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FULL COMMITTEE HEARING ON DISASTER

PLANNING AND RECOVERY:

ARE WE READY FOR ANOTHER KATRINA?

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

AUGUST 2, 2007

Serial Number 110-40

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 

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 

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 

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 

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

The Honorable Paul Schneider, U.S. Department of Homeland Security .......... 3

The Honorable Lurita Doan, U.S. Government Services Administration ........... 5

The Honorable Dr. James I. Finley, U.S. Department of Defense ...................... 7

The Honorable Lieutenant General Robert Van Antwerp, U.S. Army Corps 

of Engineers .......................................................................................................... 9

The Honorable Steven C. Preston, U.S. Small Business Administration ........... 11

The Honorable Robert Henke, U.S. Department of Veterans Affairs ................. 13

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 43

Chabot, Hon. Steve .................................................................................................. 45

Altmire, Hon. Jason ................................................................................................. 46

The Honorable Paul Schneider, U.S. Department of Homeland Security .......... 47

The Honorable Lurita Doan, U.S. Government Services Administration ........... 55

The Honorable Dr. James I. Finley, U.S. Department of Defense ...................... 62

The Honorable Lieutenant General Robert Van Antwerp, U.S. Army Corps 

of Engineers .......................................................................................................... 68

The Honorable Steven C. Preston, U.S. Small Business Administration ........... 71

The Honorable Robert Henke, U.S. Department of Veterans Affairs ................. 75

(V) 

(1)

FULL COMMITTEE HEARING ON DISASTER 

PLANNING AND RECOVERY: 

ARE WE READY FOR ANOTHER KATRINA? 

Thursday, August 2, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:05 a.m., inRoom 

2360, Rayburn House Office Building, Hon. Nydia Vela ́zquez 

[Chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Shuler, Gonz ́alez, Braley, 

Johnson, Chabot, Heller. 

Also Present: Representative Jefferson. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. Good morning. I now call this hearing 

to order. 

This hearing continues the committee’s examination of the government’s response to Hurricane Katrina. With the hurricane season upon us, it is critical that we fully understand the ability of 

Federal agencies to serve those affected by large-scale disasters. 

This past April, the Committee held a field hearing in New Orleans 

to review the government’s efforts to include local small businesses 

in Hurricane Katrina recovery contracting. What we found was disappointing. 

The Committee uncovered miscoded contracts and missed opportunities. Local small businesses testified at the hearing that they 

were unable to get prime contracts and that contracts were being 

awarded to large firms from out of State. The agencies’ own data 

supported this testimony. At the end of that hearing, I told the 

agencies that the Committee will continue to monitor their contracting practices in New Orleans. So I have brought them back 

today to update the Committee on their progress. 

Today’s hearing will explore what has been done since we met 

in New Orleans. We will also look at any institutional changes that 

may have been made, updated statistics and plans for future contract awards. 

I have to say that I am disappointed with the submitted testimony. Not one of the agencies testifying today has made local small 

businesses a priority. The testimony does not focus on specific and 

measurable ways to include these local small businesses in the rebuilding effort. At this point, I would expect less lip service and 

more action. The use of local small businesses is vital. It is vital 

2

to the recovery of the gulf coast. These agencies’ witnesses acknowledged as much at our last meeting in front of local small 

business owners. Today, we are going to find out why more action 

has not been taken. 

When we talk about the Federal Government’s response to disasters, we generally talk about the SBA Disaster Loan Program and 

with good reason. In the aftermath of the hurricane, thousands of 

small businesses turned to SBA for financial assistance but, instead, only found frustration and difficulty. Over 200,000 applications set mired in a long processing backlog that took well over a 

year to process. Those victims who were approved for loans often 

waited months to receive any funds. We are also beginning to learn 

that the agencies’ efforts to improve the backlog employed some 

very aggressive tactics which left many disaster victims without 

the help they needed. A recent SBA Inspector General report confirmed this, and this committee continues to review these findings. 

In addition to these concerns, the SBA released a disaster recovery plan that falls short of making the necessary cultural and 

workforce changes to remedy these past problems. While we do 

want to spend time examining this plan, we also need to talk about 

government-wide plans to increase contracting opportunities for 

local small businesses. 

