent to the contracting officers. 

Ms. CHU. Mr. Jordan, do you have something to say on this? How 

could we better fix the reporting system to root out fraud? 

Mr. JORDAN. Sure. I think there are three things that I would 

say. One is ensuring that contracting officers and all folks involved 

in the contracting process are aware of what their responsibilities 

are. So I mentioned that we came out with new regulations yesterday that clarify a lot of that responsibility and making sure that 

everyone is aware and trained on that is going to be very important. The second thing is making sure that we are doing everything 

we can to drive efficiencies, especially leveraging technology and 

systems to help contracting officers do their job. 

I mentioned in my opening statement that the Electronic Subcontracting and Reporting System, the Federal Subcontracting (FSRS), 

Subcontracting Reporting System, as well as some of the other 

databases and systems involved in federal contracting are all being 

combined into one system for award management. So let us give 

contracting officers a single point of entry where they can check a 

number of these things systematically. 

Third is we really need to look at the resources dedicated to the 

contracting officer workforce. You mentioned in your opening stateVerDate Mar 15 2010 23:02 Dec 23, 2011 Jkt 071819 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 E:\HR\OC\A819.XXX A819

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ment that contracting spend has doubled. Well, the contracting officer workforce charged with getting those contracts out has not doubled over that same period, and so it is very difficult for these folks, 

as Ms. Kendall said, to keep pace with all the things that we would 

like them to do. You know, we are very clear in the 8(a) regulations 

and in other regulations that it is applied to limitations of subcontractors responsibility of the procuring agency, and in a setaside contract you want obviously to make sure that that clause is 

in the contract and all these types of things. We need to make sure 

that we are staffed appropriately, trained appropriately, and we 

are giving them all the tools so they can do that. 

Ms. CHU. Mr. Jordan, let us talk about the issue of penalties. 

Last year, GTSI was suspended for performing the majority of 

work for several small business prime contracts, but GTSI was suspended only for a couple of weeks. And yet, the small businesses 

that were involved remained suspended for about a year. I know 

that firms should face consequences but why is there this disproportionate treatment for small businesses? 

Mr. JORDAN. Well, over the last two and a half years we have 

had five proposed debarments and eight suspensions for issues involving subcontracting. And 10 of those involved the prime contractor violating limitations on subcontracting. So there are enforcement actions happening. When it comes to the specific case 

that you have referenced, I am not the agency’s suspension department official so there is only so much that I can comment on. But 

what I can say is the decisions that you reference are those of the 

agency’s suspension debarment officials, so if they made the decision to suspend GTSI a year ago, subsequently suspending EG Solutions and MultimaxArray FirstSource 11 months ago, and to the 

extent that those decisions could be made public, they are all posted on our website. 

The letters make clear that the agency evaluated the evidence 

and acted decisively based upon everything that we had at the 

time. So I am not free to comment further about why additional actions did or did not occur at the time, but I can say that the inspector general is continuing to investigate GTSI, EG Solutions, 

MultimaxArray, on issues arriving out of their—arising, excuse me, 

out of their involvement in these various contracts. And I would direct further questions on that case and on that front to our inspector general. 

Ms. CHU. Okay. I yield back. 

Chairman MULVANEY. Thank you, Ms. CHU. We now turn to Mr. 

West from Florida. 

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

thank you. 

This is a very appropriate subject because just last week I was 

down in the District talking to the Brower County Small Business 

Advisory Council. And two of the critical issues they brought up 

are relating to the subject here today. 

The first issue is there is a federal building that is being constructed in Miramar, Florida, and for whatever reason the prime 

contractor in that federal building has not gone to look at any of 

the local subcontractors for opportunities for them being there. Is 

there some system in place to make sure that when we have these 


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type of contracts down there that we do look at the local subcontractors because this does come back to, you know, jobs and opportunities within a local environment before we go to outside 

sources. 

Mr. JORDAN. So in terms of ensuring that small businesses are 

a part of it, the prime contract will have to submit as part of—a 

material part o the contract, the subcontracting plan that says, ‘‘By 

percentage basis, typically how they plan to allocate their subcontracting among small businesses and various groups of small businesses.’’ And SBA reviewed about 5,0000 of those plans last year. 

Then in terms of which businesses they use, that, as long as it 

falls into compliance with the contract terms, is really up to the 

prime contractor. Many of them, as they are formulating the solicitation, engage small businesses to understand exactly how much 

they are going to be able to subcontract to which types of small 

businesses. Others have a general idea of what small business representation is in those industries and sets aside a percentage and 

then goes and looks for small businesses to fulfill that percentage. 

And at that point in either of those cases that they are looking for 

subcontractors, we work with our SBA district offices and some of 

our resources partners to try to make small businesses aware of 

these opportunities and make both the agency and the prime contractors aware of the great small businesses in all of those industries. In terms of forcing them to utilize businesses from a particular location, other than certain types of contracts, I am not 

aware of a provision that allows or forces them to do that. 

Mr. WEST. Right, yeah, I am not talking about forcing them but 

at least making sure that the opportunity is provided to the local 

small businesses. 

Mr. JORDAN. Absolutely. 

Mr. WEST. The second point was very near and dear because 

there are a couple of people on this council that were about to lose 

their businesses because obviously what happens, you know, a 

prime contractor comes down, gets a small business subcontractor. 

Let us say it is an 18-month, 24-month project. Well, you bring in 

the small business contractor. They do what they are supposed to 

do in the three- to four-month period within that overall larger 

project. Some of these small businesses, like I said, two people 

there on this council have been affected. Their payment was being 

held up even though their work had been completed, it had been 

certified, it had been signed off, and their payment was being held 

up until the end of the entire project. 

Now, you know, small businesses have a very small margin upon 

which they can operate. You know, we cannot continue to allow 

that to happen to them because that puts them in very untenable 

positions. Is there some kind of means by which we can, you know, 

eliminate that from happening or, you know, make sure these 

prime contractors are meeting their obligations, you know, within 

a 90-day period after work being completed? And is there an enforcement mechanism in place? 

Mr. JORDAN. Yeah, I completely agree with you, Congressman, 

that the issue of payment and cash flow is of paramount importance right now. A lot of these small businesses are really going 

pay period to pay period and need that cash as quickly as possible. 


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There are two things that we have done already, very recently. One 

is, as you heard the president say in his address to Congress, and 

later saw the Office of Management and Budget release, when it 

comes to small business prime contractors, we have cut the time 

in which the government takes to pay small business prime contractors in half, from 30 days down to 15 days. And we are working 

aggressively to make sure that is happening across the board. 

When it comes to subcontracting, just yesterday SBA released 

regulations that say if a prime contractor is delinquent, which we 

have defined as—after substantial input and public comment period—defined as more than 90 days late, just like you said, in paying its small business subs. And assuming the prime has been 

paid, then they need to report that to the contracting officer and 

we are going to put that in the past performance database so that 

it can be a mark against them for any future awards to really give 

them that monetary and performance incentive to make sure they 

are doing it. 

We are not done. There are more things that we are looking at 

to try to accelerate payments to small business subcontractors, 

much like we worked hard to do so at the prime contractor level. 

There are a few more issues but I totally agree. And I would point 

to those things we have already done and say we are looking to do 

more. 

Mr. WEST. Thank you very much. I yield back. 

Chairman MULVANEY. Thanks very much. 

Ms. Ellmers from North Carolina. 

Ms. ELLMERS. Thank you, Mr. Chairman. Thank you both to our 

panel. 

Ms. Kendall, along the lines of the US2 situation, I know that 

we were talking about other direct costs. Do you know why—I 

mean, were they looking at those direct costs? Were they not? Do 

you have any insight into that? 

Ms. KENDALL. I really do not, Congresswoman. 

Ms. ELLMERS. And then, too, you had stated that some other Recovery Act contracts also had problems in meeting subcontracting 

limits. Can you explain what those would have been? 

Ms. KENDALL. These were very much the same. In construction, 

the requirement is significantly less than in services. It is a 15 percent requirement. But we found in the handful of National Park 

Service construction contracts that we looked at, that the same 

problem was occurring. They just simply were not conducting the 

amount that they were supposed to be. 

Ms. ELLMERS. And so just in listening to your discussion and 

your comments it sounds to me like it has more of a simplification 

of reporting, things like that. How can that be improved? What are 

your thoughts on that? How can we get more information and everybody onboard doing it in a, you know, routine manner? 

