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74–086 2001

PROCUREMENT POLICIES OF THE PENTAGON

WITH RESPECT TO SMALL BUSINESSES AND

THE NEW ADMINISTRATION

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

WASHINGTON, DC, JUNE 20, 2001

Serial No. 107–13

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DeMINT, South Carolina

JOHN THUNE, South Dakota

MIKE PENCE, Indiana

MIKE FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

GELIX J. GRUCCI, JR., New York

TODD W. AKIN, Missouri

SHELLEY MOORE CAPITO, West Virginia

BILL SHUSTER, Pennsylvania

NYDIA M. VELA ́ ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

WILLIAM PASCRELL, New Jersey

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

JAMES P. LANGEVIN, Road Island

MIKE ROSS, Arkansas

BRAD CARSON, Oklahoma

ANIBAL ACEVEDO-VILA ́ , Puerto Rico

DOUG THOMAS, Staff Director

PHIL ESKLELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on June 20, 2001 ............................................................................... 1

WITNESSES

Lee, Ms. Deidre, Director, Defense Procurement, Office of the Secretary of

Defense .................................................................................................................. 3

Walthall, Ms. Susan, Acting Chief Counsel, Office of Advocacy .......................... 5

McLaughlin, Mr. Ken, Small Firms Council, American Council of Engineering

Companies ............................................................................................................ 7

Allain, Mr. Maurice, President, Phoenix Scientific Corp. .................................... 9

Diamond, Ms. Kathleen, Member, GrassRoots Impact, Inc. ................................ 11

Weidman, Mr. Rick, Director, Government Relations, Vietnam Veterans of

America ................................................................................................................. 13

APPENDIX

Opening statements:

Manzullo, Hon. Donald .................................................................................... 28

Vela ́zquez, Hon. Nydia ..................................................................................... 30

Prepared statements:

Lee, Ms. Deidre ................................................................................................. 32

Walthall, Ms. Susan ......................................................................................... 42

McLaughlin, Mr. Ken ....................................................................................... 56

Allain, Mr. Maurice .......................................................................................... 88

Diamond, Ms. Kathleen ................................................................................... 90

Weidman, Mr. Rick ........................................................................................... 94

Additional Information:

Letter to Mr. Udall from Vanessa Morganti .................................................. 99

Letter to Ms. Lee from Mr. Donald DeRossi .................................................. 104

(1)

PROCUREMENT POLICIES OF THE PENTAGON

WEDNESDAY, JUNE 20, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Committee met, pursuant to call, at 10:12 a.m., in room

2360, Rayburn House Office Building, Hon. Donald A. Manzullo

(chair of the Committee) presiding.

Chairman MANZULLO. The small business committee will come to

order. Welcome to this hearing of the Committee on Small Business. A special welcome to those who have come some distance to

participate and attend. Annually, the Federal Government spends

approximately $200 billion on goods and services purchased from

the private sector. Of the Federal agencies, the Defense Department is by far the largest Federal market place accounting for over

$122 billion in prime contract awards, or more than 60 percent of

the Federal procurement dollars. The Pentagon purchasing is important to small businesses. The procurement policies that the new

administration adopts are important to small business and to main

street America.

In the past, small businesses have had major problems with the

way the Pentagon does business. Problems include the failure of

the Pentagon to meet procurement goals, the bundling of contracts

and the diminished number of prime contracts going to small businesses. These are key issues for the small business community.

We welcome Deidre Lee from the Pentagon, who is filling in for

the Under Secretary of Defense for Acquisition and Technology, Mr.

Aldridge. He is at the Paris air show this week. We hope he will

bring back some contracts for small businesses in the aerospace industry. We will have him at a hearing in the near future. He is

the one that ultimately sets the procurement policy of the Pentagon

with respect to small business, and ultimately responsible for success or failure of those policies.

[Chairman Manzullo’s statement may be found in appendix.]

Chairman MANZULLO. My ranking minority member has a lot of

energy today, she always does. Again, we thank you for participating in the hearing and thank you for your attendance and I will

now yield for the opening statement for the ranking member, Mrs.

Vela ́zquez.

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman and welcome. Well,

here we go again. After six hearings over the past eight years and

the markup of several pieces of legislation aimed at retaining equity in the contract process, we are still at square one. Today, once

again, we will hear from the Department of Defense who will talk

2

about the importance of small businesses to the Pentagon. For all

their promises and quote, unquote, rhetoric on their commitment

to small businesses, very little has changed. My father always said

that actions speak louder than words. And what is being done to

small businesses by their departments speak loud and clear. The

Department of Defense may talk about more ways to give small

businesses opportunities, but their actions are only achieving a 21

percent small business goal, which is costing small businesses 2

billion in contract opportunities, speaks much louder. They say

they are striving to provide opportunities to women, but their action of achieving 2 percent, that is less than one half of the statutory goal for women-owned businesses, depriving them of $4 billion

in contracts. That speaks volumes.

This cavalier attitude was simply unscored by a recent policy initiative from the new administration that not only did not address

several critical small business goals, but in many areas like women

small businesses, they do not comply with the statutory requirements. That is sheer arrogance. This lack of commitment by agencies to small businesses led this Committee last Congress to introduce and pass common-sense legislation. The Small Business Contract Equity Act would change in fundamental ways how agencies

will do business.

It is based on a simple premise. To agencies, if you want to continue using contract bundling, then you must meet your small business goals. If not, then you must get your bundles approved by the

Small Business Administration. It also does away with the current

system where agencies are the judge, jury and executioner of their

own contracts. Whether it is bundling third party, logistics, prime

vendor, virtual vendor, long-term contract or outsourcing, if it looks

like a bundle and sounds like a bundle, it is a bundle, regardless

of what the agency calls it. This legislation will finally put some

teeth into contracting oversight by establishing SBA as the final

arbiter over whether these contracts meet the necessary cost savings and requirements for contract efficiency.

Unfortunately the last Congress ended with no further action.

Earlier this year, we introduced the Small Business Contract Equity Act. It is my hope that with its support and the strong backing

in the small business community, we can pass H.R. 1324. This legislation will go a long way of providing small business in the

committeeing process. Make no mistake, the stakes are very high

as we will hear from the small business owners today. While the

Department of Defense would like to simply brush this off as nothing more than a rule or definition change, this is about keeping

small businesses in business.

What is most troubling that while then-entrepreneurs hang in

the balance, DOD has still failed to produce even one instance of

saving taxpayers dollars. As a result, we have no concrete benefits,

but we do know these practices are forcing small businesses out of

business. I thank the panelists who took the time to be here today,

especially those members of small business community who will

share their horror stories about contracting. I look forward to hearing what you have to say, and I thank the Chairman for having

this hearing today. Thank you, Mr. Chairman.

3

Chairman MANZULLO. I appreciate your comments. I am a cosponsor of Ms. Vela ́zquez’s bill, H.R. 1324. I realize that the Small

Business Committee does not have a tremendous amount of jurisdiction, but I want you to know that as a result of hearings that

we held dealing with the issue of berets, that it is the direct result

of this bipartisan team up here, both of us working together, that

it is going to be a very rare incident where the American military

will ever again be wearing uniforms or any part of the uniforms

made out of foreign material or made by companies that are offshore. And I am convinced that as a result of that hearing that we

have saved literally, if not thousands of jobs in this country.

So I exercise the power of subpoena liberally, that is the only liberal strain in my body. And we are going to be asking for exact answers. If we don’t get the documents we want, I do not request

them. I subpoena them in and give the agencies 5 days to bring

them into my office and to Ms. Vela ́zquez. We mean business on

this. The government is too big. Bundling is a horrible thing that

has happened and does not save the taxpayers dollars.

So on that basis, our first witness is Deidre Lee. She is the director of Defense Procurement, Office of the Secretary of Defense. We

have these lights up here that give you 5 minutes to give your testimony. When the green light goes on, when it is yellow you have

a minute to wind up, and when it is red, we get anxious up here.

I look forward to your testimony.

Ms. LEE. Thank you, sir.

STATEMENT OF DEIDRE A. LEE, DIRECTOR, DEFENSE

PROCUREMENT, OFFICE OF THE SECRETARY OF DEFENSE

Ms. LEE. Good morning, Chairman Manzullo, Ms. Vela ́zquez

members of the Committee. I appear before you today as the Department of Defense representative to their—the Department’s procurement practices and their impact on small businesses. I am

pleased to discuss this subject and to respond to any questions. The

Department recognize the critical role that small businesses play

in supporting DOD’s accomplishment of its mission and the overall

strength of the U.S. Industrial base.