For the agencies here today, it must be a priority for them to ensure that small and local firms are part of any rebuilding process 

following a disaster. As Louisiana, Mississippi and Alabama begin 

the long process of reconstruction, we have already seen the important contributions that can only come from these businesses. Small 

firms are the largest job creators and the engines that power economic growth. Clearly, the Federal Government must focus on 

prioritizing these companies in its gulf coast recovery efforts. 

I look forward to the testimony today and I thank all of the witnesses for making every effort to be with us today. 

I now recognize Mr. Chabot for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you, Madam Chair. 

No one disputes the fact that the Federal Government’s response 

to the gulf coast hurricanes in 2005, particularly in Katrina, was 

not up to the standards it should have been. It was, in general, inadequate. Although, considerable effort was made by many individuals, and there were true heroes involved in the efforts, but there 

certainly were holes. 

The Committee held a field hearing in April to assess the state 

of small business involvement in the recovery. I commend the 

chairwoman for her diligence in the continued oversight to ensure 

that the recovery efforts utilize local small businesses to the extent 

possible. 

Local small business involvement after a disaster is crucial to 

economic recovery. Without economic recovery, an area will never 

return to its pre-disaster status. Businesses located in the area 

have a vested interest in ensuring the economic vitality of the region that they call home. Local businesses will hire members of the 

community to perform the work associated with the response in rebuilding. Funds disbursed will stay in the local area because the 

3

business and the employees are local. Participation by small businesses in disaster response and recovery certainly is valuable to 

the community. However, that must be tempered by the realities 

on the ground related to the disaster. 

Federal, State and local agencies certainly should have in place 

disaster response plans that call for the participation of small businesses but also recognize that the primary mission is health and 

safety, and that must take priority over small business participation. Although, small business participation, as I said before, is important. 

To make these types of decisions, it is necessary to have a comprehensive set of emergency response plans in place. I know that 

Administrator Preston has worked diligently in deriving an emergency response plan, one that provides the necessary response, but 

recognizes that Federal agencies operate under certain fiscal constraints. I am sure that the witnesses at the table will ensure that 

proper coordination takes place among the agencies in response to 

the next major disaster and that the mistakes associated with a response to Hurricane Katrina are not repeated. 

In closing, I would like to thank the distinguished members of 

the panel for coming here today to explain the actions they have 

taken to enhance the participation of small businesses in disaster 

relief and recovery. 

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

ChairwomanVELA ́ ZQUEZ. Thank you. 

Our first witness is the Honorable Paul Schneider. Mr. Schneider 

is the Under Secretary for Management at the Department of 

Homeland Security. He oversees the department’s budget, appropriations, expenditure of funds, accounting and finance, procurement, human resources and personnel, information technology systems, facilities, property, equipment, and other material resources. 

Mr. Schneider previously served as a defense and aerospace consultant and was sworn in at DHS as Under Secretary for Management on January 3rd. 

Welcome, sir. 

I would just like to say that I want every witness to adhere to 

the 5-minute rule, and I am going to be watching the clock because 

we are going to be having a lot of votes today. So I want everyone 

to have the opportunity to make your presentation, but your testimony will be submitted into the record. 

So welcome, sir. 

STATEMENT OF HON. PAUL SCHNEIDER, UNDERSECRETARY 

FOR MANAGEMENT, UNITED STATES DEPARTMENT HOMELAND SECURITY 

Mr.SCHNEIDER. Thank you, Madam Chair, Congressman Chabot 

and members of the Committee. 

Thank you for the opportunity to review the actions of the Department of Homeland Security that we have taken to increase 

contracting opportunities for local small businesses affected by disasters. 

FEMA is the Department’s lead agency, an operational component, and as such, is the focal point for preparing for and responding to disasters. On October 4th, 2006, section 307 of the Stafford 

4

Disaster Relief and Emergency Assistance Act was amended by section 694 of the Department’s Appropriations Act of 2007, public law 

109, 295. 

The amendment required that contracts for major disaster assistance activities be preferentially awarded to local businesses. FEMA 

responded to the change of legislation through the adoption of new 

procedures and strategies that facilitate the maximum level of engagement with local contracting communities. Prior to issuing the 

solicitation, FEMA conducts market research to determine whether 

or not the capabilities of small local businesses meet program requirements. The small local businesses are determined to possess 

the necessary qualifications. Then the solicitation is structured either as a local small business set-aside or as a price evaluation 

preference. If no such business is available, the scope of the setaside is expanded to include all local businesses rather than only 

small local businesses. If no local businesses are available, then the 

geographic scope of the set-aside is expanded to the State level, 

then to the gulf coast region and, finally, open to a national pool 

of contractors. 

