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75–602 2001

PROCUREMENT POLICIES OF THE DEPARTMENT OF DEFENSE

WITH REGARD TO SMALL BUSINESSES—FINDING SOLUTIONS

TO PROBLEMS THAT EXIST

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

WASHINGTON, DC, SEPTEMBER 6, 2001

Serial No. 107–28

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

STEVE CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

JOHN R. THUNE, South Dakota

MICHAEL PENCE, Indiana

MIKE FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

FELIX 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

BILL PASCRELL, JR., New Jersey

DONNA M. 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 R. LANGEVIN, Rhode Island

MIKE ROSS, Arkansas

BRAD CARSON, Oklahoma

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico

DOUG THOMAS, Staff Director

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on September 6, 2001 ....................................................................... 1

WITNESSES

Gentile, Bobbie, President/Owner, Q-Mark, Inc .................................................... 4

Wright, Curtis, Acting Director of Small & Disadvantaged Businesses, Department of Defense ............................................................................................. 6

Spencer, Robert, President, Spenro Industrial Supply ......................................... 11

Hoffmann, Janice, President/Owner, Hoffmann Fabricating ............................... 14

Crandell, William, Director of Government Relations, Association of Service

Disabled Veterans ................................................................................................ 17

Kelleher, Thomas, Member, Smith, Currie & Hancock LLP ............................... 18

APPENDIX

Opening statements:

Manzullo, Hon. Donald .................................................................................... 27

Vela ́zquez, Hon. Nydia ..................................................................................... 29

Prepared statements:

Gentile, Bobbie .................................................................................................. 31

Aldridge, Pete ................................................................................................... 36

Spencer, Robert ................................................................................................. 45

Hoffmann, Janice .............................................................................................. 48

Crandell, William ............................................................................................. 53

Kelleher, Thomas .............................................................................................. 58

Additional Information:

Letter to Congressman Manzullo from Secretary Aldridge .......................... 65

(1)

PROCUREMENT POLICIES OF THE DEPARTMENT OF DEFENSE WITH REGARD TO

SMALL BUSINESSES—FINDING SOLUTIONS

TO PROBLEMS THAT EXIST

THURSDAY, SEPTEMBER 6, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Committee met, pursuant to call, at 1:10 p.m., in room 2360,

Rayburn House Office Building, Hon. Donald A. Manzullo (chair of

the Committee) presiding.

Chairman MANZULLO. Good afternoon, and welcome to this hearing of the Committee on Small Business. We should note because

of the joint session with the President of Mexico, we had to move

this from 10:00 to 1:00. And originally Secretary Aldridge was all

set to come, in fact I talked to him yesterday afternoon, and I just

wanted to read this letter:

I very much regret not being able to appear before the House

Committee on Small Business this morning. I am most grateful to

you and the Committee for accommodating the demands of my

schedule in the face of your need to reschedule today’s hearing.

I have every confidence that our Director of Small and Disadvantaged Business Utilization, Colonel Curtis Wright, will prove an

able representative in any stead. I have grown to depend on his experience and judgment in these matters.

As you know, one of my five goals is to improve the health of the

industrial defense base. I consider small businesses to be an important part of that base. I look forward to working with you, your

Committee and Congress as we grapple with these important questions.

I asked Secretary Aldridge if there is any way possible that he

could be at the hearing this afternoon. He went through his calendar in great detail with me, and demonstrated to my satisfaction

indeed the fact that he had people coming in from all across the

country on three major reviews. It was just physically impossible

for him to be here.

He again expressed his desire to come and testify, and we will

schedule another date, I think at this point it is going to be around

the first part of October, dealing again with procurement and contract bundling.

So I would like to have this letter made part of the record, and

the Secretary expresses his regrets for not being here.

[The information may be found in appendix.]

2

Chairman MANZULLO. Annually the Federal Government spends

approximately $200 billion for goods and services purchased from

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

$122 billion in prime contractor awards, or more than 50 percent

of the Federal procurement dollars.

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—you

know, this should be in the present, presently.

Continuing. Small business still has major problems with the

way the Pentagon does business. It is the new administration’s opportunity to correct those errors. These 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.

To resolve these problems there is a need for receptivity to new

thinking and new ideas, not just doing things as they were done

in the past. This hearing focuses on past problems for the purpose

of finding solutions to these problems. I trust the Pentagon will

pledge to work with Members of Congress and staff to resolve those

issues.

Thank you for participating in the hearing. I thank the audience

for coming here.

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

Chairman MANZULLO. I now yield for the opening statement of

our Ranking Member Ms. Vela ́zquez, and I trust that you had a

good August.

Ms. VELA ́ ZQUEZ. Well, I guess so, yeah.

Chairman MANZULLO. We had a tremendous hearing down in

New Mexico at Los Alamos, uncovered absolutely incredible gross

incompetence by the Department of Energy, and to the exclusion

of the people living down there, and we are in the process of working with you, I just thought that I would let you all know what

happened down there.

But it got very, very interesting and really pointed out, I think,

the disgrace that is taking place with that agency with regard to

the way it is treating small businesses, but that is another agency.

Ms. Vela ́zquez.

Ms. VELA ́ ZQUEZ. Yeah. Today it is the Department of Defense.

Thank you, Mr. Chairman.

Today is the seventh in our series of hearings examining Federal

agencies’ contracting practices. The reason we have paid such close

attention to this subject is simple. We all want to ensure fairness

and opportunity for small businesses doing business with the Federal Government. So we are here again to ask the Pentagon why

it is contracting practices are so unbalanced and so unfair, costing

small businesses $2 billion in lost business and the taxpayers untold lost savings. I hope to hear, members of this Committee, this

will not happen again, but I don’t think we will hear it, because

it has happened again over and over for years.

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What we will hear is the same old tired talk about how the Department of Defense is making an effort to reach out to and court

small businesses, but as our colleagues know, the Pentagon has

less than nothing to show for this effort.

On that point this morning, I was joined by Members of Congress

and the small business community to release score two—scorecard

two, our annual assessment of Federal procurement practices. Our

conclusions are simple and straightforward. Unfortunately, they

are also bad. Last year the government had its worst record ever

of contracting with small businesses.

In particular, the Department of Defense, the government’s largest buyer, earned a D minus. This grade placed it among our distinguished failures for its inability to meet any of its small business contracting goals. This year the Department of Defense did

not meet its small business goal of 23 percent. Contracts to small

business have declined by more than 41 percent since 1997.

Small disadvantaged business and AA program participants

fared much worse. Between 1998 and 2000, contracts to disadvantaged firms fell 52 percent. The AA program fell 30 percent.

Women-owned business did almost as poorly with a 20 percent

drop in contracts during the same time period.

Of course the Pentagon is not alone. For the first time in 7 years,

all of the Federal Government failed to meet any of their small

business contracting goals. The two main causes of these unfair

practices are contract bundling and the lack of personal commitment by officials at the Pentagon.

Bundling, as we all know, is the trend toward supersized

megacontracts that only big companies or established prime vendors can bid for. These contracts systematically exclude small business in favor of unproven theories of efficiency or economies of

scale. Not once has a government official offered proof of a single

cent saved through bundling, not once. In fact, one very limited

study commissioned by the Pentagon indicated cost savings in bundling are merely—this is the exact word—intuitive. In other words,

contract officers think that they are saving money by bundling, but

not one can actually show us the money. Moreover, the Pentagon’s

own study argued that consolidation of contracts means more subcontracts, which in turn are not monitored for small business goals.

So in the end our study may be overestimating how much business the Pentagon does with small firms, and yet the Defense Department officials still refuse to see the problem. This long-running

problem and lack of agency commitment has forced our hand here

in Congress. This year we reintroduced H.R. 1324, the Small Business Contract Equity Act. This bill would allow bundling only if

agencies met their small business goals. This will change the current system where agencies are both the jury and the court of appeals for their own disputed contracts. This bill has broad bipartisan support and was passed out of the Small Business Committee

last Congress.

I hope Congress will take up this legislation soon. Mr. Chairman,

the stakes in this debate are very high for small businesses. I hope

that the Defense Department representatives here will not simply

brush off our well-documented complaints, because this is about

4

keeping small business in business. It is only fair to let those people who want to compete and can compete.