DOD is fully committed to fostering the inclusion of the small

businesses as prime contractors, subcontractors, and vendors. As

the Department of Defense accounts for approximately 65 percent

of total Federal procurement dollars, we now see how important it

is to ensure our procurement practices include small business opportunities. In fiscal year 2000, $48 billion of DOD procurement

spending was with small business firms, with 26.9 billion of this

to small business prime contractors. For small disadvantaged businesses, the Department awarded 10 billion. The Department is also

emphasizing improved performance for the small business subcategories such as women owned small business, historically under

utilized business, hub zones and veteran owned small business. In

fiscal year 2000, 4.9 billion of DOD procurement spending went to

small business concerns. Yet we must do much better. We at the

Department recognize that we need to be more attuned with small

business, and we are committed to improving the small business

performance.

4

Several recent initiatives put emphasis on small business. On

May 16, 2001, just 5 days after he was sworn in, the new Under

Secretary of Defense for Acquisition, Technology and Logistics, Mr.

Pete Aldridge issued, as one of his first initiatives, a policy that

emphasizes the importance and assigns accountability at the highest levels within DOD for achieving small business program performance improvement. Under his new policy, each DOD activity

and the Department as a whole will be responsible for annual

small business improvement plans, including the identification of

at least three initiatives to improve small business participation.

Targets will be established for each year, and each DOD activity

will be rated on its performance to the plan and the established

targets.

Under the new policy the secretaries of the military departments

and the directors of defense agencies will report to Mr. Aldridge,

and he will report semi-annually to the Deputy Secretary of Defense. With this new program, Mr. Aldridge challenges the services

and agencies and requires steady improvement in those armies in

which the Department is not meeting its goals.

DOD is also increasing its focus on small business subcontracting

with the prime contractors. We will increase oversight of large contractors’ performance against negotiated subcontract goals, and we

hold annual performance reviews with these primes during those

reviews. We will now start discussing with them how are they are

performing against their subcontracting commitments.

Let me turn now to another related subject, which I know you

are very concerned, bundling. The Department is committed to

avoiding contract consolidations that result in bundling. Unless

market research and benefit analysis support that, there are measurably substantial benefits. The Department is also committed to

ensuring vigorous small business participation at the subcontract

level. We have additional initiatives planned to ensure appropriate

emphasis and analysis is placed on avoiding bundling.

We are instituting the Office of the Secretary of Defense reviews

of high-dollar service acquisitions similar to those we have conducted for a long time on weapons systems. We now spend more

dollars or equal dollars on services than weapons and found that

we were not reviewing those with the same rigor that we thought

was important, and we think it will serve as a significant aid in

ensuring that small business interests are included in this service

acquisition arena.

Additionally the Department has drafted, and we plan to issue

a benefit analysis guide through our SADBU office that explains to

people and the folks who are here in the office today on what we

expect them to do in considering a new acquisition and its impact

on small business. We continue to have small business specialists,

procurement technical assistance centers, regional small business

conferences to provide outreach and training. We continue to do

procurement fairs with Members of Congress to ensure we have

outreach to our small businesses, and in addition, we have tried to

emphasize new electronic commerce initiatives where the opportunities to put out electronically, small businesses can register

through ProNet and can receive E mails of business opportunities

government-wide that they may participate in.

5

In short, we know we need to do better. I am here to tell you

that the Department of Defense and the procurement folks, we will

make that commitment. We know there is a lot of work to do and

we will reaffirm the DOD commitment to small business.

Thank you for the opportunity to appear here today and I look

forward to your questions.

Chairman MANZULLO. Thank you very much.

[Ms. Lee’s statement may be found in appendix.]

Chairman MANZULLO. Our next witness is Susan Walthall.

Susan is the acting chief counsel for advocacy of the Office of Advocacy in the U.S. Small Business Administration. Even as an acting

chief, Susan, I would want to commend you publicly when Ms.

Vela ́zquez’s staff and ours went to you and you worked with another committee and you stopped a contract for 114,000 Air Force

hats when the Air Force had decided that the GPO was going to

do the procurement, violated all procurement laws, and the company to whom that contract was awarded would make those hats

in China.

We are active in this Committee. We are using all the resources

we have and we are very serious about protecting American jobs

and following the procurement laws. Susan.

STATEMENT OF SUSAN M. WALTHALL, ACTING CHIEF COUNSEL, OFFICE OF ADVOCACY ACCOMPANIED BY MAJOR

CLARK, ASSISTANT ADVOCATE FOR PROCUREMENT, AND

PAUL MURPHY, PRESIDENT, EAGLE EYE PUBLISHERS, INC

Ms. WALTHALL. Thank you, Mr. Chairman. Good morning, Mr.

Chairman, and members of the Committee. I would ask that my

entire testimony be made a matter of the record, and I wish to

state that the views expressed here are not meant to reflect the

views of administration or the U.S. Small Business Administrator.

Chairman MANZULLO. All the statements of the witnesses and

Members of Congress will be made part of record without objection.

Thank you. Proceed.

Ms. WALTHALL. I am Susan Walthall, honored to be acting chief

counsel for the Office of Advocacy. Congress created the Office in

1976 to be an independent voice of small business in forming public

policy. From the beginning, advocacy has actively analyzed Federal

procurement policy and its impact on small business. It is good

that you are focusing on the largest buying activity, the Department of Defense. There is enormous opportunity for DOD to do

more for small business. At the same time, however, the Federal

procurement policy issues that create problems are universal and

impact the entire Federal marketplace.

As an example, let me start with the government credit card. Advocacy is currently studying the use of government credit cards and

their impact on small business. We will have a report available

later this year. I feel it is safe to say that small business does not

appear to be getting a proportional share of these Federal dollars.

In the last 3 years use of credit cards has increased nearly 150 percent, from under $5 billion in 1997 to slightly more than $12 billion

in 2000. But the small business share is less. In fiscal year 1995,

small businesses received 72 percent of small purchase dollars. In

fiscal year 2000, that number is down to 65 percent.

6

We are also concerned about the use of multiple contracts and

government-wide contracts. Agencies use these tools to fill requirements quickly by simply issuing orders against these contracts instead of starting new procurement actions. This is convenient for

the agency, but it reduces opportunities for small business. These

contracts are usually too large in scope for small business to participate.

Likewise, the GSA schedule which has increased from 2.8 billion

in fiscal year 1996 to 10.2 billion in fiscal year 2000 has also hurt

small business. Although the Small Business Act specifically requires purchases of goods or services between $2,500 and $100,000

be reserved for small business orders from the GSA schedule do not

follow this requirement.

Mr. Chairman, the Office of Advocacy has also studied the buying habits of Federal procurement centers across the country. Our

study ranked the small business friendliness of the centers based

on the percentage of awards to small businesses. We have found

that almost two-thirds of Federal prime contract dollars were controlled by centers that awarded the least to small business. 260 of

the centers awarded no prime contract to small business, while 213

centers awarded 100 percent. So it is doable.

One of the most powerful forces reducing Federal procurement

opportunity for small business is contract bundling. The convenience to the government is obvious, but the negative impact on

small business is equally obvious. In 1997, we contracted with

Eagle Eye Publishers to look at the impact of bundle contracts. Our

recent update of the study is even more alarming.

Consider the following: The average bundle contract was valued

at $8 million in fiscal year 1999, representing a 21 percent increase

over the past 8 years. For every increase of 100 bundle contracts,

there was a decrease of 106 individual contracts awarded to small

business. And in fiscal year 1999, large businesses received 67 percent of all prime contract dollars and 74 percent of all bundled dollars, while small firms received 18.7 percent of all prime contract

dollars and 15.7 percent of all bundle contract dollars.

It is clear that the well-intended acquisition reform movement of

the 1990s has been detrimental to small business. We simply must

do more to increase opportunities for small business. Mr. Chairman, the commitment of the Small Business Act to assure fairness

for small business must be strongly and forcefully reinstated so

that government does not save pennies in acquisition costs while

losing the soul of what this country is all about.

That concludes my remarks. I have a number of recommendations that are in my written statement. Mr. Major Clark of my

staff, who is assistant advocate of procurement, and Paul Murphy,

president of Eagle Eye Publishers, join me today. We will be happy

to answer any questions you have. Thank you very much.

Chairman MANZULLO. Thank you very much.

[Ms. Walthall’s statement may be found in appendix.]

Chairman MANZULLO. Our next witness is Ken McLaughlin who

is a professional engineer. He is representing the American Council

of Engineering Companies and the Small Firm Council. I look forward to your testimony.