On June 22nd, 2007, the Small Business Administration provided the Committee with information of DHS contracting opportunities to small businesses, including small businesses affected by 

Hurricane Katrina and other disasters, utilizing the local set-aside 

discussed above. This list provided seven small business contracting opportunities, ranging from construction to professional, 

administrative and management support services to information 

technology services, including telecommunications and communications in detection equipment. 

Since its establishment in 2003, the Department has had a solid 

small business track record. In 2006, we achieved 31.62 percent in 

small business prime contracting and 10.75 percent for overall 

small disadvantaged business for a total small business obligated 

dollar amount of over $4.4 billion and a total overall small disadvantaged business obligated dollar amount of almost $1.5 billion. 

The government-wide small business goal is set at 23 percent for 

prime contracting. We have shown our strong commitment to small 

business by raising the bar from the 23 percent to a proactive and 

aggressive 30 percent small business goal for 2006-2007. The government-wide small disadvantaged business goal is set at 5 percent. We have set our goal at 8 percent for 2006-2007. 

The U.S. Small Business Administration has recognized the Department’s effort to maximize opportunities for small business. 

During the last 4 years, SBA has twice elected DHS for its top 

award, the Gold Star Award, for overall sustained small business 

achievement and for the Francis Perkins award for women-owned 

small business achievement. I have seen our draft SBA scorecard 

results. They are outstanding, among the best in government, and 

we are very proud of these scores. Our small business office head, 

Mr. Kevin Boshears, who is with me today, was recently recognized 

by the small business community as one of the finest small business advocates in government. 

Despite these actions and our demonstrated track record, we are 

very disappointed that the House action on the DHS fiscal year 

budget zeroed out the accounts that fund our Small Business Office 

5

at DHS. In addition, the House Homeland Security appropriations 

bill, specifically section 537, has words in there that require full 

and open competition for all contracts. This will dramatically impact our ability to meet the small business goals and dramatically 

impact our ability to basically put more dollars in the small business community by requiring full and open competition for all our 

contracting efforts. We are very hopeful that these words and this 

action will be modified during conference. 

Small and local business partners in the Midwest have been integral in meeting FEMA mission requirements, resulting from the 

tornadoes which hit Kansas and the flooding which occurred in 

Missouri this past May. In both areas, FEMA utilized small local 

utility companies in order to restore basic needs back to the affected communities. In addition—

ChairwomanVELA ́ ZQUEZ. Mr. Schneider, your 5 minutes are up. 

You have 30 seconds, but you have an opportunity to make whatever other statement you want. 

Mr.SCHNEIDER. Well, my testimony, Madam Chair, has some of 

the specific contracting actions that we have identified for small 

business in the gulf coast. I will not repeat them here. 

In conclusion, I would like to thank you for your continued support and for the Committee’s continued support of our Department 

and of our small business program, and I would be happy to answer any questions that you may have. 

ChairwomanVELA ́ ZQUEZ. Thank you, sir. 

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

Appendix on page 47.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Ms. Lurita Doan. 

She is the Administrator of the General Services Administration. 

Ms. Doan has served as the Administrator since May 2006. Prior 

to taking this position, Ms. Doan was the owner of a technology 

company. 

Welcome. Again, 5 minutes.

STATEMENT OF HON. LURITA DOAN, ADMINISTRATOR, 

UNITED STATES GOVERNMENT SERVICES ADMINISTRATION 

Ms.DOAN. Thank you. Thank you, Madam Chairwoman, Ranking 

Member Chabot and members of the Committee. 

Creating a more level playing field for all small businesses to 

participate in Federal contracting is one of my core priorities at 

GSA. I have had the unique perspective of founding and running 

a small minority business for 15 years, and for the past year, I 

have had the great privilege to lead GSA and manage the government’s premiere procurement agency. Creating opportunities is a 

special passion for me that I work on every day. At GSA, there has 

been a revolution in our efforts to promote small businesses in Government contracting. During the past year, GSA has awarded 32 

percent of all procurement dollars spent by GSA to small businesses. 