To close I will thank the witnesses who took the time to be here

today, and I look forward to hearing what you have to say.

Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you very much.

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

Chairman MANZULLO. We are going to go in the order of Ms.

Bobbie Gentile going first, then to Colonel Wright. Ms. Gentile has

to catch a plane. If she gets up in the middle of the hearing and

leaves, it is because she is going home.

Ms. Gentile, the rules are if you see the—it is a 5-minute testimony, and if you see the green light, you are okay; yellow light, you

got 1 minute; red light is to stop. We look forward to your testimony. Could you move the mike closer to your mouth?

STATEMENT OF BOBBIE GENTILE, PRESIDENT/OWNER, QMARK, INC.

Ms. GENTILE. Good morning, Mr. Chairman and members of the

Committee—afternoon. Thank you for granting me the opportunity

to testify before you today.

My name is Bobbie Gentile, president and owner of Q-Mark, Incorporated, a small woman-owned business in Dayton, Ohio. QMark is a manufacturers representative firm that handles government procurements to companies that we represent. I have five employees, three of whom are the sole providers of their household.

I am the president of the National Association of Manufacturers

and Representatives, and I am a member of the National Federation of Independent Business.

Over the past 11 years I have expanded my business successfully. The bulk of my business’ income is based on sales to Defense

Supply Center in Columbus, Ohio. As DSCC automated their systems, I invested the money to make sure that Q-Mark had the

most current equipment necessary to handle government procurement, which was extremely costly.

As president of the National Association of Manufacturers and

Representatives, I have been hearing from small businesses nationwide concerning contract bundling. I have with me today copies of

letters that these companies have written to their Congressmen.

For years these companies have been a valuable partner to the

Federal procurement system. Now we find ourselves in the position

of being displaced due to the new initiative of contract bundling.

I have attended several meetings and have spoken at length with

numerous personnel from DSCC regarding contract bundling. If

you were to ask them today if they bundle contracts, their response

to you would be no. In order to get around this controversial subject, new names are being assigned to these solicitations, such as

third-party logistics, prime vendor, virtual prime vendor, et cetera.

All of these avoid the negative name of contract bundling.

While most small businesses agree we need to streamline government spending, I am not sure why it has to be at the expense of

the small business. The large prime contractors seem to be receiving a larger piece of the pie and then being rewarded to place a

small percentage of their business with selected small business

5

contractors. Over and over we hear from large primes that they are

decreasing their vendor base and will not accept any additional

vendors. Once again, the small business is hurt.

I brought with me today a copy of the Trident/TASCI initiative,

a solicitation that was issued by DSCC. Although it has been canceled, it is to be reissued. It contained a total of 88,000 part numbers, yet DSCC did not consider this to be a bundle. It was labeled

a third-party logistics solicitation. Had this solicitation gone forward, the majority of small businesses would have been unable to

participate. The government was requiring that industry have sufficient staff to forecast the needs of the government’s customers

and have staff available to their customers 24 hours a day, 7 days

a week. The solicitation demanded that industry originally submit

pricing on 60 percent of the part numbers listed; however, before

they canceled the solicitation, they reduced this to 40 percent.

The request for proposal was based on 2 years with option years

that would take this business off the street for 10 years. The annual dollar figure on the proposal was estimated to be $2 billion

per period or $10 billion for the life of the contract.

I have with me today videotapes of a meeting that I attended at

DSCC on this initiative. On these tapes you will hear DSCC state

that this is not a bundled contract, that 50 percent of these items

had zero demand level, and that they did not know the cost savings

that would result from this initiative. At this conference I approached one of the primes about teaming and had my business

card handed back to me.

Most recently a business-to-business conference was held by Procurement Technical Assistance Center, which is funded by DLA. At

this meeting several primes were available to discuss the teaming

concept. Some of the companies asked if small business was willing

to inventory the product and hold their price for 10 years. Another

vendor stated that they would be marking the product up 80 percent and requested that my small business give them special pricing.

Based on the information obtained at the conference, I did not

see any way small business can team with the prime contractors.

The companies seemed to want to pass the risk to the small business by requesting us to reduce our profits and stock the inventory

while they mark those part numbers up and charge the government outrageous prices.

Recently I have been advised that DSCC is in the process of reviewing for possible solicitation a new initiative called Ticonderoga,

which encompasses 100,000 part numbers. Is DOD mandating that

all procurement agencies pursue this type of business of contracting?

On behalf of the National Association of Manufacturers and Representatives, we urge you to support Congresswoman Vela ́zquez’s

bill, H.R. 1324, which will stop contract bundling. I believe that

bundled contracts will not only destroy countless small businesses,

it will reduce the industrial base, put government in sole-source positions, eliminate competition resulting in higher prices, and put

government spending behind closed doors.

Thank you for the opportunity to present before you the views of

this small business on this important issue.

6

Chairman MANZULLO. Thank you. I am also a cosponsor of Congresswoman Vela ́zquez’s bill, H.R. 1324, and thank you for your

leadership on that.

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

Chairman MANZULLO. Our next witness is Colonel Curtis A.

Wright, United States Air Force, who is the Acting Director of

Small and Disadvantaged Businesses, Department of Defense, who

came to this hearing on 1 day’s notice.

And we appreciate your coming and look forward to your testimony, Colonel.

STATEMENT OF CURTIS A. WRIGHT, COLONEL, USAF, ACTING

DIRECTOR OF SMALL AND DISADVANTAGED BUSINESSES,

DEPARTMENT OF DEFENSE

Colonel WRIGHT. Good afternoon, sir. Secretary Aldridge asked

me to relay his regrets for not being able to attend today. He asked

that his testimony be read into the record and that I be allowed

to present his oral statement to you.

Chairman MANZULLO. Without objection.

Colonel WRIGHT. Yes, sir.

The oral statement of the Honorable Pete Aldridge, Under Secretary of Defense for Acquisition, Technology, and Logistics, before

the U.S. House of Representatives Committee on Small Business,

September the 6th, 2001.

Mr. Chairman, Madam Ranking Member and members of the

Committee, I am very pleased to be with you here today. Thank

you for this opportunity to discuss the issue of small business and

its relationship to our national security.

As the Under Secretary of Defense for Acquisition, Technology

and Logistics, my portfolio oversees the largest portion of the small

business contracts anywhere in the United States Government.

I take this responsibility very seriously. I know the members of

this important Committee have spent a great deal of time becoming

experts on this critical matter. Therefore, I have been looking forward to this hearing and the opportunity to discuss this subject.

One of my jobs is to enhance our national security by bringing

forth the very best systems for our military forces. Our airmen, soldiers and sailors risk their lives daily and deserve the best products and services to support the mission. But beyond our moral obligation to them is one of cold practicality. Manpower is no longer

an advantage that we can count on in the current geopolitical environment. To mitigate their small numbers, our warfighters are

more dependent than ever before on the leverage and force multiplication of the technology and capability of their systems and

equipment.

For these reasons we cannot compromise on quality when awarding contracts. Small businesses, like large businesses, will be held

accountable for providing quality products in time to support our

warfighters. This is only fitting since small businesses are key to

the overall industrial base.

Monetary goals for small businesses are important to emphasize

their value, but goals without quality are meaningless. I will be

monitoring the performance of our small business contractors, and

7

past performance will be a factor in the awarding of future contracts.

One of the five goals I have established for myself in the acquisition community includes addressing the development and quality of

our small business contractors within the larger context of promoting the health of our industrial base. In keeping with that goal,

let me highlight a few related points. In fiscal year 2000, $48 billion of DOD procurement spending went to small business firms,

with $26.9 billion going to small business prime contractors. The

latter figure represents the highest dollar amount ever awarded in

the history of the small business program, which extends back to

1953. In 8 out of the last 10 years, DOD has met the small business and small disadvantaged business goals for prime contract

awards.

Since my confirmation in May, and in keeping with my commitment to improve the Department’s small business performance, I

have launched several initiatives. My small business reinventing

initiative emphasizes the importance of small business programs

and assigns responsibility and accountability at the highest levels

within DOD. Each military department and defense agency is responsible for annual small business improvement plans and will be

rated on its performance to the plan and established targets. Under

the new policy, the secretaries of the military departments and the

directors of the defense agencies will report semiannually to me,

and I will report semiannually to the Deputy Secretary of Defense

on the performance against the improvement plans and targets.