7

STATEMENT OF KEN McLAUGHLIN, SMALL FIRMS COUNCIL,

AMERICAN COUNSEL OF ENGINEERING COMPANIES

Mr. MCLAUGHLIN. Mr. Chairman, Ranking Member Vela ́zquez

and members of the Committee, I would like to request that the

written full text of my testimony be made a matter of record and

I be allowed to summarize at this time. I would also like to thank

you for affording me the opportunity to express before the Committee the interests of many small business enterprises in the engineering community. As a matter of background, the American

Council of Engineering Companies is the premier business association of consulting engineering industry representing more than

5,000 engineering companies throughout the United States. ACEC

was founded in 1956 and is headquartered here in Washington,

D.C., and since 1990, the Small Firm Council has represented and

advanced the business interests of ACEC’s small business enterprises.

The Small Firm Council is composed of 75 percent of ACEC’s

total membership and this represents companies of 35 members or

less. The distinction of firms where 35 members or less is important not only because it is 75 percent of our membership, but because it represents the general size of a firm which does approximately $4 million annually in business, therefore qualifying those

firms under the Federal guidelines as a small business.

On a more personal level, I am founder and president of IMC

Consultant Engineers located in Metairie, Louisiana. IMC also designs services in the mechanical, electrical engineering field. We

design heating, ventilating, air conditioning, lighting systems for

commercial buildings very much like the building we are sitting in

today. My firm works within two basic frameworks as do most

small engineering firms. That is as prime consultant to the owner,

and there is a subconsultant to another engineer and architect.

As you might expect, we prefer to work as a prime consultant,

and therefore look forward to those opportunities in the marketplace. As a prime consultant, we are in control of our destiny and

totally responsible to our clients, and we directly benefit in recognition of a job well done. We are assured prompt payment as the

prime contractor.

The Department of Defense offered procurement opportunities on

the order of $120 billion in 1999. It appears from Congresswoman

Vela ́zquez’s report, ‘‘Failing to meet the Grade’’ that the Department of Defense, the largest government contractor, has failed to

meet the goals set for procurement from the small business sector.

In fact, the report provided a grade of D to the agency and termed

the performance dismal. My colleagues and I have particular interest in bringing before you today the problems of contract bundling.

‘‘Bundling’’ is defined as the consolidation of two or more contracts for goods or services into one contract that is often too large

for a small business to participate as a prime contractor. Within

the solicitation of engineering contracts, bundling is commonly recognized within two formats. The first format being geographic dispersion of the contract performance site to the point of exclusion

for small firms due to territorial coverage that simply becomes impractical. The second format being the broadening of the project

8

scope to the point of exclusion of the small firm specializing in a

field.

Bundling is having profound effect on small engineering firms

with its use, often precluding small firms the opportunity to work

as a prime consultant. This is especially apparent within many indefinite delivery contracts. The problems within the procurement

solicitation can be better examined by example. Provided within

the written text are three examples of that.

What I would like to do is point out one in particular at this

time. It is a solicitation by the Department of Navy. Let me quote

from that solicitation the geographical constraints of the project.

And I am quoting, ‘‘the majority of the work will be located within

the Commonwealth of Virginia, the State of West Virginia, the

Commonwealth of Puerto Rico, and western Europe, but may include the State of North Carolina, the States of Delaware, Pennsylvania, New Jersey, New York, Rhode Island, Massachusetts,

Maine, Vermont, New Hampshire, Maryland, and the District of

Columbia; or at locations under the cognizance of engineering field

activity, Mediterranean (Europe and Bahrain).’’

I think maybe the Navy could have pinpointed this a little more.

This is a classic example of bundling. There are two more examples

within the written text. If I might, another one issued by the Corps

of Engineers for projects primarily in ‘‘northern and central California, but may also be within the Sacramento district, civil works

area of responsibility, California, Nevada, Utah, Colorado, Wyoming, parts of Oregon and Idaho, and areas in the south Pacific division boundaries.

It is our belief that these types of requirements listed in these

actual Department of Defense requests for qualifications would preclude the vast majority of small engineering firms as prime contractors.

Our hope is that all the Department of Defense contracting agencies would properly evaluate the proposed work associated with indefinite delivery orders and solicit professional services matching

that work. This would provide small businesses the opportunities

to work as a prime contract consultant, or at least be assured as

a subconsultant that they will have meaningful work once the

prime is selected. Bundling is forcing small business to shift from

being a prime contractor to being a subconsultant to a large firm.

This accounts for a decrease in small firm contracts between 1997

and 1999. As a result small business——

Chairman MANZULLO. I have to interrupt here.

Mr. MCLAUGHLIN. I have run over?

Chairman MANZULLO. You have run over, but let me say this to

the panel and the people here in this room. If you are a small business person and you get a piece of garbage that is a proposal as

the one that Mr. McLaughlin just talked about, the Office of Advocacy and the Small Business Administration, Susan, there are 40

employees.

Ms. WALTHALL. Yes, sir.

Chairman MANZULLO. Plus we have half a dozen—how many attorneys?

Ms. WALTHALL. Right now we are down to 10 to 12.

9

Chairman MANZULLO. We have six attorneys on staff in the

Small Business Committee. If you get something like that, please

contact our office immediately and we will make some inquiries. I

may even have to use the famous subpoena duces tecum to bring

the people who draft those into my office and personally explain

why they do that. That is a shot across the bow to any Federal procurement officers that would come up with garbage like that, and

the reason for the geographical limitations is to knock out small

engineering firms because they are obviously not licensed in all

those jurisdictions.

[Mr. McLaughlin’s statement may be found in appendix.]

Chairman MANZULLO. The next witness is Maurice Allain. You

are the president and CEO of Phoenix Scientific Corporation, and

we look forward to your testimony.

STATEMENT OF MAURICE ALLAIN, PRESIDENT, PHOENIX

SCIENTIFIC CORPORATION

Mr. ALLAIN. Thank you. Can everyone hear?

Chairman MANZULLO. That is fine. Thank you.

Mr. ALLAIN. Good morning, Mr. Chairman, and members of Committee, for inviting me again before you on a subject of major concern to us and other members of the small business community.

My invitation to attend this morning’s hearing came this time from

the minority members of the Committee. My last appearance was

at the behest of its majority members. I note with satisfaction that

concern with procurement policies at the Department of Defense

with regard to small business is shared by both sides of the aisle.

Since the decline of the Soviet state, the Department of Defense

has undertaken some 40 major acquisition initiatives. Some of

them have been successful; for others it is too early to completely

evaluate. However, the record is clear that contract consolidation,

or bundling, has adversely affected small businesses. It is also clear

that from work by the General Accounting Office and the DOD Inspector General, that bundling has failed, except in rare instances,

to show the substantial efficiencies claimed for it. In actuality, the

DOD IG has shown that multi year, multiple awards bundled contracts have cost the government more than otherwise would be the

case.

In the 19 months since my last appearance before you, my company has been devastated by DOD’s bundling policy, in particular,

the Flexible Acquisition Sustainment Tool, or FAST has or will absorb most of the opportunities, my company may have had to compete for work at the Air Force material command for the next 7

years. Over this period, we have strenuously objected to the FAST

procurement, we have challenged the assignment of NAICS codes,

violations of the Competition in Contracting Act, and violations of

the Small Business Reauthorization Act, all to no avail.

Before the GAO, we have demonstrated that the FAST procurement failed to show substantial savings to the Department of Air

Force, a point on which they agreed. However, our challenge failed

as a result of peculiar interpretation of SABRA. In order to determine that FAST was suitable for small business, which was the

basis for denying our protest, and therefore not in violation of

SABRA, the GAO accepted that some firms who claimed to be

10

small by the Air Force were competing for FAST, and therefore

FAST was not unsuitable for small business participation. A thin

reed indeed.

We certainly were not alone in our contentions. The Small Business Administration formally appealed the decision to procure

FAST to the Secretary of the Air Force and to the White House.

An unanswered letter was sent from the Black Presidents Roundtable Association to the Secretary of Defense condemning FAST. A

letter urging this SBA administrator to more vigorously challenge

FAST was sent by almost 40 members of this House.

And finally, a letter urging the GAO to strongly consider ruling

against the FAST procurement was sent by the ranking minority

member of this Committee. Again, to no avail. And finally, the

FAST procurement was vetted by the Office of the Under Secretary

of Defense for Acquisition, Technology, and Logistics. The report,

the report on FAST by Mr. Ivory Fisher, which I believe this Committee has a copy, unambiguously showed that the FAST procurement was wrong, again, to no avail.

All that can be shown from these efforts is a questionable agreement by the Air Force and the SBA to play nice. It is ironic that

two of the parties to this agreement, the procurement officer, Mr.

