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34–827 PDF 2007

FULL COMMITTEE HEARING ON

EXPANDING SMALL BUSINESSES’

ACCESS TO FEDERAL CONTRACTS

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 19, 2007

Serial Number 110-15

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

JUANITA MILLENDER-McDONALD, 

California 

WILLIAM JEFFERSON, Louisiana 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology 

BRUCE BRALEY, IOWA, Chairman

WILLIAM JEFFERSON, Louisiana 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

WILLIAM JEFFERSON, Louisiana 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship 

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

JUANITA MILLENDER-McDONALD, 

California 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

WITNESSES 

Hsu, Paul, Associate Administrator for Government Contracting and Business 

Development, U.S. Small Business Administration .......................................... 3

Parkinson, Nigel, Associated General Contractors of America ............................ 5

McCracken, Todd, National Small Business Association ..................................... 7

Murphy, Emily, Miller & Chevalier Chartered ..................................................... 9

Taylor, Grady, Tri-Mega Purchasing Association ................................................. 11

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 33

Chabot, Hon. Steve .................................................................................................. 35

Altmire, Hon. Jason ................................................................................................. 36

Hsu, Paul, Associate Administrator for Government Contracting and Business 

Development, U.S. Small Business Administration .......................................... 37

Parkinson, Nigel, Associated General Contractors of America ............................ 41

McCracken, Todd, National Small Business Association ..................................... 44

Murphy, Emily, Miller & Chevalier Chartered ..................................................... 49

Taylor, Grady, Tri-Mega Purchasing Association ................................................. 69

(V) 

(1)

FULL COMMITTEE HEARING ON 

EXPANDING SMALL BUSINESSES’

ACCESS TO FEDERAL CONTRACTS 

THURSDAY, APRIL 19, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

2360 Rayburn House Office Building, Hon. Nydia Vela ́zquez 

[Chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Jefferson, Moore, Braley, 

Ellsworth, Johnson, Sestak, Chabot, Bartlett, Davis, Fallin, and 

Buchanan. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. I call this hearing on Expanding Small 

Business’ Access to Federal Contracts to order. The federal government is the biggest buyer of goods and services in the world. 

Given the volume of its purchases, $330 billion last year, and the 

diversity of its acquisition, it should be easy for the small business 

participation goals to be reached. Unfortunately, as we have seen 

repeatedly, this is not the case. 

Over the past several years, this Committee has had at least 15 

hearings on agency procurement practices and the negative effect 

they have on small companies. Already in the 110th Congress, we 

have held 2 hearings on this issue. Today we continue our examination of the key values small businesses face when accessing federal contracts and legislation offered by our colleague from Iowa 

that addresses many of these programs. 

In our work, several failures of the federal government have been 

made clear. The entrepreneurial share of the federal marketplace 

is sleeping, not expanding, as it should be. 

Agencies consistently fail to achieve the minimum small business 

goal. And they are counting their accomplishments with contracts 

awarded to large corporations, inflating the amount of contracts 

that go to small firms. 

In today’s economy, entrepreneurs are the drivers representing 

99 percent of all firms in this country. Yet, the federal government 

continues to fail to meet the 23 percent government-wide statutory 

small business goals. When these goals are not met, it means 

money out of the pockets of other small business owners and the 

loss of job creation in communities throughout the country. 

2

In our most recent scorecard, we found that small businesses in 

general lost $4.5 billion in contracting opportunities last year because the 23 percent goal was missed. We found that women-owned 

businesses lost $5.2 billion because their 5 percent goal was 

missed. Minority contractors lost $4.5 billion because their 5 percent goal was not reached. 

Over the past couple of years, we have also noted another disturbing trend. Agencies are counting contract awards to large companies as small business contracts. In 2005, about $12 billion in 

contracts were wrongly counted. These false numbers make it appear agencies are doing more with small businesses than they really are, which makes the true state of opportunity even worse. 

One of the real problems here is that when agencies believe they 

are doing well with the small business measurements, they are 

more likely to engage in practices that are harmful to small businesses. In the last few years, for example, we have seen substantial 

increases in contract bundling and limited contract sourcing. 

Contract bundling has been public enemy number one for small 

businesses that are trying to penetrate the federal marketplace. 

Over the last five years, total government contracting dollars have 

increased by almost 60 percent while the number of contract actions to small businesses decreased or declined by 55 percent. 

Pure contract actions combined with greater procurement spending is proof of contract bundling. Today’s hearing will allow us to 

review potential sources to increase access to government contracts 

as contained in H.R. 1873, the Small Business Fairness in Contracting Act, introduced by our colleague, Representative Braley. I 

believe this proposal will provide the tools necessary to create opportunities for increased small business contracts. 

And let me just announce that we are planning to have a markup on this legislation on Tuesday since the leadership and I discussed the possibility for the bill to be on for floor action May 7. 

So I look forward to working with my colleagues as we arrange 

for our mission of expanding and solidifying the role of small companies in the federal marketplace. 

Let me thank all the witnesses for coming here and sharing their 

experiences with us today. And I now would like to recognize Ranking Member Chabot for his opening statement. 

STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you very much. And, first, I would like to 

thank Chairwoman Vela ́zquez for holding this very important and 

timely hearing to examine the practice of contract bundling and 

other federal procurement procedures that deny small business opportunities to obtain their fair share of government contracts. 

We also will hear testimony from legal experts about the Small 

Business Fairness in Contracting Act and strategies for unbundling 

the contracts. It is well-known that bundling limits small businesses from competing for prime federal contracts. When small 

businesses are locked out from competing for prime contracts, the 

small business community loses business opportunities. The federal 

government loses important suppliers. And ultimately the taxpayer 

loses because of reduced competition that so often leads to higher 

prices. 

3

The availability of federal contracts is at an all-time high, as the 

Chairwoman mentioned. Last year federal spending on government 

contracts amounted to $340 billion. This represents an 8 percent 

increase over the previous year and a 13 percent increase since fiscal year 2004. 

Recent events, such as the cleanup from the Gulf Coast hurricanes and the ongoing war on terror, have created a growing need 

for services by government agencies and an increase in the amount 

of federal government contracts available. As the primary engine of 

innovation and job creation, small businesses should be receiving 

a fair proportion of the total prime contracts for property and services as required by the Small Business Act. Contract bundling is 

a barrier to achieving this goal. 

We all look forward to hearing from our witnesses so that we can 

all learn more about bundling and strategies for increasing small 

business opportunities in the federal marketplace. This is a very 

important issue that directly affects the bottom lines of our nation’s 

small businesses. And it is one that I am sure this Committee will 

continue to examine closely. We need to ensure that small businesses have and will continue to have a seat at the federal contracting table. 

I yield back the balance of my time, Madam Chair. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

So we are going to start the hearing. Our first witness is Mr. 

Paul Hsu. He is the Associate Administrator for Government Contracting and Business Development at the United States Small 

Business Administration. Mr. Hsu has been in this new position 

just a few weeks. So congratulations and welcome. 

Mr.HSU. Thank you. 

ChairwomanVELA ́ ZQUEZ. You have five minutes for making your 

testimony. 

Mr.HSU. Thank you. Thank you very much. 

STATEMENT OF PAUL HSU, ASSOCIATE ADMINISTRATOR FOR 

GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, UNITED STATES SMALL BUSINESS ADMINISTRATION 

Mr.HSU. Chairwoman Vela ́zquez, Ranking Member Chabot, distinguished members of the Committee, my name is Paul Hsu. I am 

the Associate Administrator for Office of Government Contracting 

and Business Development at the U.S. Small Business Administration. Thank you for inviting me to testify today. 

I would like to take this opportunity, Madam Chair, to share 

with you and the distinguished members of the Committee my little experience with SBA’s contracting and business development 

program, but, most importantly, I want to let you know that why 

I personally think that these programs are very important for 

small and minority-owned firms and very quickly. And here is my 

short personal story. 

I was born in Taiwan and came to the United States in 1976. I 

was 26 years old and spoke very little English, but I managed to 

obtain a Master’s degree in industrial management systems engineering from Central Missouri State University. And I got married 

and started having kids. I believe two of them are here today. And 

I got a job at the Harris Corporation and moved to Florida. 

4

Harris was a Fortune 500 aerospace company. Ninety percent of 

our divisional revenue came from DOD. I was a chief engineer. And 

the life was really perfect until the Berlin Wall came tumbling 

down, the Soviet Union disappeared, and the DOD started reducing 

their requirements and Harris started laying off people and the entire facility was closed. 

That was 1984, about 23 years ago. And that was the time I decided, ‘‘I am going to start my first company because I was so 

afraid that I might get laid off again.’’

But all I had at that time was a dream, a dream of a big building 

filled with people overlooking a parking lot with hundreds of cars 

and a tall flagpole with a huge American flag waving under the 

warm Florida sun. 

So to take my dream to reality, the first thing I did, I sent my 

wife to work. And she did. She worked as a waitress at the local 

Pizza Hut while I was running around and chasing contracts. And 

she is very, very special lady. 

After I had a contract, I realized that I needed money to buy 

parts or the contract itself could not be treated as a collateral. So 

after all the banks turned me down, a banker told me about SBAguaranteed loan. I got a loan, and I started learning about SBA. 

Soon I got into an 8(a) program. It was a great, great helping 

hand. A little later I joined the SBA-sponsored mentor protege program with Boeing, and I started building avionics, building radar 

components, the guiding system and many critical flight hardwares 

for the Boeing’s fighter jet, including F-15s, F-18s, T-45s, C-17s, C130, B-1, B-2, and B-52. I was so impressed about the mentor protege program I started my own. At one time I had two proteges: 

a HUBZone STB and a woman-owned STB. 

Two years ago, my company has been acquired by a big publicly 

traded company. But, most of all, Madam Chair, it was the SBA. 

The SBA provided me the capital, the training, the counseling, and 

the contract opportunity that I desperately needed to go in my company. 

So I can say this. I am the product of SBA and all the SBA’s programs. And I am the living proof that these programs work. It is 

absolutely an honor and a privilege for me to serve an agency that 

I truly believe in. 

I joined SBA on March 19th, exactly one month ago today. What 

I bring with me is the entrepreneurial spirit dedicated to impacting 

many small businesses as they look forward to achieve the success 

in the federal marketplace. 