Ms. KENDALL. I wish I knew the answer to that. My experience 

in this is looking at it from an oversight body and really looking 

at how they are complying with the requirements. I do not feel like 

I have the expertise myself to really respond to that. 

Ms. ELLMERS. Okay. I appreciate that. Thank you. 

And Mr. Jordan, you know, in talking with the situation of, you 

know, basically zero tolerance for fraud, waste, and abuse, and 


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looking at the issues that are facing us right now with some of 

those things that have been developed now and some of the fraud 

that is going on, if a small business is not compliant, what measures are available right now? I mean, I am assuming that there are 

things in place right now for enforcement. And what happens to a 

contracting officer if they are failing to meet those requirements? 

Mr. JORDAN. Sure. So the contracting officer would ask, you 

know, issue a show cause letter to the small business concerned 

saying, you know, show me how you are or will be in compliance 

with the limitations on subcontracting. Again, one of the challenges 

there is that you have got a contract that goes for a period of time. 

They may be below the 50 percent at one point in time but by the 

end of the contract they have a clear and rational plan to get above 

it. So it is not just a snapshot in time; it is what is your plan to 

at the end of this contract meet that limitation on subcontracting. 

That being said, there are, you know, certainly analytical and 

common sense evaluation factors that the contracting officer is 

looking for. If it, you know, is clear that they will not be meeting 

that contract requirement, you know, you can terminate the contract and there are a host of things the contracting officer could do. 

If it is something that moves more into the abusive or fraudulent 

area, then SBA may get involved as things are referred to us. And 

that is where we would take things such as suspension and debarment from federal contracting. And these are real tools. As you 

have seen, you know, the reason that suspensions, I believe, are so 

important is because the investigations into these bad practices can 

take—it is not a week’s or even a month’s thing; it can be a year’s 

or years’ things. So we try to act when we have clear evidence on 

a suspension as quickly as possible. 

For example, in 2008, SBA had done zero suspensions in this 

area. 2009, one. And then 2010, six. And then 2011, 15. So we really are utilizing this tool in an aggressive way and being serious 

about that zero tolerance. Then, we give all of the things that we 

find to an inspector general and to the Department of Justice so 

they can further investigate and take the more serious actions if 

appropriate. 

Ms. ELLMERS. Thank you very much. And I give back the balance 

of my time. 

Chairman MULVANEY. All right. Thanks very much. As you can 

see we have got about five or six minutes left to vote. We are going 

to go ahead—for those of you who are not familiar with the system, 

if you want to know when we are going to be back, keep an eye 

on the TV which we will leave on. And when it gets to ‘‘on passage’’ 

that means we will be back about 15 minutes after that. So if you 

want to poke your head in from time to time, that will be great. 

I expect that we will be back somewhere around 11:15. That is 

what we will be shooting for. 

So what we are going to do is recess here for about 45 minutes 

and we will be back as soon as we possibly can. I apologize for the 

delay. Thank you. 

[Recess.] 

Chairman MULVANEY. All right. We are going to call the meeting 

back to order, which means I have to do that. And again, I apologize. 


tkelley on DSK3SPTVN1PROD with HEARING
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Ms. Kendall, I understand your time constraints and I assure 

you we will be out of here in just a few minutes and move on to 

the next panel. 

My question—it is always difficult to pick right back up where 

we were when we have an hour break, but I want you all to help 

me understand the process. Okay? I run a small business but I 

have never done any government contracting. Let us say that I am 

one of these 8(a) organizations. I will come back to that in some 

more detail later but let us say that I am on one of these big contracts. Walk me through the process, either Ms. Kendall, I think 

this is, to begin with Mr. Jordan, on how I get the contract, briefly, 

but then more importantly, how you make sure that I am doing 

what I am supposed to be doing, both in terms of me as a contractor and then my relationship with my subcontractors. 

Mr. JORDAN. Sure. So your first step in the 8(a) context would 

be application and certification in this business development program. So now you are in the program and you want to compete for 

contracts. In the sole source context that you talked about, the 

agency would identify a contract that, you know, they had a particular need, they were going to contract out, and it was suitable 

for the 8(a) program. They did their market research. They knew 

there were 8(a) firms out there. It was the best small business program to use. So they would contact a district office or maybe they 

knew about it—there are multiple ways that this can happen. But 

they could talk to the district office and say, hey, we know you 

have an 8(a) portfolio with various firms here or we know that this 

firm can do it, what have you. The district office, the SBA district 

office would then evaluate, hey, can this firm, you know, does it 

have the capacity? Does it jive with their business development 

plan that they submitted to us? Yes, it does. 

Okay. That contract can go forward and the agency would then 

award on a sole source basis, assuming it is within the various limits, this contract to that firm. 

So over the period of that contract term, every year it has an annual review with SBA as a firm, not just on that contract but on 

everything they are doing. How are they improving against their 

business plan? Are they achieving their targeted objectives? All 

those types of things, one of which would be looking at what contracts they performed against. Then, in terms of subcontracting 

out, in that contract that they had entered into it would have limitations on subcontracting. So, you know, if it is a services contract 

it would say that that small business, because this was a set-aside, 

has to perform at least 50 percent of the labor costs with its 

own—— 

Chairman MULVANEY. Let me stop you there. 

Mr. JORDAN. Please. 

Chairman MULVANEY. Some of the things that I read say I am 

supposed to be able to—I would not know how to allocate that in 

my business. We did not use the cost accounting system. So tell me 

how we get around that hurdle? How do I satisfy that requirement? 

That 50 percent requirement? 

Mr. JORDAN. We talk a lot about when we are engaging with 

small businesses and getting them up to speed to sell to the government about being contract ready. That is a phrase that you hear 


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a lot. And what that means is—a lot of things—but one of which 

is you have to have all of the systems in place, approved systems 

in place to do business with the government. So it is very clear 

what the responsibilities are for the agency in terms of oversight 

and in terms of the small business to make sure that they can 

prove that. Because at any time it is a clause in the contract. The 

contracting officer can say, show me the documentation that says 

you are in compliance. 

Chairman MULVANEY. Let me ask a quick question, Ms. Kendall, 

because Ms. Chu was asking an interesting line of questions about 

the examples that you—one example that you gave where there 

was no subcontracting language in the contract. And she asked if 

there was a standard procedure. And I guess she is asking—what 

I am asking in a different way is, is there not a standard contract? 

Is it preprinted or is it written from scratch every single time that 

Mr. Jordan just described that it gets let? 

Ms. KENDALL. I am going to have to defer to Mr. Jordan on that 

one. I truly do not know the answer to that. 

Chairman MULVANEY. Okay. That is fine. 

Mr. JORDAN. There are some differences where clauses get inserted or taken out or whatever. But in the set-aside context, even 

if, you know, the example that Ms. Chu raised earlier it happened. 

And if Ms. Kendall’s supposition proved to be correct that it was 

a contracting officer, Erin. We do not care. The fact that it was a 

small business set-aside means that that limitation on subcontractor requirements. Whether or not the contracting officer forgot 

to include that or did not cut and paste correctly, it does not matter 

in terms of the law. You still have to abide by limitations of subcontracting because it is a set-aside and all small business setasides must—— 

Chairman MULVANEY. I will stop you again, Mr.—I have got 

news for you. You and I sign a contract for me to do something and 

it is not in the contract, I am pretty sure I do not have to do it. 

Mr. JORDAN. Our position has always been for all small business 

set-asides the regulations are very clear that the limitations on 

subcontracting exist. So whether or not they included that, it is applicable to that small business set-aside. 

Chairman MULVANEY. The staff tells me that may be the case. 

It is something unique to small business contracting. So again, that 

shows you what my law degree is worth. 

Mr. JORDAN. I am not a lawyer. 

Chairman MULVANEY. All right. So now we are in this process. 

You have signed the contract with me. I am an 8(a) provider. I 

have got this contract. It is under $6.5 million. I am not an Alaska 

Native. How often do you come to make sure I am in compliance 

and how often do I have to show to you, prove to you that I am 

in compliance? 

Mr. JORDAN. So for the contracting officer, who is really monitoring that contract—— 

Chairman MULVANEY. He is an agency, right? 

Mr. JORDAN. Yeah. They can do it periodically. They can—if they 

have any reason to believe you are not in compliance. And then 

typically it is semiannually or annually that they would check, you 

know, if it is a firm, fixed price, you know, sole source contractor. 