Burton, will be retiring this November, and the Under Secretary of

the Air Force, Mr. Deluca, will most likely beat him out the door,

leaving the FAST mess to others. And here, 19 months later, with

my company standing in ruins, this Committee has failed to report

out H.R. 1324. There would never have been a FAST or the injury

to my company if this legislation had been in being as recently as

May of this year. This legislation will clarify the semantical loopholes which allowed the FAST to wriggle through.

Mr. Chairman and members of this Committee, I urge you to act

swiftly on this legislation. I have every reason to believe that the

current administration joined by bipartisan majority in the House

is committed to resolving these issues once and for all. Careful review of the statements made by then-candidate George Bush at the

second presidential debate in remarks made to the editors of the

MBE Magazine, and later reiterated by the Right Reverend Kirby

John Caldwell earlier this year as guests on the O’Reilly Factor

talk show make it clear that access to competitive contract opportunities by small business is essential for the continued good working

of our economy. Thank you for the time permitted me and I am

available for any questions you might have.

Chairman MANZULLO. I appreciate your testimony.

[Mr. Allain’s statement may be found in appendix.]

Chairman MANZULLO. We will look at this FAST mess and what

I would like to do, Mr. Allain, is if you are going to be on the Hill

sometime today, what time is your plane leaving?

Mr. ALLAIN. I am driving, I don’t have enough money for a plane

fare.

Chairman MANZULLO. Back to Phoenix?

Mr. ALLAIN. Yes.

Chairman MANZULLO. If you could work with our staff, I think

Ms. Vela ́zquez and I would like to spend some time with you today.

Mr. ALLAIN. Certainly. I am at your disposal.

Chairman MANZULLO. We appreciate that. Thank you very much.

11

Our next witness is Kathleen Diamond. Kathleen is president

and CEO of Language Learning Enterprises incorporated of Washington, D.C.. Speaking on behalf of GrassRoots Impact, Inc. And I

look forward to your testimony.

STATEMENT OF KATHLEEN DIAMOND, PRESIDENT AND CEO,

LANGUAGE LEARNING ENTERPRISES, INCORPORATED,

MEMBER, GRASSROOTS IMPACT, INC

Ms. DIAMOND. Thank you. Good morning, Mr. Chairman and the

Committee. Thank you very much for giving me this time this

morning. My name is Kathleen Diamond. I am the president and

CEO of Language Learning Enterprises. We are a full service language company headquartered in D.C., and we provide foreign language support to public and private organizations across the

United States. I would like to share that I was recognized by my

peers in 1999 as being named the International Woman Entrepreneur of the Year. Today I am testifying on behalf of GrassRoots

Impact, Incorporated. This company represents approximately

200,000 business owners on Capitol Hill with special focus on

minority- and women-owned businesses.

In 1979, when I founded LLE, I quickly learned that the United

States government was a major purchaser of language services. Accordingly, I began the process of educating myself on the arcane

process of Federal contract procurement. My efforts were rewarded

in 1981 when LLE was granted its first contract with the United

States Information Agency since it folded into the Department of

State much to my company’s detriment. It was a multi-vendor, indefinite quantity, indefinite delivery, fixed-price contract for language training. The bidding was a small business set aside with no

consideration of gender or race of owner.

As a result of the 1988 Women’s Business Ownership Act, ‘‘women-owned’’ was added to the boxes to check under section K

certification and representation in all Federal requests for proposal. LLE began responding to requests for proposals from the Department of Defense for language training as well as translation in

the mid 1980s. Competition in the language training area was limited in the early days to a handful of capable vendors, most of them

were small businesses given access to Federal contract by virtue of

the set-aside clause.

Today there are twice as many companies in the language business; the majority male-owned and no longer classified as small

businesses. Procurement policies changed to accommodate the

growing size of the business by no longer making the procurement

a small business set-aside, thereby making it harder for smaller

and newer companies to compete. Although the gender of the

owner continues to be solicited, it bears no weight on the final outcome and the allocation of dollars to the winning bidders. There is

simply no incentive to award a contract to a woman-owned business, all things being equal.

Notwithstanding the above, LLE has been successful for nearly

two decades in winning contracts with the Pentagon and other

agencies of the DOD for language training. We have been considerably less fortunate in our attempts at winning translation contracts. I believe this is because government contracts are written

12

in such a way to preclude access to unknown and small enterprises.

From my company’s perspective, I cite as a case in point a very

large multi-year contract for language services, translation/interpretation put out to bid by NASA in 1996. LLE was compelled to

team with a ‘‘wired’’ engineering company that would be the prime

contractor, even though the scope of work was primarily for language services. The DOD practice of low bidding is especially damaging to small business. In a small company, every contract must

sustain itself. There is no room for a ‘‘loss leader’’ as there might

be in a large company with numerous possible contract to carry the

low ball. My experience is that small business in general, and

women-owned businesses in particular, can ill-afford debt to finance the Federal government. And yet, this is frequently what

happens. I am talking here about SLOW pay.

I believe that small women-owned businesses are capable of providing the highest of standards to DOD needs, products and services. I understand that the types of products and services purchases are predominantly made/offered by large main stream businesses in the military infrastructure with decades of experience

and track records. Nonetheless, if the government intends to respect its own mandate to increase the Federal contracting to

women-owned businesses to the 5 percent as set forth in the 1994

Federal Acquisition Streamlining Act, then different consideration

must be given to bids for these companies.

I recommend that DOD update its list of products and services

purchased to reflect today’s market. Women-owned businesses are

excellent sources for computer support, graphic design, consulting,

management, personnel development, and a myriad of other businesses and services not classified in the search engines of the current procurement directories.

Secondly, although DOD is doing a better job in reaching out to

small business through marketplace showcases, et cetera, where

buyers set up booths and invite vendors to visit, there should be

more follow up afterwards. And further, more a concerted effort

should be made to invite an appropriate mix of vendors. No sense

inviting my company, for example, to a showcase for hardware buyers.

Thirdly, it is my observation that more contracts will be awarded

to women-owned businesses if these businesses could bid on smaller contracts and bid as prime. In other words, I do not think the

practice of bundling, i.e., combine several projects into one for contracting purposes is helpful to small businesses. In fact, I am not

even sure it is beneficial to government either. In my earlier example of the NASA request for proposal, LLE could have bid as prime

and offered a high quality, fairly priced language service had the

scope of work not included oversight and other administrative responsibilities, such as visa arrangements and other geographic concerns.

In closing, I would like to thank the chairman and his Committee for their initiative in this important aspect of government

fact finding. Thank you very much. I am here for questions.

Chairman MANZULLO. Thank you very much.

[Ms. Diamond’s statement may be found in appendix.]

13

Chairman MANZULLO. Our next witness is Rick Weidman. He is

the director of government relations of the Vietnam Veterans of

America. Mr. Weidman, we look forward to your testimony.

STATEMENT OF RICK WEIDMAN, DIRECTOR, GOVERNMENT

RELATIONS, VIETNAM VETERANS OF AMERICA

Mr. WEIDMAN. Mr. Chairman, Ms. Vela ́zquez, distinguished

members of the panel, thank you very much for allowing Vietnam

veterans of America to participate in the panel of procurement this

morning. I am here representing not just Vietnam veterans of

America, but I have the honor of serving as chair of Task Force on

Veterans Entrepreneurship, which includes all of the veterans’ organizations and many military retired organizations and private

businesses. Although not formerly a member, the American Legion

works pretty closely with us in all of our endeavors. Our interest

is the implementation of 106–50, the Veterans Entrepreneurship

and Small Business Act of 1999, for which we were deeply grateful

to this Committee and all of the members, both presently and those

who were present at that time on the Committee for that landmark

piece of legislation for the first time, marking into law veterans

and disabled veterans as an important part of the business community and small business community.

There are approximately 4 million veteran business owners in

the United States. No one really knows how many service-disabled

businesses there are because we have never counted them, and because efforts to do so in response to a congressional mandate in

1997 were blocked by the Office of Management and Budget. However, our best scientific guess in working closely with the folks at

SBA, both in the Office of Advocacy and in veterans business development offices is that there is somewhere between 100- and

200,000 small businesses owned by service-disabled vets, and probably another hundred to 150,000 to single entrepreneurs in microbusiness if you will.

One of the biggest problems we are having with DOD is something that I have no doubt other small businesses encounter only

more so, it is difficulty in obtaining information. 106–50 was enacted into law on August 15, 1999. As of this week, we went on to

the defense Web site, DefenseLINK, and from there there is no

linkage from there to the Office of Small and Disadvantaged Businesses for information on any of the set-asides and goals.