Here are some facts. Government contracting dollars go to the 

small businesses have grown significantly since F.Y. 2000. There 

were $30.6 billion more of small business contracts in F.Y. ’05 than 

F.Y. 2000 and supporting an estimated about 235,000 jobs. 

SBA recognized the need to improve the government contracting 

program and has taken the lead along with Office of Management 

and Budget, Office of Federal Procurement Policy to carry out a 

number of initiatives, including addressing the contract bundling 

and working with agencies to ensure their reporting is accurate. 

However, the integrity of the data reported to Congress and the 

public is very crucial to provide the confidence in the federal contracting system. Agencies are currently in the process of validating 

5

their F.Y. ’05 and F.Y. ’06 data to identify the reason for coding 

discrepancies and to correct any error that may occur. 

Additionally, the Administrator had made the contract data 

transparency and accuracy a very high priority and taken the issue 

very seriously. And we are going to continue to hold the agency accountable for their progress in meeting the small business contracting goal. 

SBA released SCORE CARD, as you know, along with the F.Y. 

’06 contracting report. The SCORE CARD mirrored the President’s 

management agenda, and it will more aggressively track and monitor the status of each agency’s small business goal achievement 

and hold the agency more accountable. 

This allowed the public to see clearly the progress in the level 

of the effort agencies are making to address their weak point. For 

instance, agency would be rated of their subcontracting achievement in addition to their prime contract. SBA’s F.Y. ’08 budget, including a request on $500,000 to exam 

how best to serve the 8(a)’s; the HUBZone; the small, disadvantaged business community; as well as women and the veterans. We 

recognize the need to improve in this management in this important program and will use them, these resources, to determine how 

best to serve the community. 

As an 8(a) graduate myself, I understand the frustration that my 

colleagues in the 8(a) community feel when the application, the 

contract approval--

ChairwomanVELA ́ ZQUEZ. Mr. Hsu? Mr. Hsu? 

Mr.HSU. Yes, ma’am? 

ChairwomanVELA ́ ZQUEZ. The time is expired. If you need like 5 

to 10 seconds to summarize? 

Mr.HSU. Okay. Thank you. 

On behalf of the administrator, I relay his desire to work with 

the Committee to ensure the entrepreneurs will have the ability to 

compete with federal contracts and the work agency and help them 

to achieve the goal. 

So, Madam Chair, that concludes my testimony. Thank you. 

[The prepared statement of Mr. Hsu may be found in the Appendix on page 37.] 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Hsu. 

Our next witness is Mr. Nigel Parkinson. Mr. Parkinson is the 

owner of Parkinson Construction from Brentwood, Maryland. He is 

testifying on behalf of the Associated General Contractors. You will 

have five minutes. 

Mr.PARKINSON. Thank you, Madam Chairman. 

STATEMENT OF NIGEL PARKINSON, OWNER, PARKINSON CONSTRUCTION, BRENTWOOD, MARYLAND, ON BEHALF OF ASSOCIATED GENERAL CONTRACTORS 

Mr.PARKINSON. My name is Nigel Parkinson. And I am testifying 

on behalf of the Associated General Contractors, AGC, the nation’s 

largest and oldest construction trade association. Founded in 1918, 

our association represents more than 32,000 construction firms nationwide. I serve as Senior Vice President of AGC of metropolitan 

Washington, D.C. And, as the Chairwoman said, I am also the 

President of Parkinson Construction Company. 

6

AGC is pleased to share our thoughts for this year, upcoming 

year, of transition of the Small Business Act. I am going to focus 

on the changes agency made by recommending for the impact of 

contract bundling and the growing concern over large construction 

contracts. AGC can be committed for the opportunity to ally these 

areas of concern to the construction industry. 

Contract bundling has been a concern in the construction industry for several years. While there is no clear definition of bundling, 

it appears that consolidation of various projects is occurring more 

frequently. Small contracts are being bundled to result in large dollar solicitations that small businesses are not able to compete for 

unless they are partners with large firms. 

While on the surface this may not seem harmful, this practices 

on the mind’s intent of the small business program by allowing 

large business to obtain money set aside for smaller firms. AGC 

recommends that the federal government annually reports to Congress on contract bundling so that the magnitude can be gauged 

and the trend can be spotted and addressed by Congress. In addition, Congress should require SBA to monitor not only total volume 

of small business contracts, but the number of total contracts and 

the size of this contract as well. 

The contract bundling institution is further compounded by the 

fact that small business set-asides keep increasing. A now overwhelming number of special preference programs leaves little work 

for small businesses with target preference and medium-sized businesses able to compete for work. 

Right now our federal contracting options are very limited. We 

have found it difficult to compete on projects currently available for 

building our own backyard here in Washington, D.C. because absolutely every project because of size has a preference attached to us. 

That has excluded us from competing for the work. 

Contract bundling combined with pressure on agencies to mix 

your small business charges with different goals is leaving firms 

like mine with no opportunity to grow our businesses. As a result, 

we are often shut out of the federal market. 

Rather than creating a new specialty set-aside goal, the Congress 

should, instead, focus on how the existing programs can be improved to increase opportunities for small firms. As the Committee 

moves towards the utilization of the SBA programs, construction as 

an industry should be included in any revised definitions of the 

contract bundling to ensure that these consolidations are reviewed 

for potential negative impact on existing small businesses. 

Additionally, agencies concerned that SBA does not currently 

have planning for additional resources devoted to ensuring that 

small companies are not economically aggrieved by contract bundling, there is currently an insufficient number of procurement censors representative in the SBA to monitor bundled contracts. 

As a small business community, we view the issue of contract 

bundling as the time is out to move forward to solve the problem, 

the main issue being that contractors need to experience as prime 

contractors in order to go. 

In the past, increased use of subcontracting has been the answer 

to provide small businesses opportunities to work on federal contracts. In the construction industry, small business has proven to 

7

be an asset. The construction industry has proven that small businesses can compete as prime contractors on a relatively level playing field. Working from a prime contractor opportunity for small to 

medium-sized businesses should be the solution the government 

and the Committee should seek. 

Since we are talking about the issue of contract bundling, I 

would also like to mention continued concerns by the growing reliance on the use of Alaskan Native contracting in sea by the federal 

agencies as a means to easily attain small business contracting 

goals. 

A special contract is awarded to an ANC and is available by the 

traditional 8(a) program. And we believe that this program is clearly being used by procurement agency as a tool for contracting officials to meet their 8(a) goals. 

We understand the ANC matter is currently under consideration 

by the Committee. And we look forward to working with the Committee on this particular issue. 

[The prepared statement of Mr. Parkinson may be found in the 

Appendix on page 41.] 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Parkinson. 

Our next witness is Mr. Todd McCracken. Mr. McCracken is the 

Senior Director of Government Affairs for the National Small Business Association. Welcome. 

Mr.MCCRACKEN. Thank you very much, appreciate the opportunity to be here, Madam Chairwoman. 

STATEMENT OF TODD McCRACKEN, PRESIDENT, NATIONAL 

SMALL BUSINESS ASSOCIATION 

Mr.MCCRACKEN. Again, my name is Tom McCracken. I am the 

President of the National Small Business Association. We are the 

oldest national small business advocacy association, United States. 

And I would like to thank you just for the chance to be here, for 

the opportunity to comment on H.R. 1873, which we certainly comment the introduction of, and we are very pleased to see the 

progress it would make for small businesses. 

Federal procurement is of singular importance to many small 

businesses. And small business participation is crucial to helping 

the competitive federal procurement process. In other words, expanding the access of America’s small businesses to federal contracts is beneficial to all involved. 

The importance of expanding small business access to federal 

contracts is certainly recognized by the membership of NSBA, 

which has identified small business contracting as one of NSBA’s 

top priority issues during our recent biennial small business congress. 

First, I would like to talk a little bit about the small business 

contracting goal. We are pleased to see that H.R. 1873 would expand the goal to 30 percent for all federal contracts. NSBA welcomes the bill’s stipulation that each federal agency would have an 

annual small business procurement goal not lower than the government-wide goal because there, as you probably all know, have been 

some issues with that in past years. 

Further, we are also pleased that the bill would increase the 

small business contracting gaol and will be benchmarked in relaVerDate 0ct 09 2002 08:29 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34827.TXT LEANN
8

tion to a more accurate and inclusive federal procurement tally 

that finally will incorporate contracts carried out abroad. The inexplicable exclusion of various kinds of contracts, such as those carried out overseas, has distorted the reality of contracts from the 

government’s small business procurement calculations too frequently. And they have resulted in escalating exclusions and creative bookkeeping, rather than increased small business contracting or even accurate data collection. 

Federal contracting is of great importance to small businesses as 

well, despite the absence of the government-wide subcontracting 

goal. From F.Y. ’85 to F.Y. ’04, small businesses received between 

34 and 42 percent of all federal subcontracting, according to a recent working paper produced by the SBA Office of Advocacy. H.R. 

1873 would include the entire contract award for calculating the 

percentage of small business subcontracts awarded and not just 

those dollars that are subcontracted. 

NSBA also welcomes the subcontracting and enforcement mechanism in H.R. 1873, under which prime contractors would receive 

bonus credits for their next bids upon achieving their subcontracting goals. 

We do continue to advocate, however, for the codification of payment history in the federal evaluation of all prime federal contractors as well. In fact, almost 70 percent of the respondents to a recent procurement survey we conducted supported including payment history and federal evaluation process of all prime contractors 

according to our early results. 

I would also like to bill a little bit on the contract bundling issue. 

We think it is really at the center of the issues that small businesses face in the procurement world. And we are very supportive 

of the things that the legislation does. We think, as I am sure most 

people in this room probably do agree, that we need to more, however. 

In that same survey I mentioned before, over 30 percent of the 

respondents had firsthand personal experience losing out on a federal contract, specifically because of contract bundling. And bundling statistics that are out there now that we talk about are based 

on a more broad definition of contract bundling, that currently used 

by the federal government, the ones that actually show how bad 

the problem is because the federal government lies in our limited 

definition focused exclusively on whether one of the contracts was 

previously performed by a small business. 