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In this case, then the contractor, the 8(a) from you, would have to 

show that you have a plan that you are going to meet the limitations of subcontracting for that whole contract. And so if you dip 

below the 50 percent, but you are saying, yeah, we know, but here 

is why we are. At the end, we are going to be back above it. And 

then that can be acceptable. 

If it is an IDIQ, one of those indefinite delivery, indefinite quantity contracts where you do not know exactly how much money you 

are going to get over the life of that contract. You are supposed to 

always be above the limitation on subcontracting. 

Chairman MULVANEY. Okay. I have got this contract. Listen, it 

is going to be $4.5 million. She has looked at it and says, okay, it 

is going to be $4.5 million. And it is not; it is $2.5 million, really. 

And what I have done is I have inflated the value of this deal by 

$2 million. And you see where I am going with this. I am not going 

to ask you specifics about the case that is ongoing, the Yacht Tech, 

but let us say that I did that. Let us say I did exactly what these 

gentlemen are accused of doing. And instead of telling you, giving 

you a number of $2.5 million, I told you it was $4.5 million and 

you said, okay, that makes sense. Where are you going to catch— 

how are you going to catch my fraud in this process? 

Mr. JORDAN. There are multiple ways in which these frauds can 

be caught. Does it become challenging in a generic situation where 

you have a contracting officer, a representative of the prime contractor, and a representative of the subcontractor all in a hypothetical sense engaging in fraudulent activity? Yes. But that is why 

there are so many different points at which people are checking 

this. 

Chairman MULVANEY. But even if the contracting officer is not 

part of this deal, okay, maybe he just thought the $4.5 million was 

a reasonable number, is not one of the standards he has to establish is that the government is being harmed by what he sees? 

Let me find the research. Hang on a second. There is a list of 

reasons that—where was it? Was it the memo? Contracting officers 

need to prove that the pass-through of the work harmed the government before most agencies take action against the companies. 

However, if I am delivering exactly what I promised to deliver, how 

does he meet that threshold? How does he prove that I am in noncompliance? 

Mr. JORDAN. So it depends on exactly what is going on. If it was 

just a case of inflated pricing or things of that nature, the government before the contract should or may have come up with an independent government estimate of what they expect it to cost. And 

if they expected it to be that inflated price and it was, then that 

would be more difficult to prove. If it was coming in above what 

they thought, they would ask a lot of questions and ask for documentation, ask for proof. And that is why you have seen the Office 

of Federal Procurement Policy push agencies to go more towards 

these from fixed-priced contracts because when you are all in 

agreement at the outset of what this is going to cost for you to provide me the goods and services that I have asked for, then it is 

hardest to play those games with inflated costs and try and hide 

that. 


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Now, the contracting officer would look at these limitations of 

subcontractors and say, how much is the prime actually performing? So is it the sub who is inflating costs because they are 

then getting passed back through the prime? Well, that is going to 

hurt that limitation because the subcontracting dollars will go up. 

The amount the prime—the percentage the prime is doing would 

go down and again, that would have to stay. So that is some of the 

ways. 

And then in the 8(a) context, you are going to have an annual 

review and we are going to be talking with you and your firm to 

make sure you are operating within the business plan. There is a 

whole host of checks we do, too. 

Chairman MULVANEY. I guess it strikes me that my example of inflating a $2.5 million contract to a $4.5 million might raise some 

red flags because it is a relatively large percentage, but when you 

get to the larger contracts, especially ones with the Alaska Native 

companies, the potential for fraud would grow. Would it not? Because the difference between a $2.5 million and $4.5 million contract is a relatively sizable chunk. The difference between a $100 

million and a $102 million would not stand out as much, would it? 

Mr. JORDAN. Certainly, you know, the percentage—the percentage difference based on the overcharging in that larger example is 

less, but the size of the contract would probably indicate that there 

is more attention being paid to it by the agency overall. And there 

are two pieces to your question, really, or to my answer to your 

question. One is the surveillance and monitoring. So making sure 

that folks at the agency, and when SBA does surveillance reviews 

and compliance reviews and these types of things, are looking for 

this type of behavior. And then making sure the enforcement is 

there to not just punish the bad actors we catch but disincentivize 

anybody from trying. 

So there are some new proposed regulations that will go out. And 

I have talked about them in terms of the Jobs Act statute that create them around presumption of loss. So in the past, and this is 

where that ‘‘ harm no government’’ piece really came in, in the past 

if you misrepresented your size or status to win the award, we 

would suspend, debar, maybe pursue a False Claims Act action 

against you through the Department of Justice. But it was hard if 

the government got exactly what we wanted for a fair price, for us 

to go after you significantly because you lied about being a servicedisabled vet. It is really that second place finisher, the true wounded warrior who should have got a contract that was harmed. Well, 

now, it does not matter. That stuff does not matter. The law clearly 

states if you lie about your size or status to win the award, we can 

sue you civilly for the full amount of that award and keep what you 

provided, and still do the suspensions and termination debarments. 

Chairman MULVANEY. In the last 12 months, how many times 

have you all done those things? 

Mr. JORDAN. Well, this presumption of law is new so it is still 

being stood up. In terms of the suspensions and debarments, we 

stepped it up quite a bit. We have done—more referrals for suspension and debarment have happened in the last two years than the 

previous 10 years. And I mentioned before the suspension tool, 

which I think is a really important tool because it is something 


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where SBA can take action while we are waiting for an investigation to run its course and we want due process to happen and we 

want any accused parties to get a full investigation and due process. But we can take the suspension action. In 2008, there were 

zero. In 2009, there was one. And then six in 2010, and then 15 

this year. So we are stepping up the utilization of that tool when 

we think it is appropriate. 

Chairman MULVANEY. Does the use of that tool partially explain—I guess it cannot fully explain—does it partially explain why 

no fines have ever been issued? The liquidated damages provision? 

I heard that in my opening comment and I was actually reading 

the details during the break. And it is actually worse than I 

thought. In 30 years, there is no record of any company paying liquidated damages. Ever. 

Mr. JORDAN. So when I started two and a half years ago and we 

started to work on or continue to do work that was happening on 

getting small businesses more subcontracting opportunity, preventing some of this ‘‘bait and switch,’’ all these types of things 

that were now—we just came out with some of the proposed regs 

on yesterday, that was one of the areas we pushed. The subcontracting plays a material part of the contract. So if you were violating that, you were violating the terms of the contract and there 

is a whole host of actions, including liquidated damages. 

Well, the problem that I am told by agencies is that you can 

drive a truck through what it means to make a good faith effort 

to meet the limitations or meet the subcontracting plan requirements. We have now shored up through these new regs whose responsibility it is, what some of the things that you should be looking for are, and what some of the penalties are. But you are right; 

that is—I have never heard of anybody actually using—— 

Chairman MULVANEY. I will make you a deal. If you want to 

come up with some suggestions on how to close those loopholes and 

this Committee will take up those things. Because our research indicated the same thing, which is it is very difficult for you all to 

prove. There are safe harbor provisions in the good faith requirements, and if we need to start closing some of those, let us get together and see if we can do that. 

I am also—we will take up probably another day. It is a relatively minor issue I know for—in terms of its footprint but it 

seems like these Alaska Native companies really wear some more 

tension. Does the SBA have an official position on that policy as 

to why ANCs get special treatment? 

Mr. JORDAN. Well, the provisions that allow those types of things 

are all statutory part of the Alaska Native Settlement Act and fall 

on amendments to that. So it is not something that SBA has a position on one way or the other, but what I will say is a point to 

the regulations that we came out with in March where we really— 

and we went around and did tribal consultations and talked to the 

community about how to get these right, but one of the key provisions in that comprehensive revision, the 8(a) regulations deals 

with the joint ventures. And that was a place where some of the 

actions that were happening before really did not pass the smell 

test, and we have tightened those quite a bit about when you form 

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ness, what percentage of the work the 8(a) firm has to do and what 

are some of the subcontracting rules there. And I am proud of what 

we did there to move as quickly as possible but also thoughtfully 

to close any loopholes there. 

Chairman MULVANEY. All right. There was—just a couple more 

questions. There was a Washington Post story about a year ago 

and in that story it pointed out the SBA had been relying on three 

employees and paper records in Anchorage. I am going to spend 

more time another day on these ANCs but I want to ask this one 

question. That you all were using three employees and paper 

records to track some of these companies and there was $6 billion 

worth of sole source contracts. Tell me more about that. 