And when you get to the SADBU website, you click on service

connected disabled vet, and it takes you to the service connected

disabled vet, which has a title and in prominent letters, ‘‘under development.’’ It is currently being developed. It has been currently

being developed for a year and a half now. We think it is time that

they step out smartly. Some of the problems that were outlined by

the distinguished individuals to my right, these five individuals,

are the problems all small businesses confront when trying to do

business with any part of the Federal Government, but particularly

with the Department of Defense.

Why are we so concerned with the DOD? It is like Willy Loman

said when asked why do you rob banks? That is where the money

is. We have more than half the Federal procurement that comes

from the five military services and other entities associated with

14

DOD. So, of course we are interested. Service-disabled veterans are

particularly interested because they are our former employer, and

it is because of our former employers that we happen to be serviceconnected disabled, and therefore there is a natural interest there.

In point of fact, not much has happened at DOD for implementing 106–50, nor has it happened at other Federal agencies. We

would ask your assistance of the Committee, both minority and

majority joining together to try and help us get the final regulations out of the council by bringing it to the attention of the President that it has been stuck there in that log jam for some time.

Three years is enough time to get a Federal regulation out on service-disabled vets.

Secondly, that the Committee call for a GAO report to examine

the priorities, the practices and the policies of DOD in regard to acquisition from disabled veterans, business owners, but also for all

business owners. It is the practices that were so eloquently elucidated by the folks to my right that affect all of the players in this

small business area. We also ask to introduce legislation that

would make sure that all of the small business requirements apply

to GSA and any other electronic way, whether it is a credit card

or otherwise including the 3 percent for service-disabled veterans.

And last but not least, that you institute by law a holdback of

1 percent of all prime or bundled contracts to see if the agreement

on subcontracting was actually met. We all are familiar with the

game where they say they are going to do it and they declare the

small business unresponsive because of some of the reasons outlined by the folks to my right. This would help all of the small business community and all votes would rise, including service-disabled

veterans.

Mr. Chairman, I thank you very much for this meeting and

would like to note one last thing. Veterans often don’t get mentioned, they do not get thought of. With all due respect to all of the

eloquent statements to my right, not a single person mentioned the

service-disabled veterans. It is really a problem with the procurement officers here in the audience as well as key players from the

various entities of the Department of Defense. You wouldn’t think

we had to strive to make these folks understand the problems that

their former employees who are struggling to make it in business,

but that is the case. And any help you can give this Committee can

give in encouraging them to do so, we would be deeply grateful for.

Mr. Chairman, thank you very much for the opportunity to be

here today.

Chairman MANZULLO. Thank you for the excellent testimony of

everybody.

[Mr. Weidman’s statement may be found in appendix.]

Chairman MANZULLO. Ms. Vela ́zquez.

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

your testimony, you talk about the Department of Defense’s commitment to small business. So let’s talk for a little bit about the

numbers of contracts to small businesses over the past few years.

In 1997, DOD awarded over 3.8 million contracts to small businesses. In 2000, that figure dropped to 2.2 million, a decrease of

over 41 percent. In 1997, DOD awarded over 185,000 contracts to

15

small disadvantaged businesses. In the year 2000, that figure

dropped to 83,000, a decrease of over 55 percent.

In 1997, DOD awarded nearly 53,000 contracts to SBA 8a program firm. In 2000, that figure dropped to 39,000. A decrease of

over 25 percent. In 1997, DOD awarded 235,000 contracts to

women-owned businesses. In 2000, that figure dropped to 132,000,

a decrease over 43 percent. So all of these decreases occurred over

a time period of fiscal year 1997 through fiscal year 2000 when

total DOD procurement increased by over $13 billion.

So Ms. Lee, tell me what specifically are you doing to reverse

this downward trend in the number of contracts opportunities for

small businesses with the Department of defense?

Ms. LEE. Ms. Vela ́zquez, as you know, we track numerous measures, including the number of contract actions, the dollars spent,

as well as the percentage, and depending upon the base, of course

they vary. From that time frame, as mentioned, we have changed

procurement practices significantly, including the cards and GSA

schedule in IDIQ contracts, so the number of transactions has decreased, and so we track both dollars, percentages and numbers of

transaction.

Ms. VELA ́ ZQUEZ. Ms. Lee, do you know that the numbers of last

year are worse?

Ms. LEE. I know there are fewer contract actions, but there are

more—— Ms. VELA ́ ZQUEZ. Fewer when we talk about dollars . $13 billion

less. Do you consider that fewer dollars?

Ms. LEE. There are more dollars—— Ms. VELA ́ ZQUEZ. Ms. Lee, I issued this in the year 1999. I am

prepared to issue another report card in the year 2001. This coming summer now. The title of this report ‘‘Failing to Meet the

Grade.’’ would you please suggest to me what the title should be

in this coming report?

Ms. LEE. I am familiar with your report and what we want to

do is meet the grade, and we have got a program in place to do

that and to focus on those and to emphasize the goals that what

we have to do.

Ms. VELA ́ ZQUEZ. So you have this report. You know very well we

have conducted here over the last 7 years so many hearings on contract bundling, and however the Department of Defense, who control 65 percent of Federal procurement dollars, 65 percent, the largest, and a year later you come here and I tell you that the number

of contracts, while the amount of Federal dollars is increasing, the

number of contracts that are going to small business firms is decreasing. And then the arrogance of the Department of Defense to

set statutory goals that are lower than the 5 percent for womenowned businesses, for example. Let me tell you, I hope that you get

this message clear. And you were the messenger here, I want, Mr.

Chairman, the Under Secretary of Acquisition here.

Chairman MANZULLO. We will ask him to come here, and if he

doesn’t want to come, we will issue the subpoena.

Ms. VELA ́ ZQUEZ. Thank you. Ms. Susan Walthall, do you think

Federal agencies that cannot meet their small business goal should

be able to bundle contract at will when it is clear that bundling is

preventing agencies from meeting their business goal?

16

Ms. WALTHALL. No, Congresswoman.

Ms. VELA ́ ZQUEZ. Do you think that having the SBA being the

final arbiter over bundled contracts makes sense?

Ms. WALTHALL. I personally think it makes a lot of sense.

Ms. VELA ́ ZQUEZ. Thank you.

Mr. Allain.

Mr. ALLAIN. Yes, ma’am.

Ms. VEL ́AZQUEZ. You refer in your testimony to a peculiar interpretation of the Small Business Reauthorization Act of 1997, which

caused your GAO protest of the Air Force Fast Track to fail. Would

you please expand on what you mean by peculiar interpretation?

Mr. ALLAIN. While I have great respect for Ralph O. White and

other members of the staff of GAO, after determining that the Air

Force justification for substantial savings which gives them the authority to bundle under SABRA, the problem came up that the Air

Force said to the GAO we have reserved now not set-aside, we have

reserved two awards for small business, and they are not set-aside,

so since we are going to award for two small businesses, therefore

the whole thing cannot be unsuitable for small businesses. It

makes sense on the surface, until you look below and see that only

the small business has statutory authority for making any size

standards determination.

What the Air Force provided the GAO with was two firms that

alleged they were small, no way to challenge since it is not set

aside, no way for them to demonstrate that they were small under

current law.

Ms. VEL ́AZQUEZ. Mr. Allain, do you believe that if the Small Business Contract Equity Act had been law at the time of your FAST,

that the result of your GAO protest would have been different?

Mr. ALLAIN. I certainly do. A good bit of the material that does

not get digested for general public, a lot of consideration was given

to our multiple award schedules, bundles. I mean, we just went

around and around and around on definitional language. The weasel word—you give a bureaucrat a weasel word, he will find it and

use it.

And you know, I personally, when I have to take my time and

spend money for legal counsel out of my pocket, and I am against

the Department of Defense, the Air Force or their minions, and

they are all getting paid a Federal salary. I resent the weasel wording. We knew what you guys intended. This has been going on in

this Committee for, as you mentioned, Ms. Vela ́zquez, for 7 years.

The Department of Defense can’t tell you today what their small

businesses do for them. They lost visibility into the lower tiers of

industrial bases, and Mr. Aldridge’s predecessor, Dr. Gansler, put

that in writing in understanding the defense business almost years

ago . They have no clue what we have to do out here.

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

come back.

Chairman MANZULLO. I appreciate that very much. Mr. Shuster.

Mr. SHUSTER. Thank you, Mr. Chairman. My question is, first of

all, a request to the Department of Defense. Could you provide the

Committee a listing of the small firms that do businesses with the

various installations around the country?

17

Ms. LEE. Yes, sir, we can draw that out of the Federal procurement data system and get you that information.