In the gulf region during my tenure, we have awarded 79 percent 

of all contracting actions, and 62 percent of all contracting dollars 

from GSA have gone to small business, and since this past April, 

6

understanding the concerns of the House Small Business Committee, we are increasing our efforts to ensure that the gulf coast 

contracting opportunities go to local small businesses. During the 

next 12 months, I fully expect these numbers to improve, and I will 

tell you why. 

First, I know from experience that the single most important element to ensure small business success is a favorable business environment that rewards and encourages entrepreneurs. The President deserves much credit for creating the economic environment 

that small companies need to grow, emerge and thrive. 

Second, this is a copy of the 1,800-page FAR that governs all 

Federal procurements. It is an amazing document, but it is a big 

beastie, and small companies need our help to navigate the process 

that is oftentimes expensive and time-consuming, and that is why, 

in my first week at GSA, I announced that GSA would commit to 

reducing the amount of time it takes companies, small companies, 

to get a schedule from 157 days to 30 days or less. Lots of folks 

were skeptical, but we did it. As a result, small companies can now 

sell their goods and services to government agencies far faster than 

ever before. I believe a GSA schedule is a small business’s first and 

best chance to become a prime contractor. 

Third, we have a special obligation and an opportunity to help 

restore the economic vitality of the gulf that was devastated by 

Hurricane Katrina. I am from the Ninth Ward in New Orleans, 

and I have firsthand knowledge of the entrepreneurial talents of 

small business resources in the region. Over the past year, GSA 

has sponsored over 25 different small business events in the region, 

and GSA is delivering. During the past year, 62 percent of all contracting dollars spent by GSA in the gulf region were awarded to 

small business. 

Fourth, I am especially proud of GSA’s new VETS GWAC directed at small businesses owned and operated by service-disabled 

veterans. GSA expects to award $5 billion over the next 5 years to 

some of the Nation’s most deserving, dedicated and talented Americans. There can be no better way to honor our service members 

than to encourage their entrepreneurial energies. 

In addition, I am counting on these amazing men and women to 

provide a new source of pride and accountability as they help raise 

the standard of performance in Federal Government contracting. 

You have a determined colleague at GSA, anxious to remove roadblocks to small businesses. We are proud of our recent efforts. We 

are also eager to do more, and we need to do more, and I am especially eager to work with this Committee. 

I want to note that the helpful legislation introduced to reduce 

bundling is going to help create a more level playing field for small 

businesses, and I think that is terrific. I would also like to suggest 

that it is time to take an even bolder approach and to look at ways 

to advance the cause of small business. If you take the time to have 

a closer look at the Federal contracting process, you need to understand exactly why contracting officers try to bundle contracts that 

then become too large for small companies to compete on. What is 

the root cause? What structural problems exist? I think you are 

going to find two big problems. 

7

First, our Federal contracting officers are too risk-averse. Too 

often, it is easier and more bureaucratically acceptable to award a 

Federal contract to one of the big companies that have a longer history. The challenge is analogous to the situation every college graduate experiences when trying to get a job. They are often told they 

have the skills, but the position calls for someone with more experience. They do not have experience because companies are unwilling 

to give them their first break. 

Contracting officers are reluctant to give small companies with 

limited experience a chance because they know that even the 

smallest procedural error could ruin their careers. So they just do 

not do it. They are blamed, punished and vilified, and that has to 

change. We need to encourage them to take risks and to be willing 

to give these small and especially local small companies the opportunity to excel, but I cannot fix this without your help, and I would 

hope that, today, we can begin to work together to solve the problem. 

We must remove all barriers that prevent opportunities being offered to small, minority and women-owned businesses. I have no illusions about how difficult it will be, but to quote the late, great 

Alba Sungadore, ′′We will soon face the choice of doing what is easy 

or doing what is right.′′ GSA is eager and ready to work with the 

Committee to do what is right. 

Thank you. 

ChairwomanVELA ́ ZQUEZ. Thank you, Ms. Doan. 

[The prepared statement of Ms. Doan may be found in the Appendix on page 55.]

ChairwomanVELA ́ ZQUEZ. I understand that you have a family 

commitment and that you are going to stay here until 12:00 o’clock. 

Ms.DOAN. I am going to try and stay as long as I can past that. 

ChairwomanVELA ́ ZQUEZ. Past 12:00? 

Ms.DOAN. Past 12:00. 