This initiative has established a very high bar indeed and requires

continuous improvement in key areas, especially those where Department goals are not being met.

I have increased the emphasis on small business subcontracting

in DOD, with annual reviews with leaders of our major defense

firms. Beginning this fall I will include discussion of the status of

small business subcontracting performance with each firm. I have

asked my DOD Office of Small and Disadvantaged Business Utilization to establish a small business forum that will identify and

discuss small business issues and recommend improvement actions

that I can discuss with the CEOs of major defense firms.

I have also launched initiatives to improve training, outreach

and to recognize outstanding efforts in support of small business

programs.

Here are a couple of small business success stories that warrant

mention. The first is the largest 8(a) competitive award in the history of the 8(a) program. The award was made this year by the

Naval Air Systems Command to TeamQualtec, a joint venture between an 8(a) firm, Qualtec, Incorporated, of Beltsville, Maryland,

and CCI, Incorporated, of Alexandria, Virginia. The cumulative dollar value of this contract over its projected life could be as high as

$698.5 million.

The Defense Systems Agency awarded the largest small business

set-aside in history. On 16 February of 2001, DSA awarded three

indefinite delivery, indefinite quantity contracts for the Defense Information Systems Network Satellite Transmission Services. The

three winning contractors are Artel, Incorporated, a small disadvantaged business; Spacelink, International, a small business;

8

Arrowhead Space & Telecommunications, a woman-owned small

disadvantaged business. The maximum cumulative face value for

all three contracts is anticipated to be $2.1 billion. Each contract

was awarded for a base year for 3 years with seven 1-year options.

This might possibly change the small business status of these three

winning companies.

My objective as the Under Secretary of Defense for Acquisition,

Technology and Logistics is first to support the warfighters, and

second to make the best use of the taxpayers’ hard-earned dollars

in the process. Small business is important to both of those goals,

and I believe that our record aptly demonstrates that belief. We

have done a lot, with more work yet to be done. We have been

proactive, and more initiatives are yet at hand.

Our record has been, on balance, a successful one. It is characterized by faith in the face of dizzying numbers of programs that we

wish to comply with. We have done a lot, and we will be doing

more. I look forward to working with this Committee and the rest

of Congress to make this happen.

Chairman MANZULLO. Colonel, thank you very much.

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

Chairman MANZULLO. We are advised that we have a vote that

is going to come up very soon. I am going to go a little bit out of

order here, and I want to accommodate Ms. Gentile, who has to

catch a flight real soon, and I wanted to ask her a couple of questions. And perhaps the bell will ring, then we can get back on and

resume our normal testimony.

Ms. Gentile, you had mentioned in my office about a half hour

ago about a bundled contract wherein you were outbid by a company that formed an organization or an agreement with FPI.

Would you tell us about this, please?

Ms. GENTILE. Yes. This was the same contract that I testified

against FPI at a separate hearing. MIL–C–5015G, which is a specifications for electronic connectors, has been supplied by small businesses for the last 20 years. There are five companies on this QPL,

three of whom are small businesses.

We have requested that Federal Prison Industries produce an

impact study to state—to show that this will not hurt small businesses. However, I have been trying to get this impact study since

a year ago April. They still have not produced it.

It is my understanding that there has been letters written asking

DOD or DOA not to award a bundled contract that they issued to

Federal Prison Industries for 235 part numbers against this specification.

Federal Prison Industries had teamed with Amphenol/Bendix,

one of the largest connector manufacturers in the country. They

were unable—Amphenol was unable to compete with us, the small

businesses, so consequently they teamed with the Federal Prison

Industries. In numerous cases our prices have been low, but unfortunately DLA neglected to even give us an opportunity to bid on

this contract. Further, FPI stated to this Committee that they give

90 percent waivers of all—or give 90 permanent of all of the waivers that DLA requests. My question is, why would DLA—if this is

the case, why did DLA proceed forward with this contract?

9

After our hearing here, I went and I requested from DLA and

had a sit-down meeting with six people with DSCC in Columbus.

I requested that they wait to get a copy of the impact study, to

please give us an opportunity to bid. If indeed FPI issues 90 percent of the waivers, why would they want to bundle this contract

and not give small business a chance to bid? But I was told 4 days

later that the contract was gone, they issued it to FPI, and they

felt that this would be the best thing to do. This contract was worth $1 million. There is another—this spec

makes up between 2,000 and 3,000 part numbers. This contract

was only for 235 part numbers. They have intentions of continuing

to do additional contracts on this.

Chairman MANZULLO. The price that you bid on one of these stock numbers for 233 was $11.98?

Ms. GENTILE. That is correct.

Chairman MANZULLO. How much did the government purchase

from FPI those part numbers?

Ms. GENTILE. $19.63.

Chairman MANZULLO. Another one. They ordered 50 of these con- nectors. Your bid price was $16.10, and DLA—the taxpayers paid

how much?

Ms. GENTILE. $19.03.

Mr. PASCRELL. How did that happen?

Chairman MANZULLO. How did that happen?

Ms. GENTILE. Well, the—because FPI is supposed to—I guess

there is a law written that they can go to FPI. They went ahead

and went to them and did not request a waiver. And FPI has stated if a waiver is requested, they grant 90 percent of them.

Chairman MANZULLO. Here is what we are going to do. First part

of October—I have talked to my staff today, and I will talk to the

Minority staff after this hearing. We are going to issue subpoenas

for the general—what is her name?

Ms. GENTILE. Mary L. Saunders. And it is my understanding

that there is a change of command going on there.

Chairman MANZULLO. I am going to issue subpoenas for the person who made the decision and the new people in charge. The people who actually made the decision, I want them before this Committee. We are going to put them under oath.

At the same hearing, that is the one where I want Mr. Aldridge

to appear, because I want him to see personally the outrage to the

taxpayers, that—we are being lobbied about not wanting to cut

back on the spending of the Defense Department because of the

necessary expenses that had to be made, and yet what we see here,

with the hearing on berets, and the hearing—this one right here,

government paid more money than required—what is going on?

Colonial, are you aware at all of this situation?

Colonel WRIGHT. No, sir, I am not. I will certainly look into it

when I get back to the office.

Chairman MANZULLO. I appreciate that. But what I have decided

is this: We can have these hearings on contract bundling, they are

good, but the only way to stop the abuse going on is contract by

contract, just as we did with the berets where we canceled three

contracts, stopped the foreign procurement, saved literally hundreds if not thousands of American jobs by both sides up here

10

teaming up to go after the government that has acted outrageously

again.

Again, it is the DLA. It is going to come to an end. I am not

going to request these people appear, I am going to send subpoenas. That way the Defense Department won’t come to me and

advise me on who the best witnesses are. I will tell them who we

want to testify.

Does anybody else have any questions of Ms. Gentile?

Mr. PASCRELL. Yes.

Mr. Chairman, I commend your actions, and I am—couldn’t help

but listen to Ms. Gentile.

Ms. GENTILE. Gentile.

Mr. PASCRELL. What concerns me in not only your official capacity is that—and I would like your response. Your last testimony is

very different than this testimony in the sense that the times are

different. We have lost in the last 7 months a million jobs in this

country.

Ms. GENTILE. Yes.

Mr. PASCRELL. Things are hurting. Manufacturing is hurting. It

would seem—I think that it wouldn’t take too much of logical pursuit to try to get as many small businesses involved, Mr. Chairman, in terms of military procurement. There is a lot of work

there, and industries that have been ravaged by things that I am

personally involved in, like trade.

Chairman MANZULLO. Mr. Pascrell, can I have a request? Because we are going to get a vote soon, and she has to leave, if any

Members here would just very quickly like to ask some questions,

and then we can complete her testimony, get her out and then

start with the new witnesses. Would that be okay with you?

Mr. PASCRELL. Yes.

Chairman MANZULLO. Let me recognize Ms. Vela ́zquez and

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

Ms. Gentile, you spoke in your testimony—you stated that your

company has all of the most current equipment necessary to handle

government procurement.

Ms. GENTILE. Yes.