Mr. JORDAN. Sure. So I have had the privilege of testifying in 

front of Congress. 

Chairman MULVANEY. By the way, that does not mean I believe 

everything that I read in the Washington Post. 

Mr. JORDAN. No, that is all right. 

Chairman MULVANEY. They are here someplace. 

Mr. JORDAN. No. Yes. So I certainly welcome the conversation 

around native entities and the community benefits that they bestow versus the individual business development of the traditional 

individually-owned 8(a) firms. 

When it comes to our operating and overseeing the program, our 

inspector general raised some concerns, had, you know, six recommendations on things that we need to look at. Well, by the time 

I testified on that report, we already fixed four and we subsequently fixed the other two. We agreed, and have taken care of, increasing staffing, increasing training on how do you process and 

oversee the native entity applications, which are much different 

than when an individual applies or is in the 8(a) program. And 

what are the rules that govern the behavior that do fall within our 

regulatory authority? 

Chairman MULVANEY. Thank you, Mr. Jordan. 

Ms. Kendall, very briefly. Come back to the US2 issue. My understanding is that they had contracts of about $250 million but 

were running out of a guy’s house essentially. How did you all get 

involved? Help me understand the process as to where the inspector general’s office got involved in this investigation. 

Ms. KENDALL. We got involved in two ways. We actually conducted—we were conducting a joint review with the Department of 

Defense IG, which is mandated for them to do but because it was 

Sierra Vista’s Contracting unit, we joined with them and found this 

contract and flagged it as a problem. We also—— 

Chairman MULVANEY. What about the contract made you flag it? 

Ms. KENDALL. I am not sure I can tell you right now. 

Chairman MULVANEY. Fair enough. 

Ms. KENDALL. But we also got a referral from one of the deputy 

assistant secretaries where they had identified this as a potential 

problem. So we looked at it both as a result of the audit where this 

came to light for reasons I will be glad to tell you later, but then 

we also—the entity itself identified a problem with this particular 

contract and asked us to take a look at it. 


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Chairman MULVANEY. Is it fair to say that that would have been 

an inquiry within the agency that was initiated by the contracting 

officer? 

Ms. KENDALL. I do not know if it was initiated by the contracting 

officer or someone in the chain of command, but somebody internal 

to Interior identified it. 

Chairman MULVANEY. And I guess my question is this—did it 

happen—let us take your independent investigation off the table. 

I want to focus on the one that came from the deputy director. Did 

that happen by accident or did it happen the way it is supposed 

to happen? 

Okay. All right. And so you got involved with it and then what 

happened next? You are doing your independent investigation. You 

are also getting an inquiry from the agency itself. 

Ms. KENDALL. Yes. 

Chairman MULVANEY. How did you come to find out that this 

was a problem? 

Ms. KENDALL. We went in and looked at their records. We interviewed the contracting officer. We interviewed the entity. It was 

clear it was a problem on many, many levels. And I guess I feel 

like I maybe missed an opportunity with the congresswoman when 

she asked a question about fixing. And I refer to Mr. Jordan’s answer just a minute ago. I think on all fronts we could do better to 

look at the capacity of these companies. In this case it was a company of one or two people. And I have only heard, I do not know 

for a fact, that it was run out of someone’s living room, but previously they had never done more than $100,000 a year in business. To suggest that they had the capacity to do 50 percent of a 

$250 million contract is—— 

Chairman MULVANEY. Mr. Jordan, are you familiar with the US2 

situation? 

Mr. JORDAN. I have read the inspector general’s report just in 

preparation for this conversation but not in depth. 

Chairman MULVANEY. To the extent you can then, here is the 

question I am hoping to get an answer to—why were they allowed 

to get as far as they did? Why was a company that had never done 

more than a couple hundred thousand dollars worth of contract end 

up with such a huge chunk? What part of the process broke down 

to here that company could get as far along as they did? 

Mr. JORDAN. I am not familiar enough with this case to speculate 

as to exactly where it broke down. 

Ms. KENDALL. Well, and I am not pointing fingers certainly at 

SBA. I think that the Sierra Vista Contracting folks should have 

asked the question themselves, but it is—— 

Chairman MULVANEY. Is that not part of the standard procedure 

though? I mean, is there not a form that says ‘‘Have you ever done 

any other government contracting? If so, how big were they?’’ 

Ms. KENDALL. There is past performance that accompanies ‘‘Who 

Wants to Do Business with the Government?’’ It attaches to their 

application. I am not familiar enough with the entire process to say 

that it is part of a process or not but it seems to me that it is a 

practical thing that somebody would want to ask the question or 

would look at the capacity of a company to say, hmm, not sure that 

they could do this. 


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Chairman MULVANEY. I recognize you are not familiar with this 

exact situation but that has got to be part of the past performance, 

is it not? 

Mr. JORDAN. Yeah. The contracting officer will make what is 

called ‘‘responsibility determination’’ that this prime contract is responsible or capable of performing on the contract and abiding by 

all of the clauses. And in the 8(a) context, it is a business development program so we want them to grow and that sort of thing. But, 

so SBA will look at that and agree with them. But in this specific 

case I am not sure. 

Chairman MULVANEY. Thank you all very much. 

Mr. Jordan, I am serious about those suggestions. If the SBA 

wants to start looking at a way to close some of those good faith, 

safe harbor loopholes, it is certainly something this Subcommittee 

would be interested in taking up in the upcoming year. 

So Ms. Kendall, thank you very much. I understand you have another time commitment. Thank you all both. 

We will go ahead and seat the second panel now and move 

through that as quickly as we can. 

Mr. JORDAN. Thank you. 

Chairman MULVANEY. Thank you very much again to everybody 

for waiting. 

STATEMENTS OF JENNIFER BISCEGLIE, PRESIDENT, INTEROS, 

ON BEHALF OF WOMEN IMPACTING PUBLIC POLICY; JAMIE 

BORROMEO, PRESIDENT, THE E & J COMMISSION, LLC 

Chairman MULVANEY. The second panel, I am going to introduce 

Mrs. Bisceglie, who is, excuse me, Jennifer Bisceglie, who is the 

owner of Interos, a small women-owned supply chain and logistics 

company. Ms. Bisceglie is testifying on behalf of Women Impacting 

Public Policy. And Ms. Chu is going to introduce our other witness. 

Ms. CHU. Yes. I have the honor of introducing Jamie Borromeo, 

and she is the president of E & J Commission, a federal contracting research and strategies firm which is based in Washington, D.C. And she is the co-founder and CEO of Generation 

Drive Entrepreneurs Network, which is a national non-profit that 

mentors young adult start-up firms. She has consulted with over 

a dozen Fortune 500 senior executives, CEOs, and communitybased organizations on issues of economic development, public contracting, supplier diversity, and public policy. And also is a former 

executive director of the National Council of Asian-American Business Associations. Welcome. 

Chairman MULVANEY. Thank you. Ms. Bisceglie. We ask you to 

begin. And again, five minutes, give or take. When you see the red 

light on it means your five minutes is up. 

STATEMENT OF JENNIFER BISCEGLIE 

Ms. BISCEGLIE. Chairman Mulvaney, Ranking Member Chu, my 

name is Jennifer Bisceglie. Thank you for inviting me to testify 

today on behalf of Women Impacting Public Policy (WIPP), a nonpartisan organization that represents nearly one million women 

business owners with a coalition of 59 organizations that support 

its policy objectives. I serve as chair of the board of WIPP, and I 

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owned company specializing in integrated logistics strategies, specifically as it relates to cyber security and supply chain risk management. Currently, 100 percent of our billable work is subcontracting in the federal government sector. 

Just two years ago, my company was growing, we had 10 employees, and we were very optimistic about our work in the government. Unfortunately, we had a development transpire with our 

largest prime contractor. In the span of about two months, they released five of my people, which in fact, cut my business in half. We 

had no recourse. The company had cut off any relationship we 

would have had with a contracting officer or with a government 

program manager. The only relationship was with the prime. At 

that point, I could not point to any other violations in the subcontracting plan because those were never shared with us. In short, 

there was really nothing we could do about the situation and we 

really felt pretty powerless. If there is a silver lining that I could 

share today, it really forced us to diversify the prime contractors 

and customers that we were working with, and we are now actually 

seeking prime contracts on our own. But it is not really a pretty 

solution, if you will, and it has been a pretty painful experience. 