ChairwomanVELA ́ ZQUEZ. Thank you very much. 

Our next witness is Dr. James Finley. Dr. Finley is the Deputy 

Under Secretary of Defense for Acquisition and Technology. He is 

responsible for policies and procedures governing the Department 

of Defense’s procurement and acquisition process. Dr. Finley was 

confirmed to this position by the Senate in February 2006. 

STATEMENT OF HON. JAMES FINLEY, DEPUTY UNDERSECRETARY OF DEFENSE FOR ACQUISITION AND TECHNOLOGY, 

UNITED STATES DEPARTMENT OF DEFENSE 

Mr.FINLEY. Good morning. Chairwoman Vela ́zquez, Ranking 

Member Chabot and members of the House Committee on Small 

Business, thank you for inviting me. 

Mr.CHABOT. Would the gentleman yield for just a second. We 

pronounce it ′′sha-but,′′ but you can pronounce it ′′shah-boe,′′ which 

is the French pronunciation, which is fine, but we pronounce it 

′′sha-but,′′ just so it is cleared up. 

Mr.FINLEY. My apologies, sir. 

Mr.CHABOT. Yes. No problem. It is all right, Mr. Finley. Okay. 

Mr.FINLEY. Thank you for inviting me here to appear before you 

today in a follow-up discussion to the meetings we had in New OrVerDate 0ct 09 2002 09:23 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36115.TXT LEANN
8

leans. Katrina was a catastrophe of unprecedented proportion. It is 

a matter of importance for all of us, and I welcome the opportunity 

to participate in this hearing. 

Today, I will focus on three areas—post Katrina local business/

small business performance. I also plan to discuss the steps taken 

to improve the Department of Defense’s emergency acquisition policy so we are ready for the next major event, also the improvements in DOD’s overall small business policy in particular. 

Since our last meeting of post Katrina local small business performance, we have five contracts that we have identified, other 

than what was awarded by the Army Corps of Engineers, that we 

will share with you and that we have submitted in a letter to the 

chairwoman. They are summarized, you know, simply as about a 

$1 million contract to a small business company local in Louisiana 

called Fussell Company Contractors. They do runway repairs. 

A second company is called Cann Contracting, Incorporated, a civil engineering job of about $700,000 to construct a munitions’ 

storage facility. There is a third company called Bechter Aviation, 

contracted for about $560,000 for liquid propellants for jet engines. 

There is a fourth contract for about $300,000, also with Cann Contracting, for construction repairs on runways. There is a fifth company, also with Cann Contracting, for sprinkler system failure at 

about $150,000. 

We have also worked significantly, from a local business point of 

view, with our PTAC organization on procurement and technical 

assistance centers, and we have a tremendous opportunity in New 

Orleans because our boots on the ground in New Orleans have 

been there for over 20 years. We have about nine PTAC people in 

the State of Louisiana, three or four of which are absolutely focused on New Orleans, itself. I have had the opportunity to meet 

them in our previous hearing, and I have also had the opportunity 

to directly talk with them again in preparation for this hearing, 

and I am very pleased to report that there is progress. 

I would say that the New Orleans area, in general, has a fairly 

significant way to go, you know, for restoration of where we used 

to be and where we want to be, but nonetheless, in our previous 

hearing, what we shared with you was that we had about 300 local 

New Orleans’ companies in our database with PTAC pre Katrina. 

Post Katrina, we had 200. We lost about 100 companies we could 

not account for. After the 4/12 hearing, we took action on these 

areas. We also talked to the companies that you identified at the 

hearing. We followed up with about half of those companies that 

we thought we could deal with for DOD business. None of those 

companies, unfortunately, through PTAC could we arrange, you 

know, to find ways to put those into DOD contracts. 

Having said that, the mix today—and getting back to our 300 pre 

Katrina levels—is about 290 companies, small businesses, New Orleans-based, New Orleans doing business in New Orleans, if you 

will, and the mix has changed in what they do. They have changed 

their portfolios a bit, but nonetheless, they are, I would say, vibrant, and they are looking for more business in New Orleans. 

Based on what I have heard from the Army Corps of Engineers 

in preparation for this, I am very optimistic that we will continue 

to grow small business for DOD in that region. 

9

In addition to the small business focus, we are improving our 

DOD emergency acquisition policies. The last time we identified 

several initiatives. This time, we have about seven initiatives. My 

formal hearing testimony identifies each of those initiatives, and I 

will be pleased to talk and to address each of those during the 

hearing. 