Mr. SHUSTER. My question is what were the policies in place you

say you want to make the correction and make the grade what policies or procedures are in place and are you advocating to do business in communities with local businesses what types of things are

you doing concrete.

Ms. LEE. We certainly have a broad spectrum. I think Mr.

Aldridge’s memo has a tremendous impact, and I agree with Congresswoman Vela ́zquez that the numbers in our memorandum are

our internal grading department, and at the same time, we have

issued a memorandum to the SBA asking for the 2002 and 2003

goals to be established, and they all meet or exceed the statutory

requirement. Those are the goals we are asking back from SBA.

And we have long worked and SBA is a wonderful partner, in the

years before, we used to establish the goals half way through the

year.

So that was not much of an incentive. So SBA and the DOD and

the other agencies have now stepped up, and we are establishing

these goals early. At the Department, we are actually asking for

them on a two-year cycle because some of our programs do run

long, and we want to make sure that emphasis is placed. The additional reporting by Mr. Aldrich requiring the services to meet these

target reports to him get mid year data, and then further go up to

the Deputy Secretary of Defense is a significant change in your

program, and I think it would increase the emphasis.

In addition, too, that we have training for folks that are here

like, today, the contracting officers to talk about how we do include

small businesses. We have recently been allowed per the last legislation to now have, for the first time ever, an option to have a

woman set-aside. It used to be we would try to get women involved,

but we cannot set aside the procurement statutorily. The Defense

Department right now we are not allowed to use the small business

disadvantaged price preference because we have authorization that

says if we have to meet the 5 percent goal, we cannot use that

price preference.

So the civilian agencies use that. We do not. But we do use small

business set-asides and 8a contracting, which are the price preferences that we are allowed to use. So what we have done is increase the goals, increase the emphasis, increase the training and

just try to focus and drive.

Mr. SHUSTER. On women business is the 5 percent, you haven’t

reached that. What are the reasons for that?

Ms. LEE. We have not reached it as to the best of my knowledge,

there may be one agency who has. Prior to 1 year, we had a

woman-owned goal, but we had no preference, which meant we

could do a small business set-aside; women would compete, veterans could compete. SDB’s could compete, but based on the election and selection criteria we had to make the selection on, that

basis we could not give weighted consideration to gender or service

preference because we did not have that statutory authority.

Mr. SHUSTER. Final question you talked about all the goals and

the paperwork and the training, is that occurring in the field or is

it occurring here in Washington? Are you going out to communities

18

educating small businesses and assisting them on how they get on

board?

Ms. LEE. Every one of us, including our SADBU program, is out

there talking to each other. I was actually doing a procurement fair

last Friday in the Fairfax area talking about small business and

our goals and our program. We are inculcating it in our training

program. We are also trying to with a program manager. As all

these contracting officers will tell you, we are a community and we

need the program managers or the person with the requirement to

understand that they too have to help us seek out small businesses

to participate in this and all our programs.

Mr. SHUSTER. Are you willing to send somebody to come up to

my district if we request somebody to come up?

Ms. LEE. Yes, sir, I would be happy to do personally, or we can

match you with a person that you would be most comfortable with.

Mr. SHUSTER. Thank you very much.

Chairman MANZULLO. Mr. Udall.

Mr. UDALL. Thank you, Mr. Chairman and the ranking member.

I want to acknowledge the good work you have done in bringing

this hearing to occur today. It is interesting to me, I have been

hearing some of the same concerns in my far flung district in Colorado, and this is a very serious situation, and I know Ms. Lee, as

the ranking member, suggest you are the messenger, but I think,

nonetheless, also a lot of passion that surrounds this issue, but I

will note that not only are we dealing with an issue of fairness, but

as Congressman Vela ́zquez pointed out, that there is money being

spent that could be saved and put to better uses on behalf of use

of taxpayers.

In that spirit, I have just wanted to talk a little bit about my district, and then extend a couple of questions your way. I have met

with some small business people in the district, and it appears to

them that Federal contracting guidelines, approved under Vice

President Gore’s reinventing government initiative, instituted a

past performance criteria in awarding contracts. And in short,

those who have received government contracts in the past have a

huge leg up in getting these future government contracts and the

requirement, while it is probably well attended, has created a form,

I think, of an old boy network. In my district we have a lot of new

economy efforts under way. It probably has an even larger impact

because there are often situations when a mere handful of employees that produce goods or services move down the street and form

their own venture, you have the same folks doing business with the

government one day and the next day they don’t have that potential.

Mr. Chairman, I had a letter and a number of people who have

signed on to the letter that run small businesses that I would like

to include in the record, if I might.

Mr. MANZULLO. Without objection it will be included.

[The information may be found in appendix.]

Mr. UDALL. It speaks to this particular issue. If I could, let me

then direct my question to you. Do you know the specific statute

and regulation that allows the Department of Defense to preclude

contractors from working with the DOD that haven’t worked with

the DOD before.

19

Ms. LEE. No, sir, we don’t preclude people. In using past performance, what we do is keep performance information not unlike

the business Chamber of Commerce would keep information about

a business. But what we do say is anybody who has not previously

done business with the government cannot have a negative past

performance. In other words, we say they have an opportunity and

they get what we call a no past performance available, or they can

submit performance data about what they have done in the commercial sector that is all acceptable and usable. We are just asking,

tell us about your previous customers and how your work has gone

for them and that can be a consideration in the selection. Actually

some people that have done business with the government may be

at a disadvantage because when we have those that who have not

performed as well as they could, they would have some negatives

in their record versus those who would not. We have tried to look

at it as a businessperson would as well with your percentage

money and say who is a good performer, and we should consider

that in spending the taxpayers dollar.

Mr. UDALL. It strikes me, the policy in its implementation is

being misunderstood by some of the procurement officers. And

again, when I visit with these constituents, they talk about sitting

down with some of these officers, and they have extensive experience in the area in which they’re bidding 10 years or more. And

they simply are lacking the experience working with the Department of Defense, and they have been told literally you don’t have

a snowball’s chance in working for Department of Defense.

And I know that is not what I hear you saying, but it concerns

me, and again, I look to the chairman and the ranking member, do

we need to do something statutorily to change this, or is there a

way that you could issue a policy directive that makes it clear to

rank and file contracting officers that past performance is to be interpreted in this way and not in the way that it certainly appears

to be in Colorado.

Ms. LEE. I can certainly do that and should increase—you know,

we have a lot of training to do; we have some 19,000 people in the

Department of Defense that are involved in the contracting arena,

and there is never enough training, and I think that information

and education process continues. I would be happy to address that.

Mr. UDALL. Could you please provide the Committee with a clarification of this policy directive if and when you issue it. I think it

would at least begin to move us down the road to clarify this.

Chairman MANZULLO. If you could suspend for a second, if you

could reduce your request to writing, we will put it on our small

business letterhead and then we will have you sign it, along with

Ms. Vela ́zquez, and if that is okay with you.

Mr. UDALL. Mr. Chairman, I would be happy to do that and I appreciate the offer.

Chairman MANZULLO. Could you get it to us in 5 days or so?

Mr. UDALL. We can probably get it to you in the next 4.

Chairman MANZULLO. Thank you.

Mr. UDALL. Thank you, Mr. Chairman. I yield back.

Chairman MANZULLO. Thank you, Mr. Grucci.

Mr. GRUCCI. Thank you, Mr. Chairman.

20

Ms. Lee, as the director of defense procurement, you are, I assume, very familiar with the bid aspects that go out on a variety

of different contracts, and one of the things that I have noticed,

and I come from a small business background, in fact, I have done,

in my prior life, some work for the military in pyrotechnical simulator defense items, and while the making of the item, which is

generally where the small points are or the small businesses,

whether it is a pyrotechnical guise or whether it is in a service or

whether it is in the making of whatever, a widget, the company has

a base knowledge of but we can’t seem to get past of the myriad

of paperwork and the mountain of information that has to be provided. Do you see that as an impediment to the small business

community? And is there a way to get by that?

I mean, I will give you a classic example. When we put a proposal in for the government to do some military work, the cost of

preparing the proposal before you even had a chance to be reviewed

and considered was considerable. Tens of thousands of dollars in

the cost of engineers and the cost of accountants and the costs of

attorneys and the cost of all the professionals necessary just to get

your bid in so that you can be considered. Now, small guys and

small business people and small women-owned businesses and the

backbone of our economy doesn’t have those kind of resources.

Do you see an opportunity to streamline that process, to help

with some sort of an offset to the small businesses, to at least get

their opportunity to be heard before they get discouraged and not

go forward?