The title of this hearing is Subpart Subcontracting, which encapsulates the experiences of many members who do subcontracting in 

the federal government. Many of us are happy for the work but 

frustrated when it comes to the limited rights that our small businesses have with respect to carrying out that work. The Small 

Business Jobs Act of 2010 contained an important provision which 

WIPP advocated for—a requirement that prime contractors must 

use those subcontractors listed in the subcontracting plans. We 

refer to this as ‘‘if you list us, use us.’’ We are interested in knowing whether this requirement has actually made any tangible impact within the agencies. 

While we are on the subject of the subcontracting plans, we wonder if prime contractors actually formally filed those subcontracting 

plans. Does anyone in the government actually read them? And if 

they read them, how or are they enforced at all? 

WIPP also suggests that the federal government should require 

disclosure of the portion of the subcontracting plan as it relates to 

that sublist. The government should require the primes to share 

that information with the subcontractor upon award. If the subcontractors do not have access to these plans, how can we ever be 

sure if the prime is actually compliant? WIPP does not believe the 

answer is to do away with filing the subcontracting plans; we think 

the answer is really better enforcement of those plans. Reminders 

are commonly used tools and calendaring software, so the solution 

we would think would be something just as simple, alerting the affected parties or the monitoring parties that their plan has not 

been filed or updated. 

A more fundamental problem is the confusion surrounding limitations on subcontracting contained in the Small Business Act. 

First, we actually learned something in preparing this testimony 

because we as small businesses are repeatedly told that prime are 

required to perform 51 percent of the work. Upon reviewing the 

law, we actually found that the actual percentage is only 50 percent. Let me just say that if the agencies do not understand the 


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rules, small businesses are certainly not going to understand them 

or argue with that. While we definitely assume that and accept 

that our responsibility as federal contractors are to read and understand the FAR, we are, after all, running businesses and the rule 

just does not really make much sense. 

In the case of service contracts, the prime is actually required to 

perform 50 percent of the cost of contract performance incurred for 

personnel with employees of the prime. As we interpret this, in 

order for us to be compliant with this requirement we would actually have to know our subcontractors’ personnel costs to make that 

calculation. No business that we know is really going to share that 

information, whether it be a commercial contract or a government 

contract. Second, this requirement basically requires a cost-based 

accounting system to monitor that many small businesses are not 

required to use and therefore, we do not use because of the cost. 

WIPP suggests that the Subcommittee take a look at amending 

the law to require 50 percent of the price of the contract, not the 

cost of the contract. In addition, it is our view that in the case of 

small business set-aside contracts, 50 percent should be calculated 

by including all of the small businesses on the contract, not just 

the prime. 

While we are on the subject of subcontracting plans, again, we 

note that there really are only two databases in which subcontracting plans are entered—FSRS and ESRS. It seems to us that 

the two databases are collecting much of the same information and 

really do not communicate with each other. This strikes us as an 

example of wasteful effort on the part of the government and the 

businesses that file the paperwork with those systems. We are unable to identify any penalties for non-compliance in either system 

as well. 

In conclusion, subcontracting is a good way for women-owned 

businesses to get involved in government contracting. With the implementation of the women-owned small business procurement program, we expect the ability to bid on prime contracts will increase. 

Nevertheless, many small businesses excel in the subcontracting 

arena. WIPP urges the Subcommittee to examine and push for 

changes that will make more small businesses successful subcontractors. 

Our suggestions and observations in summary are as follows: 

Compliance requirements can only work if penalties are in place. 

WIPP believes that in order to make the subcontracting rule effective, the percentage should be clarified. Is it 50 percent or is it 51 

percent? In the case of small business set-aside contracts, we urge 

that all small businesses on the contract should be counted towards 

the 50 percent requirement. And finally, we believe a few basic 

changes in the electronic reporting systems could result in much 

better data on subcontracting plans, thereby enhancing compliance. 

Thank you for giving WIPP the opportunity to testify on this important issue, and we welcome any questions. 

[The statement of Ms. Bisceglie follows on page 44.] 

Chairman MULVANEY. Thank you, Ms Bisceglie. Again, we will 

hold our questions until the end. 

Ms. Borromeo, please. Five minutes, give or take. 


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STATEMENT OF JAMIE BORROMEO 

Ms. BORROMEO. Chairman Mulvaney, Ranking Member Chu, 

thank you for inviting me to testify today. My name is Jamie 

Borromeo, and I am the president of the E & J Commission, LLC, 

which is a contract research and strategies consulting firm for disadvantaged businesses. We are based here in Washington, D.C. 

In my former capacity as executive director of the National Council of Asian-American Business Associations, and in my former position as intern to Congressman Mike Honda, who was the chair 

of the Congressional Asian Caucus at the time, I was exposed to 

a number of small business owners across America who had voiced 

their challenges within both commercial and government contracting. Entering the federal market is one of the most challenging 

areas to break into as a small business owner, but even more so 

if cultural and linguistic barriers prevent one from being able to 

understand the complexities of government systems. So now after 

10 years of working with communities of color, I am certain that 

institutional discrimination within federal contracting still exists 

and this is highlighted in the lack of subcontracting opportunities 

for our community. 

Subcontracting is the first point of entry for most small businesses attempting to enter the federal market because, one, agencies like to see past performance from those seeking award; and 

two, subcontracting allows for the slow growth necessary so that 

the small business can gain experience, capacity, and can acclimate 

to doing business in the federal contracting space. Discrimination 

within the subcontracting process is very difficult to prove, especially when those on the program level are not outwardly excluding 

small business from participating. What some are doing is turning 

a blind eye to the issues. It is in their dispassionate and apathetic 

approach to the matter, rather than their intentional overtly discriminatory practices which is the injustice in this case. Doing 

nothing is just as bad as causing harm, and the lack of oversight 

of these passive actions are what concern me the most. 

The first point I would like to address is the lack of compliance 

with the subcontracting plans administered by the contracting officers. I understand from many industry experts that there is an 

issue with contracting officers not properly evaluating subcontracting plans or monitoring, evaluating, and documenting contractor performance. I have worked alongside the Asian-American 

Justice Center, a civil rights organization for Asian-Americans that 

address these issues through the contractor empowerment program 

currently led by Ms. Jeanette Lee. We have partnered to identify 

some of these challenges and have collected testimonials from small 

business contractors. Some are hesitant to provide testimonial because they are afraid of being blackballed or not maintaining good 

rapport with an agency they still would like to receive work from. 

However, some brave contractors have emerged from the pack to 

describe their unjust experiences. 

In our findings, we discovered fraudulent practices that create 

barriers to contracting opportunities for Asian-Americans, women, 

and other minorities as outlined by Ms. Jeanette Lee in this statement where she describes ‘‘bait and switch.’’ And I quote, ‘‘Because 

there is no enforcement, prime contractors often team up with miVerDate Mar 15 2010 23:02 Dec 23, 2011 Jkt 071819 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 E:\HR\OC\A819.XXX A819

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nority contractors in order to win a bid but then drop them from 

the contract once they receive the award. I have heard this from 

several Asian-American contractors that this is a prevalent and 

pervasive occurrence.’’ These, among many others, are testimonials 

from contractors that are still looking for an entity to hold firms 

accountable for what was promised to these small businesses. 

Another issue I would like to point out is that most contracts 

that are moved from large defense contractors to small businesses 

to reach set-aside goals are still controlled and dictated by the 

large contractor in the end in regards to who needs to be hired, 

what salaries they will be paid, and what benefits they will receive. 

The way that this occurs is large contractors keep a list of disadvantaged business enterprises that are willing to do just about 

anything for our contract. It is common practice for a large contractor to work with an agency to move some of their contracts 

which have recently been designated for set-aside programs to 

large contractors preferred vendors. These vendors will then continue to employ virtually all the same employees that the large 

contractor employed with identical compensation packages. Therefore, in essence, these employees are still working for the large defense contractors who maintain the specifics of their employment 

throughout the process. When the small business protests, they 

seem to find that their current and/or future contracts disappear 

from the federal agency, if not the federal space as a whole. 

Because the small business owner is hungry for work, they feel 

lucky to be in the game. Money for morals is what is up for trade 

here and until there are more small business opportunities and legitimate ones, it is all one closed network that is circulating contracts and dollars among their own without informing or much less 

encouraging competition. 