In addition to that, improving the overall DOD small business 

policies, we have got about six practices that we are focused on improving. These include some of the things that the previous witnesses have testified about, including bundling and what we are 

doing with acquisition strategies to virtually eliminate bundling, if 

we can, as a practice in DOD. 

In summary, we at the Department of Defense are very committed to the health and welfare of our people and of our Nation. 

We have a strong small business program with strong performing 

organizations such as the United States Army Corps of Engineers 

as well as other support organizations like the PTACs, the Procurement Technical Assistance Centers. We are planning to continue to 

build on those strengths to provide more agility and flexibility for 

the acquisition of our products and services to protect our country 

and to provide emergency health in the time of need due to natural 

disasters here and on the home front and abroad. 

I thank the Committee for their time today and for their leadership in addressing the small business participation in the aftermath of Hurricane Katrina. 

Thank you. 

ChairwomanVELA ́ ZQUEZ. Thank you, sir. 

[The prepared statement of Mr. Finley may be found in the Appendix on page 62.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Lieutenant General 

Robert Van Antwerp. Lieutenant General Van Antwerp is the Chief 

of Engineers for the U.S. Army Corps of Engineers. His office is responsible for defining policy and guidance and setting the directions for the organizations within the Corps. Lieutenant General 

Van Antwerp succeeded Lieutenant General Carl Strock as Chief 

of Engineers in May of this year. 

Welcome, sir.

STATEMENT OF HON. LIEUTENANT GENERAL ROBERT VAN 

ANTWERP, CHIEF OF ENGINEERS, UNITED STATES ARMY 

CORPS OF ENGINEERS 

GeneralVAN ANTWERP. Thank you, Madam Chair, Ranking Member Chabot. Is that close? 

Mr.CHABOT. Chabot. It is ′′Chabot′′ like ′′rabbit.′′

GeneralVAN ANTWERP. Chabot. We will get this right. 

Mr.CHABOT. It is no big deal, really. 

GeneralVAN ANTWERP. I will just call you ′′sir.′′ that is easier for 

me. 

Mr.CHABOT. I will call you ′′sir,′′ too. 

GeneralVAN ANTWERP. Okay. And members of the Committee, I 

thank you for this opportunity to appear before you today. 

10

The Army Corps of Engineers is committed to using local small 

businesses in both our normal course of duty and also in this case 

when we are reviewing times of disaster. 

In your June letter to us, you asked us to identify five small 

businesses that could be prime contractors. I am happy to report 

today that we have awarded five contracts and that we have seven 

more in procurement action for small businesses as the prime contractor in the area of local small businesses. 

I want to just talk for a second about our ongoing and future 

work and one initiative that is, I think, very important in this area. 

First of all, as to our repair and restoration, the appropriated funds 

for that right now are $5.8 billion. Our acquisition plan has 34 percent of that, almost $2 billion, going to prime small business contractors in both just small business, 8(a), HUBZone, and servicedisabled, veteran-owned small business. We anticipate about 150 

contracts all together. 101 of those are going to be set aside for 

small business. Just to report on where we are to date, 65 contracts 

have been awarded. 60 of them have gone to small businesses. 

Just as a sideline, we have two flood fights in the recent past. 

One is in Oklahoma. The other is in Texas. We awarded three contracts in Oklahoma, all three of those to local small businesses and, 

in Texas, two contracts both to local small businesses. 

The initiative I would like to talk about is the Advance Contracting Initiative, and this, of course, is the vehicle the Corps of 

Engineers used to be ready for a disaster so that our response can 

be immediate. We have proposals out there, and we received them 

on June 23rd because we are recompeting or Advance Contracting 

Initiative. Before, all of our contractors were large businesses, 100 

percent, so we are recompeting that, and the proposals have been 

received, and what we are doing is establishing three multiple 

award, task-ordered contracts, and two of those will be for 

HUBZone and 8(a). So, of those three, two-thirds of those, and 

what we will do is we have a local office that is set up, and when 

we have a disaster, they will determine on capacity where that 

award goes, but we think this will greatly facilitate the use of local 

small business. 

Also, we have increased our subcontracting goals for our large 

businesses. They will be hiring in all small business categories, 75 

percent to small business. 