This overly narrow definition warps the government’s calculations on the prevalence of contract bundling in the federal procurement arena. And we have long advocated for the expansion of the 

term to include any instance where two more individual contracts 

are combined. So NSBA welcomes efforts such as the one in the bill 

to enhance the definition of contract bundling. 

And, finally, I have mentioned data. I would like to talk a little 

bit about reliable and accurate data because that is a big problem. 

Time and again, it has been demonstrated that a large number of 

contracts ostensibly awarded to small businesses actually have 

been awarded to and carried out by larger firms. The Office of Advocacy study has found that 44 of the top 1,000 small business contractors in 2002 were not, in fact, small businesses. 

9

These exclusions of various kinds of contracts dilute the actual 

procurement data. And we continue to support the improvement in 

that data, such as what is done by H.R. 1873. 

So we think the bill establishes a whole range of benchmarks 

that will move us forward on improving the small business procurement system. And we want to thank you for introducing the bill. 

And we want to thank you for giving us the opportunity to comment upon it. Thank you. 

[The prepared statement of Mr. McCracken may be found in the 

Appendix on page 44.] 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Our net witness is Ms. Emily Murphy. Ms. Murphy is counsel for 

Miller and Chevalier, Chartered. Prior to this, she was on the staff 

of this Committee under Chairman Jim Talent. Emily served in the 

administration of both the SBA and the GSA. We are happy to welcome you back to the Committee. 

Ms.MURPHY. Thank you very much. 

STATEMENT OF EMILY MURPHY, ATTORNEY, MILLER AND 

CHEVALIER, CHARTERED 

Ms.MURPHY. I am very happy to be here. It really is a homecoming. I also want to comment you all for taking the time to study 

these important, what I consider exciting issues and introducing 

the legislation, which is a great step in addressing a lot of the problems that small businesses are facing in government contracting. 

I am here today even as a lawyer for Miller and Chevalier, but 

I am representing myself. I am not speaking on behalf of any of 

Miller and Chevalier’s clients, whether they be small or large businesses, or on behalf of the American Bar Association, for whom I 

chair their Committee on Small Business and Other Socioeconomic 

Programs. 

I also just want to say that my written testimony is a comment 

on a prior draft of the legislation. So I am hopefully going to be 

able to tweak it a little bit here today. 

There is so much in this legislation that it is hard to even figure 

out how to start and get it done in five minutes. So let me dive 

right in. 

I want to thank you, first of all, for addressing what I consider 

the key questions in government contracting. What kind of opportunities should be made available for small businesses? Who is a 

small business? And how do you make sure that those two connect, 

that those opportunities really are going to legitimate small businesses? I think by addressing contract bundling, this can be taking 

an important first step at recognizing what opportunities should be 

available to small businesses. 

In the past year, in fiscal year 2006, the federal procurement 

data system was only able to identify 43 contracts over $5 million 

as having been bundled. And those contracts totaled over $5 billion. 

But when you talk to other small businesses, you will find that 

there are a lot more than 43 contracts being bundled. And so where 

is the disconnect? 

I think that a lot of that disconnect is in the definition, which 

this Committee is addressing. The prior definition that was put 

into law in 1997 by this Committee took the first putting out the 

10

primary award for what is contract bundling but in doing so stated 

that contract bundling had to have been for work that was currently being performed by small business or was suitable for award 

to small business. So it had to have been existing requirements. 

Contracts evolve over time, and requirements evolve. So that our 

changing the definition with H.R. 1873 to include new requirements, the Committee is bringing in a whole new scope of contracts 

review. And that is going to create important opportunities for 

small business. 

I also want to commend the Committee for looking at the idea 

of task orders and including those in the definition of contract bundling in the review. I would want to argue that there are different 

types of task orders and maybe some distinctions need to be made 

between those task orders, specifically that task orders about single 

award contracts may not always be appropriate for review; whereas, the prime contractor in a multiple award contract may need review depending on whether it is a limited duration contract, but 

the task orders always need review. 

So if it was possible to address that language, I think that would 

help target the limited resources that exist for ensuring small businesses can compete. 

I also want to thank you for taking the time to address what 

happens when SBA doesn’t get the information on contract bundling and giving SBA the right to intervene at that point. I think 

that is going to give them a lot more fact-finding ability. 

I noted that you have given them ten days to respond. And my 

question would be, what happens if those ten days hit the end of 

the fiscal year? I would love to see us create a situation where 

agencies want SBA to evolve, to get involved and intervene. 

And I would suggest that you might want to look at the fiscal 

laws that involve those dollars. If there were some way to keep 

those dollars valid and valuable until SBA completed its review, 

even if it crossed fiscal years, you might actually have agencies beginning SBA to intervene. 

Also, I know this Committee wanted to address the small business reserve. And I think that time idea of the small business reserve as a simplified acquisition threshold makes a lot of sense. 

The small business reserve is currently any contract below 

$100,000. The simplified acquisition threshold is in most cases 

$100,000. However, the simplified acquisition threshold also has its 

minimum, of which the micro-purchase threshold applies. And 

that’s $3,000 right now. It may make sense to tie the bottom level 

of this range to the micro-purchase threshold. 

The one question I would like to see the Committee address, 

though, is what happens in times of emergencies. In times of emergencies, the simplified acquisition threshold can currently be raised 

to $25,000 for micro-purchases, and up to a million dollars for the 

simplified acquisition threshold. The Committee may want to address what ramifications that would have and whether added flexibility needs to be incorporated. 

Moving on, since I know I am running out of time, when it comes 

to recertification, which is really the key question to address who 

is a small business, the Committee may want to look also at the—

in H.R. 2802, which I believe that the Chairwoman cosponsored, 

11

the Committee suggested that there be a five-year review and recertification. And I think that is now in regulation. 

This legislation suggests that there will be an annual review for 

companies that are within 80 to 95 percent of the size standard. 

This seems a little difficult for those businesses to have that annual review just at a time that they are changing their rules. I 

would suggest that unless they are exercising an option, that they 

be allowed to rely on that initial certification because it is not going 

to go beyond a five-year period. 

With small businesses who are legitimate small businesses, when 

they get a contract, grow because of that contract, you want to 

make sure that they have the planning and the time and place to 

make that transition seamlessly. And that is something that I believe that the Committee recognized with 2802 when they gave the 

presumption that a business could continue to remain small, even 

if it exceeded the size standard? It may be worth considering some 

of those provisions going forward as well. 

Finally,—I promise I will wrap up—as the Committee is looking 

at certifications and databases and where small businesses represent themselves, I would hope that they would also look at the 

online representations and certifications application or Section K of 

any application because that is where true enforcement can take 

place. That is where an agency can say, ‘‘A firm has misrepresented their size status to us, and we are going to go forward.’’

It would be helpful if we could further identify what the damages 

are to the agency at that point in time so that they would have a 

greater bassi for any legal action they were going to take. I think 

that will really help resolve the problems of inadvertent or intentional misrepresentations. 

Thank you so much for this opportunity to testify here today. 

And I look forward to answering any questions. I apologize for 

going over. 

[The prepared statement of Ms. Murphy may be found in the Appendix on page 49.] 

ChairwomanVELA ́ ZQUEZ. Thank you so very much, an incredible, 

incredible testimony. Thank you. 

Our next witness is Mr. Grady Taylor. He is the Executive Vice 

President of the TriMega Purchasing Association, a 500-member 

organization of office products suppliers. Welcome. 

Mr.TAYLOR. Thank you, Chairwoman Vela ́zquez, Ranking Member Chabot, and the Committee. 

STATEMENT OF GRADY TAYLOR, EXECUTIVE VICE 

PRESIDENT, TRIMEGA PURCHASING ASSOCIATION 

Mr.TAYLOR. I am pleased to be here today to testify before your 

Committee on this very important issue. TriMega Purchasing Association is a not-for-profit member-owned cooperative focused on the 

success of the small and independent office product dealer. We are 

the largest such entity in the country. 

If you want to buy office products, there are two ways to do so. 

You can either buy them from a small, family-owned company or 

you can buy them from large, billion-dollar corporate companies, of 

which there are four. Regardless of whom you buy your supplies 

12

from, both groups are serviced by the same wholesalers and manufacturers. 

When you purchase office supplies, they are coming from the 

same major wholesalers and manufacturers. And, in fact, the only 

difference in our industry is size. 

Where TriMega comes into play is that we have successfully negotiated on behalf of our independently owned dealer members 

competitive costs of the goods agreements with those same wholesalers and manufacturers in order to bring parity to the marketplace. 

In spite of that, the office products industry is one, if not the 

most, negatively affected by the issues we are here to discuss 

today. The reason I say this is that when the federal government 

decides to implement a new pilot program that is supposed to make 

the purchasing of goods and services more efficient and cost-effective for the government, they usually use office products as a first 

product to test. 

For some reason, the myth in the federal government is that buying office supplies is an easy process, the myth perpetrated in the 

’90s by the reinvention of government. I mean no disrespect to 

former Vice President Al Gore, who is credited with the reinvention 

of government concept as at the time, he made it look good on 

paper, but the actual implementation of the process has been bad 

for small business, especially those in the office supply industry. 

Streamlining the government to make it more efficient is a good 

idea, but what the federal government has failed to do in its design 

phase is consider all of the issues that go into the buying process. 

It is simply not enough to look at pricing. You need to consider 

service; history of a company; capabilities of the company; and, 

most importantly, the impacts on the community your decisions 

will have if you severely limit the number of vendors able to sell 

to the federal government. 

Limiting your choices of vendors means lost jobs for small business, lost tax revenue for the federal government and local community. And it means the inability of small businesses to grow and 

thrive. 

Contract bundling has had a negative effect on industry. When 

you continue to make contracts larger and larger, new myths are 

perpetrated. When it comes to contract bundling, the myths we still 

hear from agencies are that independents cannot service large national contracts because they are not sophisticated enough. 

This is another myth started in the ’90s. And, unfortunately, it 

continues today. The reality is independent dealers can service national, large national, contracts. We are doing it and doing it successfully when given the opportunity to compete on a level plaything field. 

I am still stunned to hear how surprised some agencies are to 

learn that independent dealers have Websites, online ordering capabilities, quality customer service, and the ability to accept government credit cards. We can do that and more. 