Lastly, a major issue I would like to present for the record is the 

lack of market research conducted to find qualified small businesses. With Silicon Valley as my former home, I witnessed some 

of the most creative, talented, and capable small businesses in the 

country produce and engineer products and services that are currently provided by large contractors. The boutique-size company 

has just as many robust capabilities to do the work; however, because adequate market research is not conducted, government 

agencies are not utilizing their services. Making the connection 

with these companies takes additional work, but as one large defense contractor admitted to me, I quote, ‘‘ We do not have time to 

look through databases. If we find an opportunity, we are going to 

our existing contacts.’’ The challenge for subcontracting then becomes who you know and whom you know is not necessary determined by your skill, capability, or work ethic. 

My recommendation to the Subcommittee is twofold. Number 

one, we must ensure that contracting officers and technical representatives are complying with rules and systems in place to ensure prime contractors are performing well on existing contracts 

and subcontracting the proper amount to small business. This can 

be done by requiring past performance reports are executed by the 

COTR team. The contractor should perform monthly performance 

reports and check-ins with the contractors. I interviewed one 

former contracting officer who said that if the agencies and agency 


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heads made it a priority in the contracting office, surely the contracting officer would as well. It takes leadership to enforce these 

and agencies are predominantly focused on prime contracts, but 

now we need concerted efforts to focus subcontracting efforts. 

Number two. Diligent and proper market research performed by 

program offices is necessary. I have met a number of small business representatives but access to the program office is nearly impossible unless you have an existing relationship. Existing relationships are usually formed through large federal primes that allow 

the small business into their network. Program office and technical 

reps should be required to do just as many meet-and-greets as the 

small business offices are. Taking a meeting with a new small business is declined for fear of protest on bids. Those are the excuses 

I have heard from the program offices, but it should be a requirement to know the leadership behind who is providing the goods and 

services for the federal government which is paid for by the American taxpayer. 

It is our right to meet with those making the executive decision 

on who is winning these contracts and monitoring subcontracting 

plans. Leadership of agencies should also encourage the program 

office to network with the small business program office with an 

agency so they build good rapport amongst each other. 

I have additional comments I would like inserted in the congressional record that were not stated in this verbal testimony, so in 

the interest of time I would like to thank the Subcommittee for inviting me to this hearing, and I would be happy to hear any questions you might have. 

[The statement of Ms. Borromeo follows on page 50.] 

Chairman MULVANEY. Thank you, Ms. Borromeo. Rest assured 

your additional comments will be made a part of the record. 

Before I turn it over to Ms. Chu, I want to thank you ladies for 

coming in. I was making comments to staff as you were speaking 

along two lines. Number one, that many of the recommendations 

that you have simply made, just now made in your presentations, 

staff has made to this Committee as well, and we will be pursuing 

many of those in the upcoming months. Secondly, and I know Ms. 

Chu would back me up on this, I would like in the future to make 

sure—do every effort that we can to have the real people testify before the agency people do. I would like to hear from the business 

owners, from the business operators, before I hear from the agency. 

You raised several questions here today that I would like to have 

Mr. Jordan and Ms. Kendall back again. So next time we will try 

and get the real world testimony on the record before we let the 

agency folks go. What a great opportunity for you to ask questions 

through us of the folks who are actually in a position to help you 

right away. 

So with that I will turn it over to Ms. Chu for her questions. 

Ms. CHU. Well, Ms. Bisceglie, you had several suggestions for improvements on the subcontracting process. And one area had to do 

with how the costs are calculated. You have to—the small business 

prime contractor has to perform a percentage of work based on the 

cost of the contract, but in so many cases small businesses do not 

have the resources to calculate their own costs, let alone a subcontractor’s cost. 


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So do the requirements as written make it difficult for small 

businesses to calculate the work that they must perform? And 

which ways could it be made simpler and easier for small businesses to understand? 

Ms. BISCEGLIE. Okay. Thank you for the question. I think the difference that we are sharing is that all businesses should understand their costs. The challenge is that most businesses are not 

going to share their true costs with other businesses. So our suggestion is that the percentage of work is based on the overall price. 

So if I am working with a prime, I can give them my rolled up 

price that it will take me to do that work versus my cost, which 

in effect is profit minus what it actually costs me to do. And that 

is where the rub is. So the suggestion is to look at just the grand 

total of what it is going to—my price to that prime versus asking 

for any breakdown of costs. So that would be the difference, is to 

look at the grand total of price on the contract. 

Ms. CHU. Very good suggestion. 

Ms. Borromeo, in your testimony you talked about how some 

Asian-Pacific American businesses are afraid to speak up about the 

discrimination and challenges they face as small business contractors and subcontractors. Do you have an example of these testimonies that we can insert into the record? 

Ms. BORROMEO. I do. Yes. 

Ms. CHU. Okay. Mr. Chairman, I would like to have unanimous 

consent that this example be inserted into the record. 

Chairman MULVANEY. Accepted without objection. 

Ms. CHU. Okay. Thank you. 

What systems need to be in place to make businesses comfortable 

with bringing up some of these problems to light? 

Ms. BORROMEO. I think realistically small business owners probably will not just come out and, you know, say that they are going 

through this. Like I said in my testimony, they want to keep the 

current work they have or the relationships that they have with 

the agencies or the prime contractor. But if SBA or another entity 

within the federal government is actually—they actually have some 

measurements or oversight reports that are happening more frequently, I think that might be a way, instead of the small business 

owner having to come out. They are already the little guy in this, 

and if you are trying to take down Goliath, some of these large 

prime contractors that are making, you know, multi billion dollars 

off of federal government contracts, it is very difficult to come out 

with an honest testimony about what is happening to them. So I 

think that it is going to be the responsibility of either SBA or whatever entity you see fit for this to really hold them accountable with 

more reporting and, you know, just taking notes on where they are 

in their performance. 

When I interviewed the former contracting officer he said he did 

not feel like the agency was enforcing it. And I said, well, do you 

have too much on your plate? You know, do you have too much 

work that would not allow you to do these reports? He said, no. If 

they made it a priority we could absolutely do it. So I know that 

from a testimonial from an actual contracting officer that it can be 

done. It is just you do not ever see these people and there is not 

really any accountability on the agency level. A lot of the time they 


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are going to small business for these answers when they should be 

going directly to the contracting officers. 

Ms. CHU. What should SBA, MBDA, and other agencies tasked 

with improving access to these contracts do to make sure that more 

Asian-Pacific American businesses and other minority businesses 

and women-owned businesses secure contracts? 

Ms. BORROMEO. What should they—— 

Ms. CHU. What should the SBA and MBDA and other agencies—— 

Ms. BORROMEO. Well, the subcontracting plans are already required for them to submit. And so it is about follow through and 

making sure that they actually stick to the subcontracting plan 

that was submitted. So like I said, they are not doing the reviews 

thoroughly, so I think that Mr. Jordan had expressed that they, 

you know, they meet with them annually but, you know, I mean, 

meeting annually does not mean that they are actually performing 

the work well or even subcontracting fairly. And so I think there 

has to be more frequent reviews and penalties incurred if they are 

not meeting the goals of their subcontracting plans. 

Ms. CHU. Very good. I would like to ask about how the subcontracting plans are being carried out by, say for instance, the commercial market representatives which are supposed to be counseling the large prime contractors on their responsibilities. So either of you, I would like to ask that—in your opinion are the commercial market representatives doing their job on this front in aiding small businesses in marketing themselves to the large businesses? 

Ms. BORROMEO. I can go ahead and answer. I have been to a 

number of trade shows, networking events that SBA hosts and I 

have never met a CMR before. Even when you—when someone had 

asked me about the CMRs and SBA before I said what is a CMR? 

So I think that they are not relevant in the contracting process. 

And unless people like myself, who are constantly meeting with, 

you know, contracting, or attempting to meet contracting officers, 

do not even know about CMRs. I think it is more of an awareness 

campaign maybe SBA needs to do to make sure that these CMRs 

are visible and relevant to the contracting process. 

Ms. BISCEGLIE. I absolutely agree with that. 

Ms. CHU. Have you ever met one? 

Ms. BISCEGLIE. No. Not through my business, from an Interos 

perspective. No. 

Ms. CHU. That is pretty shocking. Well, then let me ask about 

this. The large prime contractors must submit subcontracting plans 

for review, and if the contracting officer finds that plans are inadequate, he or she can decide not to award the contact. In your experience, how often does that happen? 