Ms. VELA ́ ZQUEZ. What types of equipment are we talking about

here, and can you give me a ballpark figure on what kind of investment you as a small business owner have to make?

Ms. GENTILE. We have probably had to invest in excess of probably close to $15,000, $20,000. I have to pay—like EDI VANs—

$600 a month to be able to participate as they have mandated we

go to VANs. And as they continue to update their systems, we continue to update ours so that we can participate in this procedure.

Ms. VELA ́ ZQUEZ. In your testimony you talk about some of the

terms that the Department uses in place of—in place of contract

bundling; third-party logistics, prime vendor. Do you believe the

Department is using these terms to get around bundling regulations?

Ms. GENTILE. Absolutely.

Ms. VELA ́ ZQUEZ. Could you please explain?

Ms. GENTILE. I am not sure how you can call Trident a thirdparty logistics contract where there is 88,000 part numbers, and

11

small business has participated in these part numbers. If I went

through the contract, I could show you probably a hundred parts

that my companies have manufactured and sold to the government.

You have Trident coming along. I am not sure what they are going

to label Trident as—or I am sorry, Ticonderoga. That is going to

be an additional hundred thousand part numbers. You can’t call

this anything but a bundle. You are just putting different acronyms

on.

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

Chairman MANZULLO. Anyone else on the Committee have any

questions that they wanted to ask of Ms. Gentile?

Yes, Mrs. Napolitano.

Mrs. NAPOLITANO. Ms. Gentile, what would you see as a solution,

basic, simple?

Ms. GENTILE. I think for years the small businesses willing to

team with DLA, we offered to take DLA to some of our small businesses and show them that—how industry goes to market to team

with small business, let them sit down and talk about how they

have long-term contracts with small business. We talk to the commander, NAMR, National Association of Manufacturers Representatives have, on several occasions.

To date nobody from DLA has recognized that they want to go.

We offered to take them to a small business and a large business

to see how they team and how they meet their small business

goals. Still to date no one from DLA wants to go.

If DLA wants to team with small businesses, why can they not

take a percentage, instead of 88,000 part numbers, and put 200 or

a hundred part numbers on a solicitation that they know the qualified small businesses manufacture and allow them to do it? We

deal just in time right now with our large prime vendors, and we

are willing to do that with the Federal Government if they would

give us the opportunity.

Mrs. NAPOLITANO. Thank you.

Chairman MANZULLO. Okay. Let’s go back to the testimony.

Then, again, the next one would be Mr. Robert Spencer, president

of Spenro Industrial Supply. Mr. Spencer, I look forward to your

testimony. If the bell goes off during your testimony, we will deal

with that at the time.

We look forward to your testimony, and I need you to put the

microphone in front.

Can somebody check on the P.A.?

STATEMENT OF ROBERT B. SPENCER, PRESIDENT, SPENRO

INDUSTRIAL SUPPLY

Mr. SPENCER. Good afternoon. I would like to begin by thanking

Mr. Manzullo as well as other members of the panel for giving us

the opportunity to voice our concerns. My name is Robert Spencer.

I am president of Spenro Industrial Supply. I am proud and humbled to represent hundreds of small and minority-owned businesses

that are currently being excluded for competitive bids at opportunities at tax-supported defense contractors.

Since 1979, our 11 employees have worked very hard to provide

American-made products at competitive prices. We have dealt with

recessions, corporate buyouts, military cutbacks, and even on occaVerDate 11-MAY-2000 07:04 Nov 29, 2001 Jkt 075602 PO 00000 Frm 00015 Fmt 6633 Sfmt 6602 E:\HR\OC\A602.XXX pfrm03 PsN: A602
12

sion corrupt purchasing agents. Today we face our biggest threat

to competition, the bundling and sometimes we call integrated contract and purchasing agreements at tax-supported defense contractors.

For example, in 1992, Lockheed-Martin Corporation began integrating its contracts. In 1997, Lockheed awarded a multiple solesource contract to one small business, eliminating any chance for

other small or minority suppliers to participate by demanding such

restrictive and expensive requirements. Lockheed-Martin limited

participation to only one supplier. Our sales at the time were about

$120,000 per month. It dropped to zero only because of the integrated contract system.

I wanted to mention something right here. The mission statement on the Lockheed Website for small business states: The small

business program is chartered to promote utilization of small, minority, disabled, hub-zone, veteran, women-owned business, historically black colleges, minority institutions on the Lockheed team.

And now I want to show you the principal requirements on their

integrated contracts that to me are kind of counterproductive to

that.

Chairman MANZULLO. Mr. Spencer, that might be a good opportunity to stop, and we will start again with your testimony as soon

as we get back. We have one vote, so we should be back in 15 minutes. We stand adjourned until that time.

[Recess.]

Chairman MANZULLO. Call the Committee back in order here,

back in session.

Thanks for your patience. Mr. Spencer, you got truncated by the

bells. Would you like to begin your testimony anew, or do you want

to do that again?

Mr. SPENCER. Absolutely.

Chairman MANZULLO. I understand we have 2 hours before our

next vote, and I am sure you won’t be there for 2 hours. Please go

ahead.

Mr. SPENCER. Good afternoon. I would like to begin by thanking

the Chairman, as well as other members of this panel for giving

us the opportunity to voice our concerns.

My name is Robert Spencer. I am president of Spenro Industrial

Supply. I am proud and humbled to represent hundreds of small

and minority-owned businesses that are currently being excluded

for competitive bids at opportunities at tax-supported defense contractors.

Since 1979, our 11 employees have worked very hard to provide

American-made products at competitive prices. We have dealt with

recessions, corporate buyouts, military cutbacks, and even on occasion corrupt purchasing agents. Today we face our biggest threat

to competition, the bundling and integration of purchasing agreements at tax-supported defense contractors.

For example, in 1992, Lockheed-Martin Corporation began integrating its contracts. In 1997, Lockheed awarded a multiple-location, sole-source contract to one small business, eliminating any

chance for other small or minority supplier to participate. By demanding such restrictive and expensive requirements, LockheedMartin limited participation to only one supplier. Our sales at

13

Lockheed-Martin went from about $120,000 per month to zero, only

because of the integrated contract system.

The following is a list of some of the principal requirements

placed on small businesses by Lockheed-Martin: Buybacks of millions of dollars worth of Lockheed-Martin inventory as well as

warehousing of that inventory; established sales offices, warehouses and service centers at multiple locations throughout the

United States; institute expensive tool inspection equipment and

hire inspection employees at each of these service centers; provide

total computer interface between Lockheed-Martin facilities and

each service center; invoice goods and services once a month only.

In these integrated contacts, business must provide a quote of approximately 15,000 to 33,000 line items, many of which are specials. We estimate the cost to quote these integrated contracts of

at least $35,000 to $50,000.

Numerous expensive requirements in addition to this list have

made it financially impossible for small and minority-owned businesses to compete. Each year competition steadily decreases while

the incumbent supplier becomes more and more monopolistic.

Lockheed-Martin valued their 1997 5- to 10-year supply contract

at $9 million per year. Now, with the F–22 award of $90 billion

and a potential JSF program of $200 billion, a great deal of American tax dollars is at stake.

Historically competition has brought out the best in Americans,

while monopolies have proved damaging to business and society as

a whole. Boeing bidding against Lockheed-Martin, Bell Helicopter

bidding against Sikorski encompassed the value of competition and

economics much like the bidding between distributors at our level.

These practices are the basics for American business. They enable

the buyer to receive the best product at the best price. Due to these

restrictive requirements, we at Spenro ask for an immediate and

equal opportunity to conduct business at tax-supported aerospace

companies.

The following is a list of suggestions concerning some of the immediate actions we feel should be taken to correct these injustices.

Immediately end all integrated contracts at tax-supported defense contractors to protect the stability of affected small and minority businesses, especially the F–22 and JSF programs; give preferential treatment to excluded companies for one year in order to

stabilize their finances; allow excluded supply companies the right

to protest unjust exclusion to an unbiased panel that will provide

appropriate measures to resolve the situation; establish policies,

enforcement and education of all procurement employees concerning criminal punishments for receiving any type of kickback;

instruct defense contractors to rotate buyers every 2 years so procurement will be based on product quality, price, and delivery rather than on personal relationships; in addition, eliminate sole source

products wherever possible; set a 33 percent ceiling on the amount

one distributor can receive on any one product category; establish

a new and logical system for classifying businesses’ size by designating a business with 25 or fewer employees as a true small business rather than the current unrealistic mark of 500 or fewer employees.