Four years ago, we came to Congress with these concerns. And 

we were told it was unlikely Congress would address our issues. If 

we hoped to be effective in the government market, we needed to 

change our industry. We did just that. 

13

The rules governing how and who does business with the government were still not in our favor. And it is our hope that this time 

Congress will act to level the playing field. Without your help now, 

industry faces a greater problem than contract bundling. 

As you know, the administration is in the process of implementing what it calls strategic sourcing initiative. This process 

may be good for industries where subcontracting opportunities 

exist, but it could be the program that drives independent office 

products dealers from the federal market. 

Strategic sourcing is a new contract bundling of our time and if 

fully implemented will mean the federal government will do business with less vendors, it will not get the cost savings they are 

seeking due to the lack of competition, keeping vendors honest. 

This is neither good for the government nor small business because 

the likely winners of these contracts will be large corporations. 

We have witnessed firsthand the effects this program is having 

on small businesses through the $100 million award made to a 

large corporate entity in our industry by the Department of Health 

and Human Services, the first of many contracts to be awarded as 

part of the administration’s strategic sourcing initiative. 

I would also like to take this opportunity to highlight another 

issue facing small businesses that doesn’t get much attention. That 

is the issue of pass-throughs. Today you have a lot of large companies using small businesses to gain greater access to the federal 

government market. 

The way this works is a large company will approach a legitimate small business and create a relationship they label as mentoring. There is absolutely no mentoring going on. It is nothing 

more than circumvention around the intent of the statute. 

Really, what happens is when a government agency wants to buy 

office supplies, they are using the small businesses who were 

awarded the contract, but the fulfillment and all of the work comes 

from the larger companies. In return for their willingness to sell 

their small business status, these dealers are getting a percentage 

of the sale but doing nothing. And the large corporate company 

continues to build its revenues and access to the market. 

Not only is this abuse bad for the entire independent community, 

it is bad for the government. By turning a blind eye to these 

abuses, the government is taking credit for small business purchases that help agencies meet their 23 percent small business 

goals, even though these purchases were made through a large 

company. 

In most cases, the only thing the small business provides is its 

Website is a face for these pass-throughs. This practice helps the 

agencies build up their small business purchases, making it look as 

if they are doing everything they can to meet the needs of the 

small business community. 

ChairwomanVELA ́ ZQUEZ. Mr. Taylor? 

Mr.TAYLOR. Yes? 

ChairwomanVELA ́ ZQUEZ. Time expired. 

Mr.TAYLOR. Yes. 

ChairwomanVELA ́ ZQUEZ. Would you summarize, please? 

14

Mr.TAYLOR. Chairman Vela ́zquez, more can be done. In fact, 

more has to be done. Our industry cannot continue to fight an uphill battle without your help. 

Thank you for all of your support. You have been a real strong 

advocate on our behalf. And you give us hope that we can make 

positive changes to the process. Thank you. 

[The prepared statement of Mr. Taylor may be found in the Appendix on page 69.] 

ChairwomanVELA ́ ZQUEZ. Thank you. 

And the Chair now will recognize Representative Braley from 

Iowa, who is the main sponsor of the Small Business Fairness in 

Contracting Act, H.R. 1873, for an opening statement. 

Mr.BRALEY. Thank you, Madam Chairman. And thank you for 

holding this important hearing. 

Over the past five years, government agencies have greatly increased contract bundling, oftentimes combining small businesses. 

They are combining work small businesses could perform into giant 

packages that exceed small firms’ ability to compete for this work. 

But during that same 5-year period, total government contracting 

has increased by 60 percent while small business contracts have 

decreased by 55 percent. 

This is unacceptable. That is why on Tuesday evening I introduced H.R. 1873, the Small Business Fairness in Contracting Act. 

This bill will unbundle many of these contracts and level the playing field for small businesses. The bill will ensure proper competition among many businesses, saving taxpayer money and opening 

up opportunities for America’s small businesses. 

By law, federal organizations are required to support small businesses. However, contract bundling has resulted in less small business participation in federal contracts. It is essential to help remove the barriers blocking small businesses from entering into the 

nearly $400 billion per year federal marketplace. 

Small businesses are the number one job creators in this country. 

And we need to ensure that this engine not only remains healthy 

but also has the support that it needs to grow. Let’s make sure 

small businesses are not shut out of the federal marketplace. 

Unfortunately, my state, Iowa, ranks near the bottom in terms 

of government contracting dollars awarded to small businesses. 

Small businesses are the backbone of the communities within my 

district in Iowa, as they are in most congressional districts. allowing them a fair opportunity to bid on federal contracts can bring 

economic vitality to these towns and cities. 

Today I am hopeful we can begin a discussion that sends a message to small business owners that they will get a fair opportunity 

to compete for and win federal contracts. 

Thank you again, Madam Chairwoman, and thank you for the 

witnesses who came in today and shared this valuable testimony. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Braley. 

And now I would like to address my first question to Mr. Hsu. 

Mr. Hsu, I have met with the administrator, Mr. Preston, on several occasions. And one of the issues that I have been discussing 

with him is miscoding. 

15

I know that you have been in your position only four weeks, but 

today you are the witness representing SBA on this issue. So you 

are sitting in the hot seat. 

My question to you is, given the fact that your former company, 

MTI, still is being miscoded as a small company, so you bring a 

new perspective into your new job and given the fact that 

miscoding is a real problem for us, I will ask you how are you going 

to approach this issue? 

Mr.HSU. Yes, ma’am. Yes. Miscoding for sure, I agree, is a very 

important issue. Speaking for SBA, we are doing something about 

it. The new recertification rule will be applied in the end of June. 

After simplifying these, there are two things about this. The small 

business must recertify after the five years after long contract, 

long-term contract. 

And, secondly, if the small business gets acquired or are buying 

somebody, they have to recertify. So that will ensure—

ChairwomanVELA ́ ZQUEZ. Now let me just say that the actions 

taken by the administrator regarding the miscoding issue only address 20 percent of the whole problem. So this is why we need to 

get this legislation passed. 

Mr.HSU. Yes, ma’am. 

ChairwomanVELA ́ ZQUEZ. Let me talk to you about the fact that 

from 2004 through 2006 SBA filed 4 secretarial appeals on contract 

bundles. And it seems to me that SBA is like the Washington Generals. We lost 2,495 straight games to the Harlem Globetrotters. 

(Laughter.) 

ChairwomanVELA ́ ZQUEZ. Since SBA has not been able to win one 

of those appeals, how do you think the appeal system is working? 

Mr.HSU. Madam Chair, SBA as of today, at my office, I have 54 

procurement representatives. And they review anywhere between 

50,000 to 60,000 requirements every year. So that’s average about 

1,000 review requirements per year. 

Yes, we filed the secretarial appeal on the average about five to 

ten years, but, again, this is my own philosophy. I feel like we need 

to try to work things out with agencies to secure the small business 

opportunities before they take the action a more formal way. Many 

of our successes occur in this level. 

ChairwomanVELA ́ ZQUEZ. I hear you. Given the facts of a poor 

record of SBA regarding appealing those contract bundles, are you 

telling me that how many PCRs are you hiring? 

Mr.HSU. Fifty-four right now. 

ChairwomanVELA ́ ZQUEZ. Does that mean—

Mr.HSU. We expect to get to 66 by the end of this year. 

ChairwomanVELA ́ ZQUEZ. Do you think that will be enough? 

Mr.HSU. Yes, I do because these are the very experienced PCRs. 

They understand the agency’s requirements. And also we are working very hard to provide them with all the training tools. One of 

them, for example, is the quick market search. 

ChairwomanVELA ́ ZQUEZ. Sir, the problem that we have is that 

SBA is going to have fewer, even of the 54 PCRs that you are telling me, they are going to have fewer, than the agency had in 1993, 

when federal buying was $100 billion less than in F.Y. 2005. 

Mr.HSU. Well, there are tools available, Madam Chair. The—

16

ChairwomanVELA ́ ZQUEZ. I guess those tools are not working, sir, 

given the track record and continuing to lose your appeals to those 

agencies. 

Mr.HSU. I will take a look on that. 

ChairwomanVELA ́ ZQUEZ. I will recognize Mr. Chabot. 

Mr.CHABOT. Thank you very much, Madam Chair. 

Mr. Taylor and Mr. Hsu, if I could address my first question to 

you two? Mr. Taylor, could you briefly describe what you described 

before relative to a lot of these office supply arrangements, where 

you have a small business who really is kind of a front man and 

you have somebody else that is really getting it and not getting the 

work? 

And if you could listen to this, Mr. Hsu? 

Go ahead, Mr. Taylor? 

Mr.TAYLOR. Okay. Thank you. 

The situation we have, you know something is not right when 

you have a firm that has 3 employees and is doing over a billion 

dollars a year in business. Those guys work awfully hard. And basically what happens is they are approached by one of the four corporate players we were talking about earlier and say, ‘‘We can 

bring this business, but we need to run it through you. We will pay 

you a certain percentage.’’

Basically you go to their site. The contract is, all the computer 

work, the e-commerce is, all put together by the publicly traded 

corporation. But, in essence, the agency that is doing the procurement is getting credit for doing business with small business. We 

are saying that is nothing but a circumvention over what the intent 

was supposed to happen. 

Mr.CHABOT. And, again, following up with what the Chairwoman 

said, Mr. Hsu, even though you have only been there four weeks, 

I am just wondering, do you know if the SBA has been aware of 

this information? And is there anything currently being done to 

remedy that, do you know? 

Mr.HSU. Yes, sir. As a matter of fact, last week I had a meeting 

with the administrator. And we did talk about that. But my point 

is this, though. 

There are so many different types of small business. The small 

business can be manufacturer. The small business can be dealer. 

A manufacturer, a three-people company, it is almost impossible to 

do one billion dollars. But if this is a dealership, distributor, that 

can be possible because they deal with a big, big, big amount of 

business as a distributor or dealership. 

And the bundling, sir, if I may, yes, SBA we understand these 

are very important issues. And as a small business owner, I can 

relate some of my experience in dealing with the bundling. 