Finally, I would like to say that we have done a lot of engagement down in the Katrina area and in other areas where we have 

had disasters in the past—industry forums, market surveys and all 

kinds of conferences where small business interests are represented of which, as to many of them, either General Strock or 

myself in the future will be speaking. 

Again, I thank you for this opportunity to appear before the 

Committee, and I welcome your questions at the right time. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

[The prepared statement of Lieutenant General Van Antwerp 

may be found in the Appendix on page 68.]

ChairwomanVELA ́ ZQUEZ. Our next witness is the Honorable Steven Preston. Mr. Preston is the Administrator of the Small Business Administration and has testified before this Committee sevVerDate 0ct 09 2002 09:23 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36115.TXT LEANN
11

eral times this year. Mr. Preston was sworn in as Administrator on 

July 11, 2006 after serving as Executive Vice President of the Service Masters Company. 

Welcome, sir.

STATEMENT OF HON. STEVEN PRESTON, ADMINISTRATOR, 

UNITED STATES SMALL BUSINESS ADMINISTRATION 

Mr.PRESTON. Thank you. Good morning, Chairwoman Vela ́zquez. 

Mr. Chabot, I am trying to find a new pronunciation, but you 

know, I have talked to you too many times, so I will stick with 

′′Chabot.′′ Members of the Committee, thank you very much for having me 

here to testify with my colleagues. 

When I came to the Agency just over a year ago, the SBA’s response to the gulf coast hurricanes had many backlogs in it and a 

number of critical areas as you all know. Prior to coming into the 

position, I visited New Orleans to get a firsthand account of the 

pulse on the ground. Obviously, like many of you who have been 

done down there, I was overwhelmed by what I saw, and after visiting both our New Orleans district office and our processing center 

that handles those loans, it became very clear to me that there 

were serious issues we needed to address very quickly. 

We quickly dug into those issues to address them, and we spent 

months listening to and working with our customers, our employees, as well as doing an intensive examination of our operational 

processes. We discovered a number of issues that have led to high 

error rates, backlogs in critical processes and decision-making bottlenecks. 

Today, we have not only redesigned the closing and disbursement 

processes needed to complete our work in the gulf, but we have 

fully reengineered the way that the SBA responds to future disasters to provide dramatically faster and more responsive service to 

disaster victims. 

On June 1st of this year, we presented to the Committee the 

agency’s disaster recovery plan. After months of deliberation and 

countless hours of work, the plan has documented the critical steps 

to be taken by the SBA to prepare for, to respond to and to recover 

from natural disasters. Just as we have learned many lessons and 

made significant contributions on the disaster lending side of our 

response to the 2005 gulf coast hurricanes, we have also done a lot 

of work in assessing our role in the contracting process during the 

rescue relief and reconstruction of the region, and we have made 

important progress on that front as well. The SBA was and continues to be committed to making sure that our small business customers receive fair opportunities following natural disasters. In the 

interest of time, I will dispense with a lot of the statistics. I think 

they are in my testimony, my written testimony that has been submitted. 

As we have done on the lending side in our disaster response, we 

are also looking at our role in the post-disaster procurement process. Rebuilding communities after a disaster requires tremendous 

strength and dedication from the individuals who live there as well 

as from the small businesses that provide jobs and long-term ecoVerDate 0ct 09 2002 09:23 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36115.TXT LEANN
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nomic stability. The SBA has acquired the responsibility for the 

Hurricane Contracting Information Center from the Department of 

Commerce. We have identified an intake point for the information 

on disaster contracts for coordinating staff communication between 

government contracting and our disaster call center and our renaming of the Disaster Contracting Assistance Center. 

Additionally, the SBA has begun an initiative to refocus the 

workload of our PCRs throughout our field network to work more 

intensively and specifically with contracting officers and specialists 

at the purchasing agencies to identify opportunities for small businesses. Our district office will be working more intensively with the 

small businesses themselves to identify the contracts for which 

they may be eligible to apply as well as finding more small businesses interested in pursuing new contracting opportunities as they 

arise. 

I am accelerating the 2008 hiring decisions for PCRs as well, and 

this month, we will actually have 1,200 people from the SBA across 

the country coming in to train them on many of the new practices 

I am talking about, many of which specifically are business development people. 