14

In conclusion, I strongly believe excluding small and minority

owned businesses from competing as tax-supported defense contractors violates the very spirit of Federal statutes concerning the participation of small businesses. Further, it is imperative that

changes be made to contract requirements, not only to protect

small businesses from exclusion and discrimination but also to

keep the larger firms from creating monopolistic environment in

the aerospace industry.

Thank you once again for listening to our concerns. I hope you

will consider the recommendations which we so strongly believe.

Without your immediate help, many more small family-owned companies will cease to exist.

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

Chairman MANZULLO. Thank you very much. Let me again make

the offer to the members of our small business community that if

you feel during the course of bidding on a contract that you are

being treated unfairly by a government agency, do not hesitate to

contact our Small Business Committee office and/or the Office of

Advocacy of the Small Business Administration. That is a group of

about 13 attorneys set up in the SBA to deal specifically with violations they believe have been occurring against small businesses. So

don’t hesitate to contact us on it.

Mr. SPENCER. Sir, one thing. A lot of times now with the integrative contracts, we never know when they are up for bid. It is totally

going straight to the integrator or the company that is carrying the

bundling contract. So we have no notice of when those things happen at all.

Chairman MANZULLO. Okay. The next witness is Janice Hoffmann, President and owner of Hoffmann Fabricating, on behalf of

herself and WIPP, Women Impacting Public Policy. We look forward to your testimony, Ms. Hoffmann.

STATEMENT OF JANICE HOFFMANN, PRESIDENT AND OWNER,

HOFFMANN FABRICATING, ON BEHALF OF WIPP, WOMEN IMPACTING PUBLIC POLICY

Ms. HOFFMANN. Thank you very much. Good afternoon, Mr.

Chairman and members of the Committee. Thank you for the opportunity to appear before you today to discuss my experiences

with Procurement with the Department of Defense.

My name is Janice Hoffmann. I am president and owner of Hoffmann Fabricating, a contract cut and sew business in Wichita,

Kansas which employs 16 people. I am also a founding partner of

Women Impacting Public Policy and a member of the National Association of Women Business Owners. I have joined those organizations to make sure that my voice is heard.

I am a job shop, meaning that I bid on new opportunities that

are in my North American Industry Classification System code, or

SIC, which most people are familiar with. I don’t have a product

to sell. I sell the service of building products to the specifications

and drawings of my customers, which is the Department of Defense.

I have several years of experience in this type of business and

started this company in September of 2000. I would like to say first

that there have been improvements in the last few years for me in

15

dealing with the Department of Defense, and that would be the

Procurement Gateway. If anyone is familiar with that, you know

it is kind of high tech Internet and it does speed the process up

to some degree. However, there are some areas that deal with people that I would like to see more change in.

I have had many opportunities and I spend many of my days on

the phone with small business officers and contracting officers at

the procurement centers for the Army Tank-Automotive and Armaments Command, Defense Supply Center Richmond, Defense Supply Center Columbus, and Defense Supply Center Philadelphia. I

have in the past asked the question of these buyers how does being

a woman-owned business weigh in the awarding of a contract? In

every instance the answer was that while it is supposed to, it

doesn’t make any difference at all. One small business—this is the

office, not the contracting officer—told me that if a woman-owned

business gets a contract it is strictly happenstance. Without the

tool of restrictive bidding, the goals that do exist make no difference and the fact that there is no way to award contracts to a

woman-owned business other than luck is not an isolated attitude.

I recently attended Senator Ike Skelton’s Procurement Conference in Missouri. It is a nice conference. I was anxious to make

contact with large companies for subcontracting opportunities. I

met a lot of large contractor representatives like Boeing, Lockheed,

various companies like that. I gave out lots of business cards, letters of abilities, and shook many hands. All of these representatives seemingly were very excited to meet a woman-owned business, and I am also HUBzone. That is good for them as well. Since

the conference I have contacted their offices to remind them of me.

The only one I ever heard from again was Motorola, who sent me

a letter saying thank you for your interest and we will keep you

in our file for a year. That was an expensive conference for me to

go to.

In another instance, I recently prepared a large quote for a very

large aerospace company which required a great deal of engineering time, and as you heard this gentleman say, it is expensive.

They were most anxious to get my quote. I declined on the first request because it was going to cost me a lot of time and money to

do the engineering. I declined the second time. Then they called me

again and said are you a woman-owned business? And I said yes.

I thought, hey, they really want to work with a woman-owned business. So I did it. We did the quote and got it to them on time, making the deadline. Since then I followed up with the buyer on the

phone several times. His response was that I wasn’t the lowest bidder. Well, you don’t always have to be the lowest bidder to get the

job. His response was that I couldn’t manufacture all of the items.

He knew that when he contacted me that I was not able to manufacture all of them. Then he said, ‘‘And I just don’t know what I

am going to do with this.’’ If he went with me, he would have to

go through a quality check of my facilities, et cetera. He had many

excuses, but my gut feeling is that he satisfied his need to get a

woman-owned business quotation, that he was just X-ing the box.

He told me he just didn’t have time to go out looking for new vendors. I don’t have the time or the money to quote for companies

that are X-ing a box.

16

The pool of products that I have the ability to quote on continues

to shrink. Federal Prison Industries takes a good share of the work

that I could do. Under the Javits, Wagner, O’Day Act, the National

Industries for the Severely Handicapped and the National Industries for the Blind also take a chunk. Once these items enter those

domains, they are usually gone forever to small business. We as a

Nation have already lost millions of jobs in the sewing industry to

Latin American countries and Asia. Small businesses have suffered

greatly because of this. It is tough enough to compete with a foreign industry. It is even more frustrating to compete with your own

government, using your own tax dollars to contribute to your own

demise.

I also firmly believe that the Department of Defense Procurement should be done with American owned companies, and I am

not just referring to the beret.

Predatory pricing is also an issue in some cases. Well-established

large companies with deep pockets are able to keep prices so low

that it can be impossible for a small business to successfully bid

and make a profit.

These are just a few of the issues that I face as a woman-owned

business. There aren’t many women in manufacturing because it is

a very difficult business at best and extremely hard to make a profit when doing business with the government. Five-year contracts

are very difficult.

Do you want me to stop?

Chairman MANZULLO. Well, if you could take a minute and sum

up.

Ms. HOFFMANN. Another thing is I heard from one Supplier Diversity Officer in a large company that I think is very interesting

and I hope you will too. Word is finally getting to people that Congress is serious about women-owned business. Some small companies are transferring stock and ownership to a woman, hoping it

will be sufficient to get woman-owned business contracts. I believe

there should be restricted competition for women-owned business.

Congress obviously agrees, hence the setting of goals.

I believe women-owned business must be certified. Paper ownership is not the same as running the company. I believe public and

private sector must include women-owned business in contracting

plants and it must be enforced. I think you need to look closely at

agencies such as the Federal Prison Industries. American companies should be doing the work of the Department of Defense.

These are big issues to me, and I have others, such as sole

source, drawing availability, source approval, budget holdups, holding prices for long periods of time and more. Small business is just

that. We are not banks. If we are going to keep the doors open, the

jobs have to come at a reasonable cost at a reasonable time.

The U.S. Business Administration statistics show that women

are starting businesses at twice the rate of all business and actually staying in businesses——

Chairman MANZULLO. Janice, we are going to have to—— Ms. HOFFMANN. Fine.

Chairman MANZULLO [continuing]. So we will have time for questions. I appreciate your testimony. Every time we have a hearing,

it is totally amazing.

17

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

Chairman MANZULLO. Our next witness is Dr. William F.

Crandell. Dr. Crandell, you testified before us in the past. I look

forward again to your testimony. He is with the Association for

Service Disabled Veterans. I look forward to your testimony, Doctor.