Very quickly, back in the early 1990s, I received, as I recall, anywhere between 2 to 3 a day from the PCRs calling them breakout 

specialists because their job is to break a big contract out to smaller contracts so I can bid on them. And they require three small 

businesses per separate contract so they can do that. And now, like 

the pendulum shifted the other way. 

But, again, the problem is this, though. I don’t think the definition is the issue. I think the enforcement is the issue. There are 

17

contracts that are suitable for bundling; for example, like fire control systems. You want one company to build that. 

But, again, the maintenance contract, for example, that is not a 

good idea to bundle because that requires some lawn services, regards some janitorial, regards elevator repair. So those are not 

good for bundling. So we need to concentrate on the enforcement, 

instead of a definition. 

Mr.CHABOT. Thank you. I would just say that I think we need 

to look closely at what the congressional intent was here relative 

to doing what we can to make sure that small businesses get their 

fair share of the business nationwide and what that does to the 

economy. And there are policy issues. 

So I think, you know, it may be necessary for Congress to look 

at this issue very closely and make sure that the administration 

and the SBA know what the intent is and make sure that it is ultimately carried back. I appreciate your comments. 

Ms. Murphy, if I could turn to you at this point? I have to say 

I was very impressed with your testimony. And, really, all of the 

witnesses were very good, but, I mean, you know, you certainly 

have a wonderful grasp. I was impressed with you saying how exciting this issue is, too. 

[Laughter.] 

Mr.CHABOT. I would be interested to see how you would be under 

something that really is exciting, not that this isn’t, of course. 

[Laughter.] 

Mr.CHABOT. But if you wouldn’t mind—and I think, Mr. Braley, 

if I am not mistaken, has this changed a bit, your bill, or is it 

evolving somewhat or is it pretty much in its final form at this 

point? 

Mr.BRALEY. It was filed yesterday. 

Mr.CHABOT. It was filed yesterday? Okay. I would be very interested—and I am supportive of the bill, and I think its intent is very 

good. If you wouldn’t mind, with your expertise, having been on 

this Committee and etcetera, now being in the private sector, I 

would be interested to see if you could go through this and perhaps 

critique it somewhat and make any suggestions that you think 

might be helpful. And then both sides could take a look at that and 

see if they are warranted. 

Obviously we are not the fawn of all wisdom, nor even that much 

of it, to tell you the truth, but we try. And so we may be able to 

improve this bill and make sure that it benefits the small business 

community even more than its intent is right now. And I don’t 

know if you would like to comment on that. 

Ms.MURPHY. Well, I would be thrilled to provide any assistance 

I can with this because I know that you were saying that you 

would like to see me with something that is even really exciting, 

but I spent the last ten years focusing on this area. And I do think 

it is exciting. 

I think it is a great area where you can figure out how to make 

sure that taxpayers get the best value for every dollar spent and 

that you are creating jobs and that you are bringing new technologies to the government and that you are making the system 

work. I think it is fun. 

18

So I would love to sit down and talk to you about that or with 

anyone who wants to talk to me about it. I have a feeling I am not 

getting a lot of offers. 

I highlighted a couple of areas where I thought that some 

changes might be appropriate, particularly in the area of recertification and in the area in looking at various types of indefinite delivery vehicles. And it is a very technical area, but it could really 

help better focus where a limited number of PCRs and the contracting personnel are spending their time. 

Two very general comments I would make on it, though, would 

be that any regulations that the Committee requires to implement 

this, I would strongly suggest that they be put in place simultaneously with changes to the federal acquisition regulations. 

Most acquisition professionals do not spend a lot of time reading 

13 CFR, the contracting officers on the line day to day. By having 

the two occur simultaneously, you end up having less confusion between the two different sets of rules and regulations and making 

it a more consistent process so that it is implemented uniformly. 

I would also suggest that at the same time that the Committee 

require that training be provided to contracting officers and contract specialists across the government, not just to small business 

technical advisers, because often training on small business programs isn’t made available as quickly to contracting officers for the 

ones who have to implement the programs. And there is funding 

through the acquisition workforce training fund that could easily 

be tapped to do that. 

I know that one of the issues that the Committee is looking at 

is appeals on bundling. And I know that the legislation has provided to address having that appeal go to the Office of Federal Procurement Policy. There is currently a statutory provision, though, 

in the Office of Federal Procurement Policy Act that prohibits the 

administrator from becoming involved in specific procurements. 

And there are some legitimate reasons why you would want to 

keep decisions about individual contracts out of a political office. 

Depending on which direction the Committee decides to go, you 

need to amend the underlying LFPP Act as well or you may want 

to consider putting that appeal process someplace else. 

GAO might be a place. Agency IGs might be an interesting idea 

as well. I haven’t thought this one through completely, but an 

agency IG would be better positioned to understand both the agency’s opinion, have expertise and insight into that agency’s contracting programs, and still have independence so that they could 

be weighing those decisions. Those are just a few things that come 

to mind. 

Mr.CHABOT. Thank you very much. 

Madam Chair, I yield back the balance of my time. 

ChairwomanVELA ́ ZQUEZ. Mr. Jefferson? 

Mr.JEFFERSON. Thank you, Madam Chair. 

Mr. Hsu, I have been waiting for you for a long time. The job 

that you have has been vacant for 18 months. It is a very, very important job. As I appreciate it, you are to aggressively advocate 

with the 23 or 24 federal agencies that are out there for them to 

set aside, if you will, contracts for small business procurement. 

19

I mean, the job hasn’t been done for 18 months. At least it hasn’t 

been done by anyone who has had the single focus of this work. 

What is your plan to contact these agencies? What are you going 

to do that will be different and aggressive about getting this job 

done that will have the agency setting aside these opportunities 

and to look forward to getting them accomplished? 

Mr.HSU. Thank you, sir, for the question. Yes. We are implementing a program that is called the SCORE CARD. And so I plan 

to start visiting the agency. And I just had a wonderful meeting 

with the DOD, Linda Oliver. And so by next week, I will have my 

first meeting with the Air Force and then the Navy and the Army 

and the Marine Corps. I want to attack the DOD first. 

Mr.JEFFERSON. What schedule are you working on to get through 

all of these agencies? In three months? In four months? When do 

you think you will have contacted all of the agencies to develop a 

plan with them? 

Mr.HSU. Well, it depends on how many hours I work, sir. But I 

would say probably 9 months I would be able to visit all 24 agencies. 

Mr.JEFFERSON. Well, that is a real long time. It puts down the 

road. We have 18 months waiting for you, and we have got 9 

months to wait for you to get at least talking to them and getting 

some goals set. 

Now, we had a meeting down in New Orleans here recently that 

the Chair Lady took our Committee down. We dealt with local contracting issues and the issues of how the agency would handle 

emergencies. 

That is a real set of questions for us now because we are in a 

recovery phase back home; in New Orleans, I should say. Only 70 

percent of the contracts that are being let are local. 

How much are you focusing on a place on this issue? 

Mr.HSU. I was mentioning that we have 54 PCRs and in 6 different areas. The New Orleans area, I believe, is area number five. 

And that will be the first area that we are going to implement this 

quick market search. And we are going to refocus the PCRs’ effort. 

And, in other words, sir, instead of letting the PCRs concentrate on 

the 77 percent of those unrestricted contracts, we are going to ask 

them to look at the 23 percent which has already been set aside. 

ChairwomanVELA ́ ZQUEZ. Would the gentleman yield? Sir, we 

help Bill in New Orleans. And it is clear there is a problem with 

contracting money going to local small businesses, not only to small 

businesses but local small businesses. I understand you have five 

PCRs assigned to that area. 

Mr.HSU. Right, right. 

ChairwomanVELA ́ ZQUEZ. And, yet, only seven percent of all contracting dollars have been going to local small businesses. I instructed the administrator in that hearing to meet with every 

agency that is involved in that area and to identify five prime contracts for small businesses. So, again, I am going to reinstate and 

to make it clear to the administration that we are going to be following it up. 

We gave 30 days for the administrator to come back to us regarding contracting practices in the Gulf Coast. So this is quite important for this Committee but, more importantly, if this administraVerDate 0ct 09 2002 08:29 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34827.TXT LEANN
20

tion is really concerned and committed with the rebuilding and revitalization of the Gulf Coast. 

Mr.JEFFERSON. Madam Chair, if I might ask you or as you—

ChairwomanVELA ́ ZQUEZ. Thank you for yielding. 

Mr.JEFFERSON. Yes, ma’am, but as you are in the process of trying to figure out the directive, if you will, you want to give to the 

agency, one might be to make sure that there is an accelerated 

schedule on meeting with these agencies to get some focus out of 

them about what they are going to do here. Nine months isn’t a 

very good plan. 

ChairwomanVELA ́ ZQUEZ. Well, you know, the duty, the responsibility of the Committee is not to do the job of the Small Business 

Administration. That is their responsibility. And if there is one 

thing about this Committee now under my leadership, it is going 

to be oversight. So we gave them 30 days. And they will have to 

come back to—

Mr.JEFFERSON. I appreciate that. With respect to Mr. Hsu’s answer to my question, it was going to take him nine months to even 

talk to the agencies about getting after—

Mr.HSU. Well, sir, I—

Mr.JEFFERSON. I hope we can accelerate this. I don’t know what 

takes nine months to talk to agency heads. 

Mr.HSU. Yes, sir. What I was referring to is to provide all the 

training and everything in nine months. But just talking to them, 

no, I don’t need nine months to do that. 

Mr.JEFFERSON. When you talk to them—

Mr.HSU. Probably a couple, you know, two, months. 

Mr.JEFFERSON. Yes. I hope you will emphasize the notion of 

prime contracts versus subcontracts in your review with them, the 

commitment to the goals. I don’t know how you feel about these 

goals. Do you think these goals that are set in here are too aggressive? Do you think that they are too aggressive? Do you think they 

are just right? Do you think they ought to be higher? What do you 

feel about the goals for minorities, for women, for small business 

generally, and for the local participation? 

Mr.HSU. It is a statutory goal. And our job is to implement it. 

Yes, I definitely agree because as a former 8(a) business owner, I 

am all for that. 

Mr.JEFFERSON. Now, there is definitely a connection between the 

bundling and the bonding issues. The larger these contracts are, 

the less the bonding authorizations in the statute are of assistance 

to small business people. 