Ms. LEE. Sir, streamlining is certainly at the top of our list, our

process is complex. I wish I could tell you it is very simple. What

we have tried to do—we have a new part of the Federal acquisition

regulations, part 12 for commercial items, and what it is is a

streamline list of the statutes and the requisite clauses that accompany that are required when we spend taxpayer dollars.

Right now I have on my personal agenda to see if we can export

some of that simplification to other noncommercial agreements, or

streamline the process so that we can make it easier for people to

enter. We do collect a lot of certifications, we do collect clauses, et

cetera, many of them based on our statutory framework here, most

of them based on our statutory framework, so we would be happy

to work with the Committee or individual members to say how

could we streamline that for all involved.

Mr. GRUCCI. Are you suggesting the streamlining could require

some statutory action be done by Congress.

Ms. LEE. Yes, sir.

Mr. GRUCCI. You do not have any administrative ability to make

some decisions administratively?

Ms. LEE. We do, and we are continually trying to review those.

We have reduced the number of certifications required of small

businesses because those that were regulatory, and we are continually looking. Right now we are trying to streamline government

property, and how we can make it easier for contractors to have

that property. We are looking at intellectual property to see if we

can streamline the regulations so that small businesses can maintain what I consider the heart in many of their high tech is their

intellectual property so they can continue to be competitive rather

21

than the government having unlimited rights. We are looking at all

of those things in trying to streamline the process as a whole.

Mr. GRUCCI. I will just finish up on that subject by saying, having firsthand experience with it if we have gotten through that

process and we were successful in getting the awards, had we been

able to have gotten through that process quicker, easier without detracting from the quality of the item that was to be made, the product could have been delivered to the government for substantially

less money than it was delivered to the government. And I just

think there was a lot of money being wasted in the attempt to ensure that taxpayer dollars were being spent wisely. The quest to

do that, in my opinion, is actually costing taxpayers more dollars

in the final outcome of the construction of that project. Another

question I have, and I am not sure if this is for you, and if it is

not, anyone else on the panel may feel free to answer it.

In the instance that a small business does get a contract, and for

whatever reason their bid was not right for the product, meaning

that once into the manufacturing of the item, a small business

maybe not having the opportunity to have experience with building

that item, finds themselves losing money or getting hurt on the

item, is there some mechanism that’s involved with a relook at the

bid specifications? Is there a way, short of filing bankruptcy and/

or walking away from the contract, that the government works

with small businesses?

Ms. DIAMOND. I will take the question. We provide language

training to the Department of Defense, and we have to bid on a per

hour of instruction, and these bids, these contracts are sometimes

5 years long. So it is very difficult for one to figure out in year 2000

what an hour of teaching Spanish is going to be worth, and what

an hour of teaching Spanish is going to be worth in the year 2006

as to what the labor and cost of goods is going to be. In my experience, I have been doing this for 20 years, I have never had recourse

to change my bid once it was in place.

Mr. GRUCCI. Is that the policy of the Department of Defense? Or

maybe the advocate might be in a better position to answer that

question. I see I have run past my time. Mr. Chairman, I apologize

for going over.

Ms. LEE. Sir, there are remedies, but in many cases 85804,

which is a specific extra contractual remedy, it is very difficult to

obtain. It requires a high level of approval. But generally, what we

try to do is doing just good day-to-day contract and relationship

management, and understanding what is happening and taking the

appropriate action to not only not get the contract, but amend the

contract as necessary. But just generally saying the bid was incorrect and then going back and making a change, we do not do that.

We hold people to their commitments.

Chairman MANZULLO. Thank you very much. I have one question

that I want to ask, and then I will recognize Ms. Vela ́zquez again.

Ms. Lee, you said the Department of Defense has 19,000 employees that work on procurement.

Ms. LEE. The approximate number I use for considering education training and planning is about 19,000 people, yes, sir.

Chairman MANZULLO. With that number of employees, then why

do you do contract bundling?

22

Ms. LEE. We are certainly focusing on not doing inappropriate

consolidation.

Chairman MANZULLO. I think it is a valid question. What we

hear all the time is we do not have enough employees to do the job

of procurement. What is happening is the prime contractors are

getting all the money, the small retailers that used to provide services and goods to the military and others are getting bypassed, and

then you tell us that you do not have enough employees to do the

procurement. Is that the case?

Ms. LEE. We have about 19,000 now from a little over, from almost 30,000. So we have the same workforce spending about the

same amount of dollars in a very different manner.

Chairman MANZULLO. You know, maybe we should have an oversight hearing on what all these people are doing. I am very serious,

go right to the core because so often we are told the Federal agency

doesn’t have enough people involved in procurement. And I would

much rather pay Federal salaries to make sure that procurement

is evenhanded than to do all this contract bundling and have this

man be so upset with this issue that he gets in his car when it is

100 degrees and drives from Phoenix to Washington, D.C. I guess

that is more of a comment than a question.

Ms. Vela ́zquez.

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

Mr. MCLAUGHLIN, I’m sorry if I didn’t pronounce your name correctly. First, I am glad that you found the report that we issued

last year helpful, and we did it to help small businesses for them

to see how our Federal agencies, their lack of commitment in terms

of Federal procurement for small businesses, and to deal with the

issue of contract bundling. In your testimony, you talk about the

need for agency accountability for goal achievement, so legislation

that I introduced in May includes a provision that says if an agency does not meet its small businesses and small disadvantaged and

women-owned businesses goal, it may not bundle contracts for the

next full fiscal year. Do you think this will improve agencies’ attentiveness to small businesses?

Mr. MCLAUGHLIN. I certainly think it would it be a start in the

right direction. It would even address Mr. Grucci’s comment on trying to streamline the process. One of the problems with streamlining the process is related directly to bundling. As we try to prepare these proposals that cost us the thousands of dollars that he

is talking about, it is because in many cases, this bundle covers

such a large area of the country or so many specialties. If this

could be broken down into smaller projects, then smaller businesses could spend a few thousand dollars to make application for

the solicitation.

Ms. VELA ́ ZQUEZ. Another provision in any bundling legislation requires that agencies must provide proof of cost saving before they

are allowed to bundle and equally importantly agencies must address the issue of quality. And quality will not be allowed to be less

than what the quality was prior to bundling. Do you think this will

help level the playing field for small businesses?

Mr. MCLAUGHLIN. Yes, I think it will very much so. I think the

small business can usually provide a higher quality product because we were familiar with the local problems, whether it is soil

23

problems or humidity problems that we have to resolve in the engineering process. The small company local to that area will usually

provide a higher quality product.

Ms. VELA ́ ZQUEZ. Ms. Diamond, you want to comment on that?

Ms. DIAMOND. I would agree 100 percent. Thank you.

Ms. VELA ́ ZQUEZ. Ms. Lee, in your testimony, you talk about an

initiative to have the Office of the Secretary of Defense reviewing

high dollar service acquisition. In fact, OSD performed a review of

the FAST contract and recommended against approval of the Air

Force strategy for a number of reasons, including that savings for

the FAST contract were based on expectation that a program manager would want to use FAST. Two, there was not baseline of work

to be accomplished under the FAST contract available for a cost

analysis. And third, FAST savings are based on avoidance of surcharges on an Army contract. Your testimony does not address

whether OSD’s reviews will actually be followed.

Ms. LEE. Yes, this is a new process. I think one of things that

really hit me in joining the Department about a year ago was that

we have quite a detailed process for a weapons system. Yet we are

spending a large number of dollars on systems, and we don’t have

an attendant concentration of what we are doing on these service

systems. So what we are going to do now is look at all the services

dollars, how we are spending them and where we are spending

them, and then focus on that commitment. And yes, we will follow

up and do follow-up, and document those reviews as to what action

was taken.

Ms. VELA ́ ZQUEZ. Ms. Lee, are you familiar with the audit conducted by the Department of Defense Inspector General in 1999 of

multiple award contracts?

Ms. LEE. Yes, ma’am.

Ms. VELA ́ ZQUEZ. This report points out that 62 percent of the

task orders on DOD’s multiple awards contracts were sole source,

defeating the purpose of having a multiple award contracts and

driving cost up. The report contains the recommendation that, and

I quote, to improve oversight and competition for multiple award

contracts for services. The Department needs to accomplish goals,

performance measures and strategies. Until the Department collects data and tracks the impact of policy changes, the Department

will not know if the problem is corrected. Are you aware of any

changes that were implemented by the DOD in accordance with its

own Inspector General recommendations?