STATEMENT OF DR. WILLIAM F. CRANDELL, PH.D., DIRECTOR

OF GOVERNMENT RELATIONS, ASSOCIATION OF SERVICE

DISABLED VETERANS

Mr. CRANDELL. Thank you, Mr. Chairman, Ranking Member

Vela ́zquez. The Association for Service Disable Veterans is glad to

be back. We commend you for holding this important hearing today

on the procurement goals of the Defense Department for small and

disabled business. ASDV’s goal is to——

Chairman MANZULLO. Could you pull the microphone up, Doctor?

Thank you.

Dr. CRANDELL. Working? Okay.

ASDV’s goal is to create opportunities for service disabled veterans to achieve and maintain their rehabilitation through economic participation. Several Federal agencies have set procurement

goals for contracting and subcontracting with service disabled veteran-owned businesses below the 3 percent minimum set in Public

Law 106–50 2 years ago. The Department of Defense has given

itself that minimum 3 percent goal but no more than that.

Ms. Napolitano asked the question about what to do. We would

like to see accountability with regard to the implementation of the

3 percent procurement goal for service disabled veterans and others

in Public Law 106–50. Put specific goals in the performance standards of the bureaucrats—Federal procurement officers and their supervisors. America’s veterans want to see a game plan for meeting

DOD’s 3 percent goal in 2002. We want it to be part of a straightforward strategic plan.

Most Defense procurement is done by separate services. Still the

DOD as an umbrella agency must aggressively set and meet its

procurement goals in accord with the law. The Secretary of Defense

must make certain the separate Departments of the Army, Navy,

and Air Force do the same. How has Defense communicated its 3

percent goal to its installations and agencies? Has DOD collected

any data yet in compliance with Public Law 106–50?

We looked at the Defense Small and Disabled Business Utilization Web site under its heading for veteran-owned small business

programs. This is the screen that we got. It has the phrase ‘‘veteran-owned small business program’’ three times. They even have

a logo, and then it says this page is currently being developed. We

don’t believe that. We would like to see a time line for developing

this program. It needs to be an active part of the Web site.

DOD’s obligations to the men and women it exposed to danger

and disability set a very high bar. We suggest Defense challenge

itself and the rest of the Federal Government by setting a DODwide goal of 4 percent for contracting and subcontracting with service disabled veteran-owned businesses rather than the bare minimum 3 percent.

18

Mr. Chairman and Madam Ranking Member, we want the Defense Department to serve its veterans in the same good faith it

got from us. Let us work together and fully implement the law this

year. Thank you.

[Dr. Crandell’s statement may be found in appendix.]

Chairman MANZULLO. Thank you, Doctor. Our final witness is

Mr. Tom—is it Kelleher?

Mr. KELLEHER. Kelleher.

Chairman MANZULLO. Kelleher, with the firm Smith Currie &

Hancock. And Mr. Kelleher is speaking on behalf of the Associated

General Contractors of America. I look forward to your testimony.

STATEMENT OF THOMAS J. KELLEHER, JR., MEMBER, SMITH

CURRIE & HANCOCK, LLP, ON BEHALF OF ASSOCIATED GENERAL CONTRACTORS OF AMERICA

Mr. KELLEHER. Thank you. I am the senior partner and managing partner of that law firm, but today I am presenting testimony on behalf of the AGC, 80 percent of whose members are

small businesses.

I am going to deviate a little from my written testimony and try

to summarize it. The written testimony addresses five issues.

Three of them deal with procurement policy. Two are money issues.

The procurement policy issues are interesting because I started out

in government contracting by attending Government Contracting

Officers School at Fort Lee, and then I taught that subject for the

Army for 3 years during the Vietnam War.

At that point in time construction was invitation for bids, hard

dollar bids. In the early seventies, a client of this firm was terminated for default on a project in North Carolina by the Bureau of

Prisons, the same day it was the low bidder on a large Corps of

Engineers project in Georgia. There was a question about how

could you award that contract? The response was they were low,

they had a bid bond, and they were responsive. That is the end of

the evaluation.

In that 20-year period, Mr. Chairman, there has been a revolution in how DOD conducts construction procurement. Today 65 percent of construction procurement is done by design build, a collaborative effort between the agency and the contractor. Previously the

government obtained a design, put it out for lump sum bid, and

then maybe it worked and maybe it didn’t. Only 10 percent of the

procurement dollar today is spent on IFB’s, sealed bids; 90 percent

is negotiated. Past performance evaluation has changed how contractors are evaluated. It has changed how they are selected.

All change is not bad. My point is this. There has been a revolution in how DOD and other agencies in the Federal Government

conduct construction procurement. We don’t need new initiatives

today. What we need particularly for the small businesses is a period of assimilation where both the contractors and the agencies

get used to this revolution, and there needs to be a series of education programs conducted particularly for small businesses on how

to do business with the Federal Government in a new environment.

Many of our clients are small businesses. They are wary of dealing with the Department of Defense. They are concerned about the

quality standards, they are concerned about the safety standards.

19

Both of those are important. Neither should be ignored. What they

need to understand is that the government is a more—one, it is financially solvent in an area that we are going into that may not

see financially solvent firms in the private sector. The contract vehicle is basically balanced. There needs to be a program to educate

contractors on this new process and way of doing business so they

will enter into the marketplace and compete. That is important.

Secondly, the two funding issues. There has been discussion of a

no contingency funding to DOD construction projects. I think that

is a mistake. In my experience when we represent contractors in

disputes with this gentleman’s agency, Colonel Wright’s agency,

when there is a problem, the way to make it a worse problem is

to delay the resolution. If there is a differing site construction

where the ground conditions are different than the way everybody

anticipated, the way to have that solved quickly is to have the

funds there as a contingency so that the problem can be addressed.

If it sits unattended for months, then they hire me. That is not

good for the government. It is not good for the contractors.

So those are the areas that I think need to be addressed.

Lastly, outsourcing. Contractors have the ability to mobilize resources, engineers, equipment, talent, to address construction

needs from site to site. It would be a poor use of the government’s

limited resources to keep that inside the government and have that

capability at each and every installation. Contractors know how to

move people. They know how to move resources.

I thank you for your attention.

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

Chairman MANZULLO. Thank you. All of the statements that are

prepared will be made part of today’s record.

I have a couple of questions. First I want to ask Mr. Spencer, I

was very troubled by a statement that you made on page 1 of your

statement about Lockheed Martin places a requirement on small

businesses to buy back Lockheed Martin equipment. Could you elucidate on that?

Mr. SPENCER. From what I understand, Lockheed Martin had a

huge inventory of supplies and when the integrated contract was

up for bid as part of the contract, they were requiring the businesses who quoted that contract to agree to take back all of this

inventory, and it was millions of dollars worth of inventory, and

they would have the opportunity, I believe, over 18 months to buy

it back, but they got it out of their own stores. I don’t know if there

was an accounting reason they did that or whatever. But that fact

was pretty—for small business would be very difficult to handle.

Chairman MANZULLO. Where did this occur?

Mr. SPENCER. Where did it occur? Well, in Fort Worth that we

are familiar with, it occurred in packing it up and shipping it——

Chairman MANZULLO. What exactly was the inventory?

Mr. SPENCER. As far as I know, it was like cutting tools and air

tools and maintenance tools, the kind of things we normally deal

with on a day-to-day basis.

Chairman MANZULLO. Is this illegal to have a tie-in agreement

like this?

Mr. SPENCER. I do not know whether it is or not.

20

Chairman MANZULLO. Colonel Wright, are you familiar at all

with the situation or anything like it?

Colonel WRIGHT. No, sir, I am not. But we would certainly be

willing to take a look at it, particularly if it involves a government

contract.

Chairman MANZULLO. Mr. Spencer, if you could write a letter to

this Committee, give it as much detail as possible, we will get that

over to Colonel Wright to get an opportunity to look at it. Is that

fair enough?

Mr. SPENCER. Absolutely. I will get more details on it and get a

letter to you.

Chairman MANZULLO. Thank you. Colonel, I have got one question to ask you, and again thank you for coming in on one day’s

notice. You made a statement that there had been a competitive

award to an 8(a) business. This appears on the bottom of page 7

of Secretary Aldridge’s statement. Do you want to dig that out? It

is a statement that you read.

Colonel WRIGHT. Yes, sir.

Chairman MANZULLO. It talks about there was the largest Section 8(a) competitive award made to TeamQualtec, a joint venture

between the 8(a) firms Qualtec, Inc., of Beltsville and CCI of Alexandria, indefinite delivery, indefinite quantity, and it could total as

much as $698.5 million.