I don’t know if in your experience you have determined whether 

these bonding issues are too low. We are trying to figure out how 

we can work the bonding a little bit better for the contract size, the 

sizes that are coming out now. Tell me how you feel about that. 

Mr.HSU. Well, my understanding, when I was in the private sector, I owned a high tech electronic firm. I never had any kind of 

a bonding issue. But I do understand there are two different types 

of bonds: the performance bond and payment bond. 

I am going to defer to Mr. Parkinson. 

Mr.PARKINSON. Well, traditionally the bond initiative has been a 

problem for small and minority contracts in construction and that 

21

there is a threshold. I don’t know what the threshold is now for 

bonded projects. I think it is only 1,000-25,000. 

But I think that is something that if you want to achieve the 

participation in New Orleans and the Gulf Coast, that the SBA 

should look closely at that to see how they can assist small businesses. 

ChairwomanVELA ́ ZQUEZ. Time is expired. I’m sorry. Time is expired. 

Ms. Fallin? 

Ms.FALLIN. Thank you, Madam Chair. I appreciate it, Chairwoman. 

Mr. Parkinson, can I ask you just a question about the contract 

bundling? I think you had said that it was more prevalent in the 

construction than any other kinds of contracts. Can you explain 

that a little further, please? 

Mr.PARKINSON. Well, with bonding in construction is that you 

have the proliferation of the larger companies who can bond and 

a few companies who can bond large size projects. And by breaking 

up the project to smaller sizes, you get an increased number of contractors, medium size and small businesses, who can be able to 

participate in those contracting. 

And we have found that, even in this area, in the Washington 

area, where we operate, that a lot of large contracts exclude medium-sized companies in the $50 to $25 million to be able to participate and work on this contract and prime contractors. 

As I alluded earlier, traditionally SBA has looked on the program 

to assist small businesses through the subcontracting mechanism. 

And we feel that after a while, you know, we have to grow up and 

develop into being prime contractors and that by having larger contracts, we cannot be able to develop from the subcontracting mode 

to become prime contractors. 

Ms.FALLIN. All right. Thank you so much. 

Mr.PARKINSON. Okay. Sure. 

Ms.FALLIN. And I have another question for Mr. Taylor. You 

mentioned in your written testimony the positive experience your 

members have experienced in the teaming arrangements, enabling 

them to be selected for an award for large bundled requirements. 

Can you explain a little bit further how the process works? And 

are there any ways that we could improve that? And should agencies do more outreach to the vendors and federal acquisition committees in the teaming arrangements? 

Mr.TAYLOR. Thank you, Congresswoman. I think everything possible to ensure that small businesses get more business is a good 

thing, of course. What we have seen is large companies basically 

who have self-certified or actually outgrown their status continue 

to utilize the small business status keep getting the contracts. 

I think anything that would make the process more transparent 

would be good for the government and for small business. 

Ms.FALLIN. And if I can just ask any of you—and, Emily, you or 

Mr. McCracken could answer this—I hear back in my home state 

in Oklahoma from our small business owners that so many times 

they just don’t know how to always go about searching out the government contracts and getting the information. Some do that have 

22

been doing it for a while, but it seems like there is a population 

of the small business communities that are uneducated on this. 

Are there any ways that we could improve upon or outreach to 

educate the small business owner or the general public about what 

is available? What is your best suggestion for us to continue to 

reach out to those folks and help them learn how to work with the 

federal government on the contracting? 

Mr.MCCRACKEN. Well, I actually think that the best way is actually to begin on this path that we are talking about, which is 

breaking up a lot of the bundling, because what we have is a situation where the companies who are able to get these contracts are 

the ones who really know how the system works. They specialize 

in them. And the typical small business that might do the occasional government contract is the ones that are most left out, not 

exclusively left out, obviously. So I think that if we can improve the 

system, I think that is the most important piece of it. 

Outreach is what it is, but certainly being much more effective, 

I think, in electronic posting of things, although, actually, you have 

to know about them, but there are some private sector businesses 

that do a pretty good job of letting people know about opportunities 

as well. So the marketplace does, I think, work in that regard. 

Another issue that sort of ties into this that I would just bring 

to your attention, we talk to small businesses all the time because 

it sort of ties into teaming, although not exactly. We talk to small 

businesses all the time who feel like they were used kind of as a 

front for coming to get a contract because they say, ‘‘Well, we are 

going to partner with this company.’’ And they put them in their 

bid and they say they are going to use them, and they never do. 

In fact, that company never winds up getting used by the large 

company who gets the contract, even though they say they are 

going to. That is something that needs to be addressed as well. 

Ms.FALLIN. Have any of you had any experience with the Indian 

tribes? I know I hear a lot about different companies trying to team 

up with Indian tribes to help them on getting federal contracts for 

small business. 

Mr.MCCRACKEN. It’s not an area where I have a great deal of expertise. I know Mr. Parkinson mentioned it specifically in his testimony that it is an issue. It is certainly something that we have 

heard about and are looking into, but I couldn’t speak to it specifically. 

Ms.FALLIN. I think Paul raised his hand there. 

Mr.HSU. Yes, I do. About ten years ago, when I was still in the 

private sector, one of my proteges was the tribal-owned company. 

The tribe is called the Muscogee Creek Indians. They are 80 percent the reservation in Alabama, 20 percent in Florida. So we had 

a strategic alliance agreement with this tribal-owned small machine shop. And we grew the company from 5 people to about 150 

people, yes, about 4 years after that. 

Ms.FALLIN. Thanks. Thank you, Ms. Chair. 

ChairwomanVELA ́ ZQUEZ. Mr. Braley? Yes? 

Mr.BRALEY. Thank you. 

Mr. Hsu, that hot seat you are sitting in is about to get a little 

hotter. You made the comment ‘‘I don’t think the definition is the 

issue. I think enforcement is the issue.’’ And then you said we need 

23

to concentrate on enforcement, not the definition. Yet, at the beginning of your testimony, you said, ‘‘We are going to continue to hold 

agencies accountable for meeting the small business contracting 

goals.’’

I think there are people up here on this panel and a lot of people 

back there in the audience who believe your agency has not been 

enforcing the existing law, the existing regulations, and has not 

been holding agencies accountable for meeting the 23 percent contracting goal. 

So what I want to know is how the culture of the Small Business 

Administration is going to change under your leadership to start to 

meet the goals that Congress has established to give small businesses their fair share of the pie? 

Mr.HSU. Well, sir, as a former small business owner, I can tell 

you this. 

Mr.BRALEY. No, I don’t want to hear your personal perspective. 

I want to hear what you are going to do to change the culture of 

an agency that, quite frankly, has not been very favorable towards 

the businesses it is supposed to be supporting. 

Mr.HSU. Well, with my limited experience with SBA, that is 

quite contrary. 

Mr.BRALEY. Well, that is why we are concerned. You talked 

about having 54 PCRs who work under you. 

Mr.HSU. Yes, sir. 

Mr.BRALEY. And, yet, even though my state represents one percent of the U.S. population and even though this Committee is fortunate to have two University of Iowa law school graduates serving 

as staff counsel, a remarkable achievement,—

[Laughter.] 

Mr.BRALEY. —and considering the advice they provide the small 

business owners in the State of Iowa, we have no PCR serving the 

small business owners of our state, despite the fact that they represent an enormous component of the economic opportunity that 

businesses provide to the people of my state. 

Now, your agency administrator has talked about putting more 

PCRs in the field. And I want you to tell me and the people back 

in Iowa whether one of them is going to be in my state. 

Mr.HSU. Well, it is a hot seat. 

[Laughter.] 

Mr.BRALEY. I think these are reasonable questions that taxpayers of this country have a right to know. Shouldn’t there be a 

PCR in every state in this country? How do we expect to provide 

opportunity and access to small business procurement in federal 

agencies if we don’t have a PCR assisting small businesses 

throughout this country? 

Mr.HSU. Yes, sir. To me it’s an issue of supply and demand. 

Mr.BRALEY. Well, I don’t care about supply and demand. I care 

about the small businesses in Iowa or North Dakota. 

Mr.CHABOT. Madam Chair, sir, if I could ask a procedural question? Is it the policy of this Committee to allow the witnesses to 

answer the questions? 

Mr.BRALEY. I apologize to the ranking member. You are absolutely correct. And I will certainly give the witness the opportunity. 

24

Mr.CHABOT. And I think the gentleman raises very good points 

and points that deserve an answer, but I just think we—

Mr.BRALEY. I apologize. 

Mr.HSU. If the federal government issued a forecast—and we all 

know what the federal government, the DOD, the DOT, whatever, 

and they are looking for. And our job is to match the demand and 

the supply. 

I don’t know the situation in Iowa, but I am hoping that there 

would be a lot of high tech small companies that can manufacture 

the guiding systems, the radar components, you know, and to supply the Boeing, the Lockheed, the Raytheons, the tanks, and whatever the government is required. And that is going to be our job. 

If your state has a big demand for those items, yes, we definitely 

will take a very hard look on that. 

Mr.BRALEY. But isn’t part of the problem that there are states 

in this nation who are growing in population and business opportunity and there are states who aren’t? And if we only tie PCRs 

and outreach to the states that are growing, we are going to continue to reinforce existing negative trends that affect businesses all 

over this country? Isn’t that true? 

Mr.HSU. Yes, sir. 

Mr.BRALEY. Mr. McCracken, I have a question I wanted to ask 

you. One of the things that we know is that this 23 percent contracting goal has been viewed by some agencies as a ceiling, rather 

than as a minimal goal. 

And one of the things you talked about was partnering abuse. 

And I wondered if you could offer some comments on what type of 

penalties might be necessary to minimize and eliminate partnering 

abuse. 

Mr.MCCRACKEN. Well, I certainly think that penalties ought to 

be relatively stiff for that sort of abuse because often because you 

have a small business that I believe is going to have a certain 

amount of work that is coming up. There are things that they have 

to do to get ready for that, but it winds up not happening. 

I mean, that is just how it affects the individual small company 

that is involved in that arrangement. It doesn’t speak to the companies that may not get contracts at all because this contract went 

to a certain company because of what the agencies believed it was 

or was not going to do with the contract itself. 