Ms. BORROMEO. In the example of talking to another contracting 

officer, again, he said that he has had colleagues that want to terminate contracts after a prime has been performing for a year saying they are just not, you know, doing what they said they were 

going to do. And he asked a colleague why, you know, what are 

your grounds for terminating him? You have not been taking notes 

on or reporting anything that they have been doing. And he said, 

well, I mean, it is not a requirement so I am not going to do it. 


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So it is a lack of oversight. You just cannot terminate a contract 

without grounds. And so if they are not required to enter the data 

or report on how a contractor is performing, then it is just not 

going to happen. It is an enforcement issue from the agency level. 

And my experience working with the agency reps is OSDBU—a 

lot of the time the OSDBU reps are doing a fantastic job. They just 

do not have any power within the agency to really effect any 

change. And that is where the barrier is. I only meet with OSDBU 

reps. When I ask for a COTR, when I ask for a technical rep or 

a contracting officer, they refuse to meet with me until the solicitation is out on the street. And it is like, well, I cannot—if I cannot 

understand what the requirements are before it is out on 

FedBizOpps, how are we supposed to prepare for the bid? 

And so it is an unfair advantage to federal contractors who are 

experienced in this space because they already know the requirements. They already have the in with the agency. They already 

know the COTR. And so it does not allow for new vendors to enter 

the marketplace. 

Ms. BISCEGLIE. And I think I would absolutely agree. I think 

from, again, from an Interos standpoint, it is twofold. As she mentioned, the first part is the compliance. Are they actually being 

filed? Is someone actually looking at them? And is there any penalty for not being compliant? 

To the question or one piece of the question that you asked 

though, I think from a subcontractor standpoint and what I shared 

earlier in my testimony is that those subcontracting plans are 

never shared with us so there is a total lack of transparency. So 

when you ask if they are filed or if they are enforced, I do not have 

an idea. And again, when you have larger contracts that go on for 

five to 10 years, as Mr. Jordan mentioned, there is an ebb and a 

flow to how the subcontracting plans are implemented because it 

is over the lifetime of the contract. So in that, if there is a lack of 

transparency from the bottom up and there is a lack of compliance 

from the top down, there is a little bit of a who knows going on 

out there. 

Ms. CHU. I would also like to ask about the contractors who overreport their subcontracting achievements. In 2010, it was reported 

that small businesses received over 34 percent of subcontracting 

dollars, yet there have been cases that found that prime contractors were overreporting their small business subcontracting. Either 

of you in your estimation, what percentage of subcontracting dollars is actually going to small businesses? 

Ms. BISCEGLIE. And I will defer. I do not know if you have a 

shake on that again. I defer to the fact that we just—we have 

never been in the situation to have the transparency even on the 

contracts we are on to have an answer for you. 

Ms. BORROMEO. Yeah. I mean, I think that for a lot of the small 

businesses that I represent, they are not even given the opportunity, so I cannot even answer that question. They are not given 

the opportunity to even compete. So it is a question of can I even 

just compete on this so that I can answer that question? I mean, 

that is a big issue. 

Ms. BISCEGLIE. It is a competition but it is also, to your point, 

when the filing occurs and the percentages are reported, we have 


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no visibility to that. We do not have any visibility to how the overall subcontracting plan as executed, much less or actual role on it. 

So if at the time of the contract award, if the prime says we are 

going to subcontract 10 percent of the award to Interos, we are 

never told that. And we are never—it is never measured at the end 

because we are not actually, except for the public information that 

you can actually pay for on FOIA, that you can see how large the 

contract was. You do not know where that 10 percent falls at any 

point in time. So it is a very difficult answer to provide to you at 

this stage. 

Ms. CHU. Thank you. I yield back. 

Chairman MULVANEY. Thank you, Ms. CHU. And you—I think we 

shared a little bit of surprise at the fact that nobody had ever seen 

a commercial market representative. Staff informs me there are 35 

or 36 of them nationwide, many of them part-time, overseeing $200 

billion worth of contracts. Not a surprise that you have not seen 

them yet. 

Ms. Borromeo, let me press you on one issue because I did read 

the submission from the Asian-American Justice Center. And I am 

more than willing to consider that the possibility for discrimination 

exists. I used to work with large contractors building roads and 

bridges and so forth, and you certainly did not see a lot of womenowned businesses out on those jobs. Again, I am willing to entertain the possibility that the potential exists, but are you saying 

that you are seeing evidence of discrimination based upon the fact 

that groups of particular race or creed or gender or is it because— 

do you believe you are being discriminated against based upon the 

size of your company? 

Ms. BORROMEO. I think it is both. I think small businesses in 

general based on size all experience this, but I think it becomes 

even more complex when you have cultural or linguistic barriers 

that do not allow for you to communicate your point as well as 

maybe other vendors would. So I think small businesses as a whole 

are not being treated very fairly in the space. But when you add, 

like I said, the cultural and linguistic aspects to it, it becomes very 

difficult. And if you also do not understand how government works, 

they would be very—they would be afraid to talk to you right now 

thinking you are going to hand them over to the police. 

Chairman MULVANEY. Do not feel bad. One of the traditional 

ways we try and deal with that is by trying to make the process 

as neutral as possible. Having been through the subcontracting 

process, do you see places where we can change the process in 

order to remove the potential for discrimination based upon race or 

gender? 

Ms. BORROMEO. I think employing more folks in the federal government that would understand the cultural nuances of some of 

these folks. I think that if you have people that understand, you 

know, how a person grows up or how they communicate, you know, 

it is increasing the diversity within the pace. Hiring more women, 

hiring more minorities, to represent in the contracting space would 

make it much easier. 

Chairman MULVANEY. Let me go through sort of a real world scenario. Let us say I am a prime contractor and I have got a Department of Defense subcontract and I am looking to subcontract some 


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of it out. I may post it on various websites and so forth. I do not 

understand the exact logistics of that but at some point I am going 

to receive a bunch of inquiries, either in paper or over e-mail or so 

forth. Is there some part of that process that says, oh, wait a second? It allows me to say that is a women-owned business, that is 

an Asian-owned business. Is there something that is broken in that 

system? 

Ms. BORROMEO. I believe that they are not collecting data at this 

point regarding who is a minority or who is a woman. So that is 

one issue. 

The second issue is they are not posting these things, do you do 

not even know that a subcontracting opportunity exists except 

within your own little network. And it is when the prime contractors let you in. You have to hobnob in the same circles with them 

and it can cost a whole lot of money to go and network with them, 

and you just have to have the connections. And if you are not familiar with the culture or with a language or, you know, things like 

that or you are not comfortable interacting with another gender 

then it might be very difficult to make that. 

Chairman MULVANEY. If we had had more time today with Mr. 

Jordan we would have pressed him on some of the shortcomings 

that we perceive in the SBA regarding the postings and making information available. 

Ms. Bisceglie, you looked like you had some input on that process 

as to where it might be improved. 

Ms. BISCEGLIE. I actually, just from a support standpoint, one of 

the pieces from a governmental perspective to support what Jamie 

just shared, is the passage of the women’s set-aside program. So 

the government is admitting that there is gender bias within government procurement. So I just wanted to bring that up as a resounding support point throughout her case. 

Chairman MULVANEY. An again, I am willing to admit it. I am 

trying to fix it through the process. Again, if you gave me a document—if you made an application for a subcontract on my prime 

and the name of your business was ABC Subcontracting, it is unlikely that I would ever know that you were a women-owned business is my point. So again, I am willing to admit that the potential 

is there; I am just trying to figure out at what point in the process 

you expose—you have let people know you are a women-owned 

business so that you cannot be discriminated against. 

Ms. BORROMEO. Well, maybe when they are looking for these 

subcontractors they could ask if they qualify for any of these setaside programs or if, you know, they are a DBE. So, number one, 

let us post it on Subnet. I went on Subnet and I actually talked 

to Judge Orden’s office about it and I said, you guys only have a 

couple hundred subcontracts posted on this. I said, is there a more 

robust database that I can go to for this? Oh, everything is posted 

on FedBizOpps. It is not posted there. 

And I talked to a prime contractor, a large defense contract, who 

told me that they are not required by the federal government to do 

that. And so—and they just do not like your system so they are not 

going to do it. They have their own system of identifying qualified 

contractors. 


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Ms. BISCEGLIE. And I think that is, if I may, back to the compliance issue. Many of the large prime do follow similar compliance 

to socioeconomic standards that are out there, so they go for a certain percentage of 8(a)s, a certain percentage of women-owned businesses. So they are out there. And very frequently, directly to your 

question, when we receive an RFP from one of those large prime, 

there is a check box that says; which of these socioeconomic standards are set-aside so you file under? So you check women-owned. 