Now that is a lot of money, and I guess my question is, is this

really a small business, and if it is a small business, why so much

was awarded just to one bidder?

Colonel WRIGHT. Sir, it has the potential of going up to that

amount. The contract was actually awarded on the first of March

and to date they placed orders against it up to $15,600,000, and

there are some additional awards before the end of this fiscal year,

would probably end up around $19 million.

Chairman MANZULLO. What exactly is it? Is it services? Are you

aware of it? Or is it a product? Oh, there it is. Technical and Management Logistics Service. Do you see that on the bottom?

Colonel WRIGHT. Yes, sir. That is correct.

Chairman MANZULLO. Were there other bidders involved for this

that you know of?

Colonel WRIGHT. Sir, I will have to get back with you on the specifics on that.

Chairman MANZULLO. We have some people in the audience who

are saying yes. Are you with the Colonel?

Ms. BROOKS. It was a competitive award.

Chairman MANZULLO. Could you identify your name for the

record, please?

Ms. BROOKS. Teresa Brooks from Defense Procurement.

Chairman MANZULLO. Teresa Brooks?

Colonel WRIGHT. Teresa Brooks from Defense Procurement.

Chairman MANZULLO. I guess my question was why was this

awarded to one and not to several? Is there a reason for that?

Colonel WRIGHT. Sorry, sir. What we will do is do the research

and get back to you.

Ms. VELA ́ ZQUEZ. Mr. Chairman?

Chairman MANZULLO. Sure.

21

Ms. VELA ́ ZQUEZ. You come here and read the testimony and you

are bragging about this contract. You know we are going to be asking questions; so don’t come here and say you don’t know the details or if that is the reason why you are here because you don’t

know anything about any question that we are asking.

Chairman MANZULLO. Colonel, who would know this information?

Colonel WRIGHT. Sir, I will get with the Director of the Navy

Small Business Office and I will have the details for you, sir.

Chairman MANZULLO. Did someone else raise their hand? Could

you please state your name for the record?

Mr. FOREMAN. My name is Tim Foreman. I work for Colonel

Wright. I am the Deputy Director in OSDBU and the Office of Secretary of Defense. It was a joint venture. It was an initiative with

two firms. One was Qualtec, Inc., out of Beltsville, Maryland, and

the other one was CCI, Inc., out of Alexandria, Virginia. They

joined together and bid on this requirement. They won it competitively against other 8(a) bidders. I don’t know who the other bidders were, but it was an 8(a) reserved requirement.

Chairman MANZULLO. I would like to know why such a large contract was awarded to one company.

Mr. FOREMAN. It was two companies, sir, a joint venture.

Chairman MANZULLO. Or two companies. Does anybody else on

the panel want to comment on that? Does this seem strange?

Mr. FOREMAN. I think it is more than a small business.

Chairman MANZULLO. How many employees do these companies

have? Does anybody know? Colonel, do you have any idea?

Colonel WRIGHT. No, sir. But I will—— Chairman MANZULLO. You have no personal knowledge of this;

correct?

Colonel WRIGHT. Correct, sir.

Chairman MANZULLO. Do you know the names of the people at

DOD that would have personal knowledge of this?

Colonel WRIGHT. Yes, sir.

Chairman MANZULLO. Could you have them make an appointment to see me and Ms. Vela ́zquez in her office as soon as possible?

Colonel WRIGHT. Yes, sir.

Chairman MANZULLO. Bring with them a copy of the contract

that was awarded and any other proposals, any complaints that

were filed by the companies, the fact that only one contract was

given.

Colonel WRIGHT. Yes, sir.

Chairman MANZULLO. Then I know nothing about this. There

may be an explanation that you could only make one award. In

other words, you could only have one company getting the total

award. We just need to know more about it because I want to see

if this is—it just seems very unusual to have one contract with that

amount of money on it.

How many contractors were involved in this? You don’t know?

Okay.

Have you asked your questions yet? You haven’t?

Ms. VELA ́ ZQUEZ. No.

Chairman MANZULLO. Why don’t you go ahead and then we will

recognize Mr. Chabot.

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Ms. VELA ́ ZQUEZ. Colonel Wright, I have a lot of questions but I

am not going to ask them to you because I guess I know the answers. I will wait until October when we are going to have another

hearing, but I could ask one or two questions to you. First, on June

20, we held a hearing and as a result of that hearing Chairman

Manzullo, Congressman Mark Udall, and myself sent a letter to

Ms. Deirdre Lee regarding contractor past performance, and the

letter was dated July 11. As of this day, we haven’t received a response, and I ask, Mr. Chairman, that a response be provided to

us by close of business next Friday.

Chairman MANZULLO. We will make a copy of this letter and,

Doug, do you know if we received an answer to this dated July 11?

Colonel WRIGHT. Sir?

Chairman MANZULLO. Yes.

Colonel WRIGHT. I have just been handed a note here the Defense Procurement entered an interim response and the final response was delivered this morning.

Ms. VELA ́ ZQUEZ. Because we were holding this hearing today?

Chairman MANZULLO. There was an interim response? What is

that?

Ms. BROOKS. There was an interim response that said—— Ms. VELA ́ ZQUEZ. All it says is that you are going to be sending

us an answer. Well, that is not the answer that we are seeking.

Ms. BROOKS. I understand. We have sent out that response.

Chairman MANZULLO. You have a request. How much time do

you want to have this answered?

Ms. VELA ́ ZQUEZ. Next Friday.

Chairman MANZULLO. How about this. Let us have it at my office

and in your office by Monday at 5:00 o’clock.

Ms. BROOKS. I believe it was delivered this morning.

Chairman MANZULLO. The letter was delivered or the interim response?

Ms. BROOKS. The final letter.

Chairman MANZULLO. The final letter was delivered when?

Ms. BROOKS. This morning.

Chairman MANZULLO. Does anybody have a copy of the letter?

Folks, you are preparing for a hearing. This is embarrassing. Could

you have somebody get a copy of the letter? Do you want to call

your office?

Colonel WRIGHT. Yes. We will get you a copy of the letter.

Chairman MANZULLO. I want to see the letter before you leave.

So if you would work with Mr. Thomas, our Staff Director, we will

get it faxed here. I am not going to close the hearing until the letter comes.

Ms. Vela ́zquez.

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. Colonel Wright, in

your testimony you state that under DOD’s new policy to improve

small business performance the Secretaries of the military departments and Director of the Defense Agency will report semiannually

to the Under Secretary and the Under Secretary will report to the

Deputy Secretary of Defense.

Colonel WRIGHT. Yes, ma’am.

Ms. VELA ́ ZQUEZ. You stated that. My question is what does all

of this reporting mean if the goals still aren’t met?

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Colonel WRIGHT. Ma’am, what it does, it raises the level of responsibility and accountability from the lower levels in the Department of Defense up to the service Secretaries. The service Secretaries will, in turn, brief Mr. Aldridge, and if the goals are not

being met and satisfied, he in turn will ask the military departments and—the other Defense Agencies to submit a plan to correct

any goal deficiencies the USD (AT&L) will in turn brief the Defense Secretary.

Ms. VELA ́ ZQUEZ. Let us take, for example, the 5 percent goal for

women-owned businesses. What I am trying to tell you is that if

there is not a serious commitment from the top down to meet the

goal, then it is not going to happen. And it doesn’t mean—and it

doesn’t matter what is the channel of where they have to report

and what the person is going to say because I have a memo that

Under Secretary Aldridge issued on May 16 that says that even by

fiscal year 2006 the DOD doesn’t plan on achieving the 5 percent

women’s business goal. So for you to come here today and tell me

that you are now implementing this new policy to improve small

business performance, well, it is not going to happen if the Under

Secretary Aldridge is stating in a memo that by the year 2006 the

Department will not achieve such a goal.

Colonel WRIGHT. Ma’am, we have areas that we realize we have

not been meeting the goals our Small Business Reinvention Initiative raises the level of accountability to the service Secretaries to

get them involved and making sure they are held personally accountable for not meeting those goals.