So I think the penalties should be relatively stiff, you know, perhaps including and going beyond losing the contract. The key is 

there has to be review. I mean, right now they are able to get away 

with this for quite some time before there is the necessary followup on their subcontracting plans. 

So that really is the key, but we would favor pretty substantial 

penalties. 

Mr.BRALEY. Mr. Parkinson, right now the definition of bundling 

excludes certain types of categories. And one of those categories is 

construction. We have heard some testimony about why that has 

existed in the past and whether it is good or not. 

From your perspective, is there any good reason for including 

those categories like construction from unbundling requirements? 

Mr.PARKINSON. Yes, sir. Because construction is a several billiondollar industry. And the participation of small and medium-sized 

25

businesses is critical to that industry. And the fact that with large 

contracts, it limits the small and medium-sized businesses to subcontracting mode. 

Now, the SBA should look and the Congress should look at how 

we can increase small and medium-sized businesses in participating on this federal contract as prime contractors. And by the 

bundling of these projects or these contracts, that will facilitate and 

enable several companies, especially if you talk about the State of 

Iowa and other parts of the country, where you do have large construction companies, most of the members, I would say that $50 to 

$75 million range. And so this would enable them to participate 

and get more work outside of the preference program. 

And, as I said earlier, if a lot of these programs are put in—if 

they are not pretty large, they are put in specific preference programs. And if you are not in a preference program, then you are 

excluded from participating in some of these contracts. 

Mr.BRALEY. Thank you. 

Mr. Hsu, I want to just close by assuring you that my frustration 

was not directed at you personally but, rather, at the agency that 

you are here to represent today and the fact that it has had an impact on business owners all over this country. And I think it is a 

cumulative frustration. So please accept my apology in the spirit it 

was intended. 

ChairwomanVELA ́ ZQUEZ. Well, the frustration—and I just want 

to say, look, you are here. You have been in the job only four 

weeks, but you are now in a position to say to the administration 

that they had better take corrective actions to deal with this issue. 

This is an issue that I have been working the last ten years, like 

Ms. Murphy said, that she has been working on, ten years that I 

have been issuing a scorecard. 

In fact, in 2002, I was so excited when I heard President Bush 

to issue his small business agenda. And he said that at the top of 

that agenda, the number one issue will be contract bundling. 

Well, as a reaction to my excitement to listen to his commitment 

to bundled contracts, I put together another report. And I said, 

‘‘Mr. President, here it is. You don’t have to instruct the agency to 

do any research regarding mega contracts. Here is the list.’’

Do you know how many contracts that were in this list have 

been unbundled? Zero. So we are not going to give up. Believe me 

that we are not going to give up. 

The problem that you have, sir, is that back in 1993, you had 65 

PCRs, 65 PCRs, when the federal buying was $240 billion. Today, 

with a federal buying of $340 billion, you only have 54. So that is 

the problem. 

And now I recognize Ms. Moore. 

Ms.MOORE. Thank you, Madam Chair. I have to apologize for 

being late. Other responsibilities kept me. So I hope I don’t repeat 

things that have already been asked. 

I do have a question for you, Mr. Hsu as it relates to—I think 

Mr. Braley and others have brought it up—about your perception 

that we don’t need to change the definition of contract bundling. So 

I guess my question to you would be as we look at this definition 

and it says that construction, of course, is not included and other 

26

new work that small businesses have not been engaged in previously. 

So I think of building a bridge or building a hospital or housing 

or prosthetics for injured veterans. Almost anything that I can 

think of would fall into the category of any new work that small 

businesses are not already doing. 

So I guess I would like to hear—and hopefully you are not repeating yourself, for the sake of others here who were on time. Can 

you just clarify for me why and how just almost any work you 

could think of wouldn’t be, you know, a small business would be 

excluded? 

Mr.HSU. Yes, ma’am. Maybe I am misspoken about the definition 

versus the enforcement. Definition definitely is important, but I 

think the enforcement is also important because the bottom line, 

there are some contracts that need to be bundled. And some contracts do not need to be bundled. 

Ms.MOORE. Okay. I think I heard that. Well, thank you for that 

answer. There has been a lot of discussion here today about the 

abuse of contracts where larger companies involve smaller companies in a marginal way and then take all of the money. 

One of the things that distressed me recently, we are having a 

Job Corps center built in my district, $28 million project, which 

they claim could not be unbundled. And they are building like 

dorms, a cafeteria, training center, clearly three different components of the same project. 

So when we asked SBA whether or not we could have a consortium of small businesses, like an electrical contractor and carpenters and plumbers, numbers of small businesses get together, 

do what they said they couldn’t do that either. 

So perhaps this is a question for Ms. Murphy and you, too, Mr. 

Hsu, or anyone else who would like. I am having a hard time understanding why we couldn’t have consortia, consortia of small 

businesses, bid on projects. 

Mr.HSU. If I may, ma’am, the consortium of a small business, it 

is a good idea, but the only challenge that we are facing is that 

when the agency lets the contract, they have to look for one, so to 

speak, belly button to push. There has got to be a leader, one leader, and as many followers we don’t really care. But there must be 

one company that has to be the lead. 

Ms.MOORE. Well, then that means that it is wired for a larger 

company, then. 

Mr.HSU. Responsible. 

Ms.MOORE. And then everybody else has to be a sub. 

Mr.HSU. If we don’t, ma’am, you are dealing with 15-20 smaller 

companies. And there is no leadership. There is no—

Ms.MOORE. Mr. Parkinson, do you have any thoughts on that, 

you know, where you could have a consortium, where you could 

have a lead worker, like an architect or someone in charge? Can 

you comment on that and maybe Ms. Murphy? Okay. Grady wants 

to talk about it. Okay. Let me start with Mr. Parkinson. 

Mr.PARKINSON. Well, I guess the SBA can encourage an agency 

to use construction managers. And the construction managers can 

break up the work into packages that can allow small and mediumsized companies to participate as general contractors. 

27

Take, for example, you have a $20 million contract in your district and you hire a construction manager with a fee. And then you 

break the package into mechanical, plumbing, electrical. And you 

can allow a $5 million plumbing contractor or mechanical contractor to bid the job as the prime contractor. And that is the way 

you can get around it where you get as many participation for your 

local contractors—

Ms.MOORE. Did you see that as an ideal situation? 

Mr.PARKINSON. In a lot of cases, it is because it gets the medium 

and small businesses in—

Ms.MOORE. Mr. Taylor? 

Mr.TAYLOR. Congresswoman Moore, as Congresswoman Fallin 

mentioned a while ago, in a teaming arrangement, we do that quite 

often. We have GSA schedule contracts. One of our lead dealers in 

Washington, D.C. administers it. And we have about 100 dealers 

across the country that are all part of that contract. And it has 

been very successful. 

So I would take exception that it is not a possible solution as the 

SBA saying. Frankly, from the SBA perspective, we have notified 

them on numerous occasions about what we consider some of the 

abuses as an organization. 

As independent dealers, we do not feel the SBA is an advocate 

for us. In fact, the ultimately irony is SBA buys all of their office 

supplies from among those four large corporate companies we mentioned earlier. 

ChairwomanVELA ́ ZQUEZ. Timing is expired. We just got a notice 

from the leadership that there are going to be votes soon, like in 

ten minutes. So I would like to recognize Mr. Johnson. 

Ms.MOORE. Madam Chair, I realize my time has expired. I just 

want to comment on this wonderful legislation. And I just hope 

that when it is in its final form, that you will look at this issue 

that I just raised, the teaming you called it,—

ChairwomanVELA ́ ZQUEZ. Yes. 

Ms.MOORE. —as something that we sort of mandate them to do 

if possible. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Ms.MOORE. Thank you. 

Mr.JOHNSON. Thank you, Madam Chair. Sorry for being late. 

Other responsibilities held me up, but I am glad to be here on such 

an important hearing. 

I would like to ask a question of Mr. Hsu. Mr. Hsu, in 2004, the 

SBA proposed to restructure the size standards governing small 

business. And, in essence, the proposal would have collapsed the 

categories from 37 to 10. And the result would have been that 

many large firms would have been defined or the definition would 

have included a lot of large firms, thus excluding a lot of small 

businesses for the sake of federal contracts. This proposal was 

withdrawn after opponents very vocally voiced their concern with 

such changes. 

Does the SBA still believe that changes must be made to the size 

standards? 

Mr.HSU. Yes, sir. We definitely do that. As you know, in September 2006, the SBA and OPP jointly issued a policy to ask the 

small businesses to recertify themselves in the two different cirVerDate 0ct 09 2002 08:29 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34827.TXT LEANN
28

cumstances. What we are really trying to do is to make sure that 

we level the playing field. 

Mr.JOHNSON. Any changes in terms of restructuring the size 

standards, how do they differ, the current methodology, if you will, 

from the 2004 proposed size standard change? 

Mr.HSU. I am really not familiar with that particular issue, Congressman. I will definitely get back to you on that. 

Mr.JOHNSON. All right. How does the SBA plan to fight fraudulent identification of small businesses for the sake of contract 

awarding? 

I know this has been gone over a little previously. I hope I am 

not plowing up any ground that has already been plowed today. 

Mr.HSU. We cannot stop anybody trying to cheat, but there is a 

mechanism built in. It is called protest. And so you would be surprised how well the system really works. So I think the system will 

police itself. 

Mr.JOHNSON. So, in other words, there are no plans to fight 

fraudulent identification by the SBI,—

Mr.HSU. Well, no. I—

Mr.JOHNSON. —no plans to fight fraudulent identification by 

businesses parading as small businesses, when, in fact, they are 

large businesses? Is that what you are saying? 

Mr.HSU. No. I’m pretty sure they are. 

Mr.JOHNSON. But what is this self-policing mechanism? Explain 

that to us. 

Mr.HSU. It is called the protest procedure. 

Mr.JOHNSON. Protest. And who is it that has to protest? 

Mr.HSU. If you don’t feel like the winning company who won the 

bid has qualified, you know, either their capability or the size 

standards, then you definitely have the right to file the protest to 

SBA. 

Mr.JOHNSON. And then—

Mr.HSU. And in SBA, we can also protest the size standard to 

the agency. 