You check small business, what have you. So right up front very 

often you announce where you fit. 

I think it goes back to compliance though, if I may, in that there 

is no teeth that says that we need to be—we need to actually implement the diversity that we are asking for. So we are starting to 

ask the questions and the information is being shared, but there 

is no compliance that says that we actually adhere to those levels. 

Chairman MULVANEY. And it strikes me. I know I asked the 

question but it struck me as you were giving your answer that 

there is a catch-22 here, which is there is a requirement that is a 

target. I cannot remember if it is three percent or five percent for 

women-owned businesses. Certain for service-disabled veterans. 

And so forth. And in order to meet the requirement you are required to disclose that you would fall into those categories. So 

again, you are in a catch-22. If you want this completely blind test 

that would not allow discrimination, you would not be able to satisfy the requirements of the—requirements that we have set. Interesting issue. 

Ms. Bisceglie, very briefly to you. You talked a bit about the 

transparency and about the small business plan not being shared 

with you. I am sympathetic to that but I have also been a subcontractor, I have been a contractor. It would be rare that I would 

share information about my contract with my owner with my sub. 

Not typically something that I would do. What would you be most 

interested in seeing in that if you had your will? 

Ms. BISCEGLIE. If I had my will I would be most interested in 

seeing the part of the response that affected me. So how were they 

measuring the success of my relationship with the prime? 

And you are right. Even as a potential prime contractor, there 

may be subcontractors that we share information with and some 

that we do not. I mean, again, from a small business to a small 

business, there is a bit more other relationships a little bit different 

than a very, very large business. So I can absolutely accept that. 

But I think understanding—if the prime contractor is going to be 

held to a level of compliance based on how they are dealing with 

me, it would be nice to have a voice in that fight. 

Chairman MULVANEY. Agreed. Go back to the specifics of the contract that you all dealt with. Did they breach the contract with 

you? I mean, the reason I ask, and it is completely off topic perhaps 

why we are here today is we have had some in-sourcing hearings 

this year and we have heard testimony about folks getting kicked 

off of contracts. And one of the questions I always ask is, did they 

breach the contract? Did the contract terminate? What were the 

grounds under which they were allowed to displace five of your 

folks? 


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Ms. BISCEGLIE. I do not know. What I was told was that the 

folks, all five of them, were not working out and they were instantly replaced with five of the prime’s people. So again, from our 

standpoint, it would have been nice to know what was reported to 

anybody managing the subcontracting plan. One, from just a reference ability from my own company. From the contracting, the 

people, all five of those people had worked on previous contracts for 

me with it never a problem, so it was a surprise. And the larger 

surprise, back to our wish and our desire to understand the compliance with the subcontracting plan, is that it was swift. It was your 

people are gone in less than five days. It was not this is not working out. We need to change it. It was just very quick and they replaced with their own people. 

So it was all Department of Defense work. My guess is that it 

was a budgetary situation, but we do not know, which again, is 

why we are asking for the transparency and the understanding of 

the compliance of the contracting plan. 

Chairman MULVANEY. All right. Thank you for that. Again, it 

strikes me that you have a contract and I could never just break 

my subcontract with my subcontractors unless the contract allowed 

me to do so. 

My last line of question relates to the experience you had in 

transitioning from a sub to a prime. How did you find it generally? 

Was your experience as a sub helpful to you when you tried to do 

it? And are there things you learned as a sub that have made you 

a better prime contractor dealing with your own subs? 

Ms. BISCEGLIE. Right. So the only two prime contracts we have 

right now are very large IDIQs. And we have not gotten billable 

work. They are relatively new for us. And right now we have three 

proposals to be prime contractors. So we have not been awarded as 

a prime yet. 

As far as the process, the one thing I will share with you is— 

and I will tell you, one of the bids that we have in right now is 

with a very, very large contractor who is a sub to us. And the other 

two are with mid-tier or smaller businesses just because of the 

work. 

And the one thing that is actually I have been educated on is a 

lot of what I shared here in the testimony, it was very easy for me 

to be here today because we have a very different relationship with 

our subs on these bids, as well as the ones that are on with the 

IDIQs, than we have had with our primes in the past. And part 

of it is the transparency and the working relationship that we are 

trying to foster, so it is kind of like, you know, be the change that 

you want to see. And I think that that is probably the biggest thing 

that we have learned. So we are already implementing a lot of that 

transparency with our subcontractors and hope and look to continue that once we get awarded the work. 

Chairman MULVANEY. The Past Performance Report, did you find 

it to be a fair process? Did you find it to be helpful to you? Did you 

find it to be a hindrance? 

Ms. BISCEGLIE. As far as filing our price performance? 

Chairman MULVANEY. Right. 

Ms. BISCEGLIE. It is—I think it is just we are fortunate. We have 

been in business for six years and I have been in the same industry 


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for over 20. So from a past performance standpoint, we are very, 

very fortunate in the fact that we can definitely stand on our own 

laurels. So it is a lot of paperwork but I think it is fair in the fact 

that it is pretty—again, to Jamie’s point, it is pretty blind as far 

as that is concerned. It is a standard template. You fill it out. You 

put your point of contact so that they can check everything, and for 

us it has been fine. 

Chairman MULVANEY. Would you have been able to go straight 

to prime contract? Or would you have had to have gone through 

the sub programs in order to qualify? 

Ms. BISCEGLIE. It depends on the contract. Some of them need 

specific relevant past performance. Again, because of the way that 

I am building my company, all of my people have at least 10 to 15 

years experience in this industry so I am a little bit of an anomaly 

in that standpoint. I think that the benefit of coming in as a subcontract is that I had the ability to learn a lot of what it takes to 

be a federal government contractor on somebody else’s time, if you 

will. And we have been able to foster some of the relationships that 

are going to make us much more successful going forward. 

Chairman MULVANEY. Have either of you ladies participated or 

known anybody who has participated in the mentor programs? 

Ms. BORROMEO. I was actually just going to say that. One of my 

clients has been with the DHS Mentor Prote ́ge ́ Program for a year 

and there is no extra merit in being part of that program. 

Ms. BISCEGLIE. We have actually done the Department of Defense and DHS, and I would absolutely agree. I think—— 

Ms. BORROMEO. They are for show. 

Ms. BISCEGLIE. Well, I think that what I have seen, and I actually attended the Mentor Prote ́ge ́ conference. And I think that 

what I saw was that, and this again, this all is Interos, from a— 

I think that the programs largely came out of being product companies, so if I wanted to sell product to the government. And so the 

Raytheons and the Boeings and those sort of companies have very, 

very successful programs. We are services, and I think it is a little 

bit more difficult. And a clear example is that our mentor in the 

Department of Defense program, we thought it would work because 

they understood what we do for a living, yet then within their own 

company there was a stress factor of why should we bring in a sub 

because that takes work away from us? And we are not an IT company; we are a supply chain company. So if you can only imagine 

with as many IT contractors you have in this area, that that issue 

is all over the place. 

So I think that what I have heard from peers that have been 

part of the program, if you are with one of the larger that started 

as a product and move over to services, that they have seen a lot 

of success. But just services to services, it is a little bit tougher to 

implement. 

Chairman MULVANEY. Ladies, thank you very much. I appreciate 

the testimonies. It is fascinating stuff. We could do it all day but 

everybody has been here three hours and I do apologize again for 

the long hearing. 

As we—this Committee will work to expand opportunities for 

small business and compete for federal contracts both as prime and 

subcontractors. We keep in mind that there is a lot of room for imVerDate Mar 15 2010 23:02 Dec 23, 2011 Jkt 071819 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 E:\HR\OC\A819.XXX A819

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provement. Thank you specifically for your suggested improvements. Those will not go unheard of or unresponded to. 

Ms. Borromeo, thank you for this. This will be included in the 

record. And I think this really does help me and the ranking member try and get a feel for where we want to take this Subcommittee 

especially next year. 

So with that I will ask unanimous consent that we have five days 

to revise and extend our remarks or to ask questions of the witnesses. Again, witnesses, thank you very much. Thank you all for 

sticking around for three hours. Ms. Chu, it is always a pleasure. 

And with that we will adjourn for the day. 

Ms. CHU. Thank you. 

[Whereupon, at 12:50 p.m., the Subcommittee hearing was adjourned.] 


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