Ms. LEE. We do have a program to look at the use of GWAX,

MAX, IDIQ—alphabet soup here—but the multiple award contracts. And what we are going to do is look across the Department

of Defense, match it to our Federal procurement data system, and

find out where these programs are going to be used. And then, of

course, those numbers are used in measurement of our goals towards our overall procurement goals. So we do count those transactions in the overall goal achievement.

Chairman MANZULLO. Thank you very much.

Mr. LoBiondo.

Mr. LOBIONDO. Thank you, Mr. Chairman. I apologize that I had

to leave. I appreciate the opportunity to come back.

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Ms. Lee, it is my understanding that as a result of recent concentration on the beret issue, that the DOD is reviewing its procedures on granting any waivers on the Berry amendment; that is

correct?

Ms. LEE. Yes, sir. We have changed the Berry amendment waiver process where it actually has to come up to the Under Secretary

for Acquisition and Technology and Logistics. Previously, there

were some delegations to the field, which means people are going

to really have to sharpen their pencils and focus, and it probably

will require a little more advance planning.

Mr. LOBIONDO. It is true that some of the waivers needed to be

granted are because of legitimate reasons. Often it is because small

components of a finished item are not available in the U.S. That

is my understanding. Would you comment on that? Is that correct?

Ms. LEE. Yes, in fact we recently, as recently as yesterday, completed a Berry amendment waiver at that level because we had a

small business who was manufacturing a particular clothing item

and is found that they, in fact, had some material that was not a

U.S. Component. So that small business came forward and told us

what the problems were and we had to process a Berry Act waiver.

Mr. LOBIONDO. It is my understanding that in the apparel sector,

and I have confirmed with the Apparel Trade Association, there are

few companies who have contracts dependent on being granted

these legitimate waivers. I fully support the intent of the Berry

amendment, but my concern is that we don’t throw the baby out

with the bath water. The Berry amendment is designed to protect

small domestic businesses, and I want to make sure in the spirit

of law as well as the letter of the law is honored, and Mr. Manzullo, with your permission, I would like to ask Ms. Lee to maybe

provide us with some guidelines to ensure that these small businesses, who are awaiting independent waivers, don’t get shut out

of the process. I understand for some of these companies, the clock

is ticking and time is running out, and it is of a serious concern.

So with the chairman’s permission.

Chairman MANZULLO. I can assure you, Mr. LoBiondo, we are

preparing legislation that will require that before a Berry amendment can be waived, that 30 days notice will be served upon Members of Congress. I think DLA, every time they consider waiving a

Berry amendment, they probably will contact our office so they

don’t get dragged before this Committee.

Mr. LOBIONDO. The guidelines are of some concern because the

clock is ticking, and some of these folks could find themselves in

a bad situation.

Chairman MANZULLO. What is it that you are seeking, Mr.

LoBiondo?

Mr. LOBIONDO. The guidelines that they are going to work with

for the waivers for small businesses, what these guidelines will be

so these small businesses will know.

Chairman MANZULLO. Do you have something like that to furnish?

Ms. LEE. Right now what we have is that anybody that needs a

Berry Act amendment goes to their service or buying, in this case,

DLA, Defense Logistics Agency. DLA then has to analyze the request, and they have to forward it up to the Office of Secretary of

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Defense, AT&L, for such approval for a waiver and we would follow

that process.

Chairman MANZULLO. So if there is a procedural statement or

something or guidelines that you can give to Mr.—does that presently exist.

Ms. LEE. That is the current process. I don’t know if it is written

in a letter, but we would be happy to give it to you.

Mr. LOBIONDO. If you could commit the guidelines to paper so we

would be able to share them.

Chairman MANZULLO. How much time would you need to complete that?

Ms. LEE. We should be able to do that in a week.

Chairman MANZULLO. Is that sufficient time?

Mr. LOBIONDO. That would be very good.

Chairman MANZULLO. If you could give a copy of that to Mrs.

Vela ́zquez and me also, I would appreciate it.

Mr. LOBIONDO. Just to wind up, Mr. Chairman, I understand

that the Defense Personnel Support Center in Philadelphia is

about to submit a number of waivers to you, including a waiver for

chest pieces on jackets. Apparently, there is a very small component on the chest piece which is made from a very specific type of

goat hair which cannot be obtained in the United States. I have a

letter from a constituent that is very concerned about this, Mr.

DeRossi, who manufacturers these chest pieces, and I would look,

with the chairman’s permission, to give Ms. Lee a copy of the letter, and possibly you can review the letter and promise us that you

will take a look at it and get back to me.

Ms. LEE. Yes.

Chairman MANZULLO. Could you be more specific on what that

contract is about? Did you want to get specific?

Mr. LOBIONDO. Yes, I will try to be very specific. The manufacturing small business, manufacturing defense clothing, chest jackets, there is a small component that has to be in there according

to the specification, it is a goat hair that is not available in the

United States. So in order to produce the jacket and comply with

the Berry amendment there would need to be a waiver.

Chairman MANZULLO. You would have to have a waiver.

Mr. LOBIONDO. There would have to be a waiver because this

very small component is not available in the U.S.

Chairman MANZULLO. Would you yield for a question?

Mr. LOBIONDO. Yes.

Chairman MANZULLO. Ms. Lee, if you are confronted with an

American manufacturing that has 99 percent or 90 percent American, say, 10 percent or even 1 percent foreign, and there is nobody

else in the United States that could come up to 100 percent, do you

even consider manufacturing this item in a foreign country in competition to an American manufacturing.

Ms. LEE. In this case, if we have to have an item or products,

we have a lot of foods that fall into this category, and even processing of food. The Berry amendment that requires if we have foreign content depending on what item it is, that we have a waiver

to the Berry amendment, so what we would do is look for, first, we

should ask ourselves about the requirement, and then we should

say okay if that, in fact, is the requirement, how can we—does it

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make sense to waive the Berry amendment? And you may even

have to waive it for a U.S. Firm.

Chairman MANZULLO. That’s the law.

Ms. LEE. Yes, sir, yes, sir.

Chairman MANZULLO. But do you even look outside the country

to have this requirement made overseas?

Ms. LEE. First, we would see if we could get it done with all U.S.

Mailed in the U.S. With U.S. Content.

Chairman MANZULLO. What if 100 percent is not possible? Then

you go down the line?

Ms. LEE. Then we go down the line.

Chairman MANZULLO. Is that what you are looking for?

Mr. LOBIONDO. Yes, because of specifications that this very particular, very small percentage of goat hair, which is not available

in the U.S.—— Chairman MANZULLO. What kind of a goat is this?

Mr. LOBIONDO. I would be interested in that as well. This is the

Department of Defense requiring that this be part of specification,

and it is not available in the U.S. We don’t have these type of goats

here, I guess.

Chairman MANZULLO. I guess we have our own homegrown

goats.

Mr. LOBIONDO. Ms. Lee, I will provide you with a letter.

Chairman MANZULLO. Would you like the letter to be made a

part of the record?

Mr. LOBIONDO. Yes.

[The information may be found in appendix.]

Chairman MANZULLO. Mrs. Capito, do you have a question?

Mrs. CAPITO. Yes, I have a question for Ms. Lee, please. I represent the second district of West Virginia, and I am not as familiar with those small businesses that are involved in procurement,

so I would like to ask you, if you could, provide that list to me for

my office of West Virginia firms, and if you have some firms that

maybe had expressed an interest and were maybe unable to be

meet the requirement, I don’t know if you are allowed to release

something like that to my office. That would be helpful as well.

Ms. LEE. We have a record of people we are currently doing business with. We also have a contractor registration process by which

they can indicate an interest with doing business with Department

of Defense, but we do not track individually those that bid and

were not successful.

Mrs. CAPITO. Thank you.

Chairman MANZULLO. Do you have goats in West Virginia?

Mrs. CAPITO. We have lots of goats.

Chairman MANZULLO. We can check the hair on them. The

things you learn in this Committee. I want to thank the witnesses

for your response to the excellent testimony. Ms. Lee, I look forward to working with you on changing some of these laws. As these

abuses come up it is obvious to me that you have an open spirit

and that your heart is in doing what’s in the law and doing the correct thing on it. That is your only agenda and we really commend

you for that. And to the rest of the witnesses, the testimony is powerful. We are just scratching the surface with respect to contract

bundling. We look forward to more hearings and to substantial legVerDate 11-MAY-2000 11:45 Oct 01, 2001 Jkt 010199 PO 00000 Frm 00030 Fmt 6633 Sfmt 6602 E:\HEARINGS\74086 pfrm07 PsN: 74086
27

islation coming forth on this. And I want to thank the members of

panel for being here, and this Committee is adjourned.

[Whereupon, at 11:38 a.m., the Committee was adjourned.]

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