Mr.JOHNSON. So, in other words, it would be on the losing bidder, 

if you will, to protest to I guess the SBA about the fraudulent package that was submitted by the winning bidder? Is that what we 

are—

Mr.HSU. If they are not being honest with themselves, then I 

think we would definitely have the right to check into it and to 

make sure the playing field is level. 

Mr.JOHNSON. All right. Do any of the other panelists have any 

comments on this particular issue? 

Mr.TAYLOR. Congressman Johnson, the only problem is it is very 

costly for an independent small business owner to run through the 

protest procedure with SBA. In essence, if you are not sure you are 

going to win, by the time it is all done, you are out quite a bit of 

money. 

Mr.JOHNSON. So there really needs to be kind of like a policing 

effort by the SBA itself, you would suggest, as opposed to leaving 

the onus on the small business person to contest and then spend 

money all the way through whatever channels there are to try to 

expose the fraud? 

29

Mr.TAYLOR. Absolutely. We are not the experts. We think there 

is somebody else to enforce it for us. We have got to raise a flag 

every time. 

Mr.JOHNSON. All right. Yes, ma’am? 

Ms.MURPHY. I was just going to say that I was really excited 

about four weeks ago to see that the Office of Hearings and Appeals has expanded the period of time that they will consider a size 

protest also. They are now allowing challenges to size, even after 

a contract was awarded. In the past, once a contract was awarded, 

the protest became mooted, for all intents and purposes. That I 

think is going to open up a lot more enforcement possibilities. 

Hopefully also there could be a link between the representations 

and certifications businesses make to some sort of consequences. A 

false representation to the government bears with it potential False 

Claims Act issues, but there has never been a way to define what 

the harm to the government is. When a court will look at that, they 

will say, ‘‘Well, the government still got the value of the goods and 

services they were purchasing.’’

Until there is a way to quantify what the harm to the government is, which could be done legislatively, I don’t think that it is 

going to be very easy to enforce against bad actors. 

Mr.JOHNSON. Has there ever been a referral to the U.S. Attorney’s Office for criminal prosecution that anyone knows of the false 

statements in procuring federal contracts? Would there be anything 

that any of you all know about to prevent that from happening? 

Are the criminal laws sufficient? Mr. Hsu? 

Mr.HSU. Sir, from the SBA point of view, we protest. We can, 

and we will continue to protest to protect the small business. And 

the false certification is definitely a problem. And I guess we are 

trying to stop it. 

Mr.JOHNSON. Well, I guess we will have to take your word on 

that. 

[Laughter.] 

Mr.JOHNSON. How does the SBA ensure that it obtains—

ChairwomanVELA ́ ZQUEZ. Time is expired. I’m sorry, but they are 

going to call votes. And I would like to give an opportunity to Mr. 

Sestak to make a question. 

Mr.SESTAK. Thanks. Thanks, Ms. Chairman. 

This isn’t the question I was going to ask, Ms. Murphy, but as 

I was walking back here from the Armed Services Committee, I understand that you stated that unbundling of already bundled contracts provides a good opportunity for unbundling, correct? 

Ms.MURPHY. In my written testimony, I commented on the fact 

that all of the efforts to date have been focusing on preventing bundling. 

Mr.SESTAK. Right. But there is another opportunity here. 

Ms.MURPHY. There is another opportunity to look at existing contracts or contracts going forward that are not being consolidated 

and seeing if they could be broken out. 

Mr.SESTAK. Does SBA have procedures to search for such contracts or are there tools that we might provide to help move that 

process and take advantage of this new opportunity? 

Ms.MURPHY. SBA actually has specific breakout PCRs as well as 

their regular PCRs, who can review any contract that is not being 

30

set aside for small business. There are over eight million contract 

actions that are taking place each year. So that is a lot of contracts 

for them to be trying to review. 

And the tools that they have, there are tools to go in and protest 

that, but then there is a question of, how does that get resolved? 

Mr.SESTAK. But then what would be the procedures that you 

would recommend to take advantage from what I understand is 

looking for those that are bundled and unbundling them? I mean, 

if I gathered it right, this is an opportunity, but how go about it? 

Ms.MURPHY. I think that when you are looking at each individual contract, one of the parts of the definition that exists in the 

Small Business Act refers to a contract. The only contracts that are 

reviewed are those that are suitable for award to small business. 

The opportunity had to have been suitable for award to small business in the first place before it is reviewed for bundling. 

If you look at the Armed Services’ definition of contract consolidation, it does not include that clause. So it looked at any two contracts that are being brought together or any two requirements and 

doesn’t require that they already be suitable for small business. So 

it gives a greater opportunity to look at the scope of requirements 

that are out there and see if things can be broken out for small 

business. 

If the definition of bundling were reconciled with that of contract 

consolidation, that might provide additional opportunities to break 

out those contracts. 

Mr.SESTAK. All right. And, Mr. Hsu, one question. And I know 

you are relatively new. And I gather this question was probably 

asked in some way, but do we actually have any hard data or is 

hard data available soon that you think can demonstrate that 

there—and potentially you may have answered this—is a movement to be a decrease in bundling? I mean, is there a process by 

which you have been able or is there one ongoing where they can 

reach in and demonstrate an actual decrease? 

Mr.HSU. Well, sir, I think the recertification effort, that will definitely hep to make sure that the small business is small business. 

And to clean up the FPDS-NG file, that also will be very helpful. 

And the bundling issue has a very special place in our heart. We 

understand that. The PCR is working on it very hard. And we review, like I said before, anywhere between 50,000 to 60,000 requirements every year. 

Mr.SESTAK. But is there a data? 

ChairwomanVELA ́ ZQUEZ. This is what we have. Over the last 5 

years, total government contracting dollars have increased by almost 60 percent while the number of contract actions to small businesses declined by 55 percent. 

Mr.SESTAK. Yes. My district gets 6.7 percent, not that it needs 

to be equal to everybody else’s, and lost 607 small businesses. 

Thank you, sir. 

ChairwomanVELA ́ ZQUEZ. Okay. Mr. Chabot, do you have any 

other questions? 

Mr.CHABOT. I don’t have any other questions, Madam Chair, but 

I would just want to just note for the record, just make clear where 

there have been a lot of questions and a lot of responses today, I 

31

think we agree, both majority and minority, that there is an issue 

here, there is a problem that needs to be dealt with. 

We have reviewed pretty thoroughly Mr. Braley’s suggestion and 

have cosponsored the legislation. And I commend him for bringing 

that forward. And I think it is something that this Committee and 

the Small Business Committee need to continue a dialogue and 

open communications and work on a real fix for this because I 

think the small business community; whereas, the SBA does do 

considerable good in some areas, I think that this is an area of 

demonstrated weakness. And we need to make sure that small 

businesses are getting a fair shot at these government contracts. 

And I don’t think it has been established that there are at this 

time. And we need to continue to work, I think, in a bipartisan 

manner to improve the track record. 

ChairwomanVELA ́ ZQUEZ. I thank the gentleman. And I really 

want to thank you and your staff for working in a bipartisan manner to address this issue. 

But before we adjourn, I have two questions that I want to make. 

I want to be helpful in putting the final brushes to the legislation 

that we are trying to mark up on Tuesday. 

Mr. McCracken, do you think a business and an agency should 

both certify that a business is a small business before they can be 

counted as fulfilling a contract goal and requirement? 

Mr.MCCRACKEN. You are saying that the agency that they are 

applying for the contract for should certify they are a small business and they should self-certify they are a small business as well? 

In principle, yes. I haven’t thought through all the machinations of 

how that would work, but in principle, I would think that would 

be a good idea. 

ChairwomanVELA ́ ZQUEZ. But let me ask you, do you think it is 

really difficult and expensive for a small business who bid in a federal contract to challenge that contract? 

Mr.MCCRACKEN. Oh, definitely, absolutely. 

ChairwomanVELA ́ ZQUEZ. Okay. Ms. Murphy, I heard you when 

you talk about the OFPP being a mediator on contract bundles, but 

let me just share this with you. In March of 2002, the President 

charged OMB with developing the plan to address contract bundling as part of the administration’s small business agenda. That 

was when he released his small business agenda. 

Section 7 of executive order 13170 states, ‘‘If there is an 

irresolvable conflict on a bundled contract, then the SBA or the department or agency can seek assistance from OMB. OMB was 

charged with developing a scorecard to hold agencies accountable 

for improving success in achieving small business goals and the 

President’s contract bundling initiative.’’

In August 3rd, 2006, a letter was sent to Senator Snowe, Clay 

Johnson, the Deputy Director for Management within OMB, stating that a senior position in OMB has been designated with primary responsibility for small business issues, including contract 

bundling. 

Can you comment on that? 

Ms.MURPHY. I don’t think that what I am suggesting is actually 

contrary to what you are noting. OMB does have an incredibly important, and particularly OFPP has an incredibly important, role 

32

in telling agencies what will be acceptable in terms of federal contracting practice. 

They chair the committee that creates all the regulations to implement the laws that you all provide us with. However, the executive order you are referring to designates OMB, not OFPP. And I 

think that I was just trying to point out that there is already provision in statute that says OFPP has to keep their hands off of this. 

And so that any way that you are going to go forward with it, 

that it needs to be at least reconciled or addressed. Whether OFPP 

is the appropriate place or whether you want them to be focusing 

on the policies and the implementation of those policies is obviously 

a question for this Committee. I don’t get to make the decisions. 

But I was also suggesting that as you are considering that, there 

are other alternatives that would leave OFPP in a policy role and 

have an independent arbitrator between the two agencies that 

helps them resolves that difficulty. 

ChairwomanVELA ́ ZQUEZ. I hear you. I want to thank you. It has 

been an incredible session, hearing. And, as we mentioned before, 

we intend to mark up this legislation this coming Tuesday. 

Yes, Mr. Braley? 

Mr.BRALEY. Madam Chairwoman, I just want to thank you and 

Ranking Member Chabot for cosponsoring this important bill. And 

I look forward to working with both of you as we move forward 

from this point. I think we have heard today there is a lot of interest in crafting a bipartisan bill that will really address this problem. So thank you both. 

ChairwomanVELA ́ ZQUEZ. Small Business Committee hearing adjourns. 

[Whereupon, at 11:50 a.m., the foregoing matter was concluded.]

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