Ms. VELA ́ ZQUEZ. So how could you explain then that Under Secretary Aldridge issued a memo that says on May 16 that by the

year 2006 the Department will not meet the 5 percent women’s

business goal?

Colonel WRIGHT. What we recognize in the Department, there

are obviously areas we need to improve in and the women-owned

business is one area.

Ms. VELA ́ ZQUEZ. No kidding.

Colonel WRIGHT. We have initiated a number of outreach programs in terms of making contact with major prime contractors.

We go around the country having a number of forums to educate

various women groups about the opportunities within DOD as well

as we have our Web site that addresses some of these issues.

Ms. VELA ́ ZQUEZ. I guess that if we ask the question we cannot

get an answer, and we might have to wait until the next hearing

where we will be able to ask Under Secretary Aldridge.

Ms. Hoffmann, in last year’s reauthorization, the small business

reauthorization bill, we were successful in getting a program in

that allowed restricted competition from women-owned businesses

in those industries in which women-owned businesses are underrepresented.

Do you believe this program will be helpful to your business?

Ms. HOFFMANN. Absolutely. Absolutely.

Ms. VELA ́ ZQUEZ. What kind of enforcement would you recommend

for prime contractors to ensure that the women-owned business

goal is achieved?

Ms. HOFFMANN. Well, I think there are definitely women-owned

businesses out there, there is no shortage. But to ensure it is truly

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a woman-owned business, they are going to have to certify them.

I go to my factory, I load a truck, I look for business opportunities.

I don’t come in every other day and do accounting work or something. I am truly a woman-owned and woman-run business, and

they are going to have to certify.

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

Chairman MANZULLO. Mr. Chabot.

Mr. CHABOT. Thank you, Mr. Chairman. Colonel Wright, could

you elaborate on Secretary Aldridge’s plan to reinvent the small

businesses program?

Colonel WRIGHT. Yes, sir. Sir, what the plan does, it raises the

importance of small business performance to the highest levels and

it holds the senior leadership in DOD accountable for its performance. This initiative requires each of the military departments and

the other defense agencies to submit a small business improvement

plan. The plan will be reviewed by Mr. Aldridge and if the military

departments or Defense agencies is not meeting those goals, then

they will discuss their improvement plan with Mr. Aldridge. He in

turn will brief the Deputy Secretary of Defense.

So it raises the level of accountability I believe to the very highest levels in the Department and for his review and for his oversight.

Mr. CHABOT. Thank you. Could you also comment on how the

mix of products and services that the Department of Defense buys

impacts on small business opportunities?

Colonel WRIGHT. Yes, sir. The mix of products and services that

DOD procures is based on the needs of the Department, and they

change from year to year. Some years the product mix is more favorable to the small business community and in some years it is

not. Notwithstanding that, DOD awarded $26.9 billion in fiscal

year 2000 to small business prime contractors. So there is a commitment on the part of the Department to award contracts to small

businesses to the maximum extent practical.

Mr. CHABOT. Thank you. And, finally, could you give the Committee some more detail on how the Department plans to do more

outreach with small businesses owned by women as we have discussed and also businesses owned by veterans?

Colonel WRIGHT. Yes, sir. One of the things we have done in the

Department is to work very closely with the Small Business Administration. We are also working with the Department of Commerce and with major prime contractors to get the word out. In addition, members of my staff just recently held a meeting with a

number of service disabled veterans. We invited them into our office. We listened to their concerns and their needs. One of the

things that we are also focusing on is developing a database so we

will be able to identify the number of service disabled veterans as

well as the products and services they provide. So we have got a

number of proactive initiatives ongoing.

Mr. CHABOT. Thank you very much. Any other members of the

panel, are there any other points that were either vague or questions that you thought we should have asked that we didn’t? Is

there anything there that is burning that you would like to say?

If not, I will yield back my time to the chairman. Thank you.

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Chairman MANZULLO. I appreciate it. It gets really frustrating

when we send a letter out and it gets answered supposedly the day

of a hearing. I am not going to tolerate this any more. Who is in

charge of Legislative Affairs at the Department of Defense? Do you

know the person?

Colonel WRIGHT. Sir, I don’t know the name, but we have an individual here from Legislative Affairs. He just stepped out. He

would be his direct supervisor.

Chairman MANZULLO. Do you know his name?

Mr. FOREMAN. No, sir.

Chairman MANZULLO. I would like whoever is in charge of Legislative Affairs to make an appointment to see me in my office. I am

not going to put up with this any more. I send out a request for

a letter. It gets supposedly answered by courier the day of the

hearing. Our office doesn’t have a copy of it. You come to the meeting today not prepared with a copy of the letter, and this is supposed to be the liaison between the United States Congress and the

Department of Defense. But whoever that is in charge of Legislative Affairs I want them to make an appointment to see me in my

office as soon as possible.

Colonel WRIGHT. Yes, sir.

Chairman MANZULLO. I also have a suggestion. Colonel, on the

testimony on page 4, do you have that in front of you? Let me know

when you are there, on the bottom. This is in Secretary Aldridge’s

statement.

Colonel WRIGHT. Yes, sir, I have it.

Chairman MANZULLO. It says ‘‘My initiative also increases emphasis on small business subcontracting. DOD holds annual contractor reviews with the leaders of the major defense firms. Beginning this fall, I will include discussion of the status of small business subcontracting performance for each firm. I have tasked the

DOD Office of Small and Disadvantaged Business Utilization to establish a small business forum that will identify and discuss small

business issues and recommend improvement actions that I can

discuss with CEOs of major Defense firms.’’

Let me just throw this out for your consideration. Unfortunately

what happens, Congress passes a law, an agency attempts in good

faith to carry it out, there is a problem, and then Congress is in

the role of oversight. There is just something missing. Let me make

a suggestion. With regard to this small business forum, that is

within your purview; is that correct, Colonel?

Colonel WRIGHT. Yes, sir.

Chairman MANZULLO. That perhaps you might consider having

the chairman and ranking member of the House and Senate Small

Business Committees be members of that committee so that we can

go into these meetings and try to iron out problems before they end

up with small business people having to fly all the way to Washington at their own expense to testify as to how they are getting

thumped by a Federal agency.

Colonel WRIGHT. Yes, sir.

Chairman MANZULLO. The Assistant Secretary for Legislative Affairs is Powell Moore? Is that individual here?

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Colonel WRIGHT. No, sir. There was a gentleman by the name of

Bob Wimple who works for Mr. Moore was here. He was here a few

minutes ago. I think he stepped out.

Chairman MANZULLO. He probably went to try to get that letter.

I have got another meeting. But in any case whoever is in charge,

I would like to see that individual in my office, and I want to set

down some parameters of how to deal with these documents that

are sent out.

Okay. Well, again, thank you all for coming this afternoon. Colonel, thank you for coming at late notice. I appreciate all of your testimony.

As I said at the beginning of this hearing, I am disposed at this

point to do an in-depth hearing regarding the egregious situation

to which Bobbie Gentile testified concerning what happened with

Federal Prison Industries that joined up with another company

that bumped some small businesses to the tune of a million dollars.

I am convinced that the only way that we can follow the law here

is to hone in on those areas where there has been a problem, to

expose it, to do whatever is necessary to clean it up, and to let that

serve as a seismic shock to the other agencies that are doing the

same thing.

I am not going to let up on this issue of contract bundling. I have

heard horror stories going around this country. I am very interested in an article here that was in the Washington Post dated

Thursday, April 5 on this Qualtec, this $698 million contract to

which, Colonel Wright, you had testified, touting 8(a) small businesses, but if you read the article, it says Qualtec provides engineering and logistics information technology and management consulting services, will lead a team of 12 military contractors, including two other minority firms. I want to know what is the size of

these 12 military contractors. I want to know who they are, and I

want to know most of all if DOD is counting this contract in saying

that this makes them in compliance with trying to have a 23 percent set-aside for small business, if that is the case and if big companies are being counted in simply because they got looped in by

a small company that did some creative subcontracting here with

the government.

And I am are not criticizing Maria Whitmore. She is a very

proud lady for what she has done here. But if this is being counted

towards small business and towards minority requirements, there

is a big problem.

Okay. Thanks again, and this Committee is adjourned.

[Whereupon, at 2:57 p.m., the Committee was adjourned.]

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