Even since our hearing in April, the SBA has participated in and 

has helped lead multiple events designed to expand small business 

opportunities in the gulf, each touching hundreds of small businesses. I personally keynoted the Post Katrina Development Summit, which included 268 small businesses and many Federal as 

well as State level purchasing agencies. 

I also want to point out that, just last week, we announced 

changes to the Surety Bond Program that will help enable small 

businesses to bid on public construction projects. The pricing structure for the surety bond guaranty is now more flexible, which we 

expect will make the product more affordable for small business. 

We are also working with other agencies, including my colleagues 

here at this table, to assist with and to complement their efforts. 

In the coming months, we will be focusing on identifying more 

small businesses that can fulfill their contracting needs. In addition, we plan to work with the Army Corps of Engineers and with 

the GSA as they work to make advance contracting arrangements 

for disaster needs of small business vendors and service providers. 

So thank you for allowing me to testify here today. I also want 

to thank my colleagues here at the table for the work they are 

doing with each one of them. I know they have done a good job of 

elaborating on that, but I want to thank them specifically, and I 

look forward to working with this committee and with my counterparts in the other Federal agencies to continue this important work 

of improving the Federal Government’s disaster response and enabling small businesses to participate more fully in disaster recovery 

and rebuilding efforts. 

Thank you. 

ChairwomanVELA ́ ZQUEZ. Thank you, sir. 

[The prepared statement of Mr. Preston may be found in the Appendix on page 71.]

ChairwomanVELA ́ ZQUEZ. Our next witness is the Honorable Robert Henke. Mr. Henke is the Assistant Secretary for Management 

13

of the Department of Veterans Affairs. He is responsible for the Department’s budget, financial policy and operations, a position of 

material management, real property, asset management, and business oversight. Mr. Henke was sworn into office in November 2005. 

Thank you, sir.

STATEMENT OF HON. ROBERT HENKE, ASSISTANT SECRETARY 

FOR MANAGEMENT, UNITED STATES DEPARTMENT OF VETERANS AFFAIRS 

Mr.HENKE. Yes, ma’am. Thank you, Madam Chair, Ranking 

Member Chabot. I did live in Cincinnati from 1993 to 1997, so I 

am not going to get that name wrong. 

I appreciate the opportunity to discuss the VA’s commitment to 

increasing contracting opportunities for local small businesses participating in rebuilding New Orleans and the greater gulf coast region. 

In the aftermath of Hurricane Katrina, the VA very much wants 

to see a sustainable, vibrant, economic recovery in New Orleans 

and in the rest of the gulf coast region. I am honored to represent 

the totally dedicated VA employees throughout the country who 

serve our veterans and our Nation’s heroes on a daily basis. Last 

April, the VA testified before this committee regarding our complete commitment to small business in New Orleans and the greater gulf coast, and I will use my time this morning to briefly give 

you an update on where we are at. 

We have been an active participant in our outreach efforts to 

small businesses in the southeast region. On May 8th, the VA attended the Vicksburg, Mississippi Business Procurement Opportunities Conference and Trade Fair, sponsored by the Mississippi Development Authority and Mississippi PTAC. The VA representatives spoke with over 200 small businesses regarding opportunities 

for VA hurricane cleanup as well as ongoing operational opportunities. We also participated in the Post Katrina Economic Development Summit in June in New Orleans. VA’s Office of Small Disadvantaged Business Utilization and our gulf coast veterans’ 

health care network discussed VA’s contracting opportunities with 

over 300 small businesses. Firms were provided information, process guidance and networking opportunities for VA post Katrina recovery. 

Since this committee’s hearing on April 12th, we have been in 

nine outreach efforts in the gulf coast region, and we have three 

more planned for before the end of this year. Also, the VA will participate in GSA’s small business conference in New Orleans next 

week on August 9th. 

During the hearing on April 12th, the Committee asked each 

agency to commit to working with the SBA to identify five prime 

contracting opportunities that target the local small businesses. We 

have kept that commitment to you, and I will just review the results briefly. 

At a medical center in Biloxi, a parking lot design-build contract 

solicitation has been released that we project to award this month. 

At a medical center in New Orleans, there are three different 

projects, one to rebuild a pharmacy. We have completed negotiaVerDate 0ct 09 2002 09:23 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36115.TXT LEANN
14

tions with an 8(a) firm. We project to award it this month. Also in 

New Orleans, a roof repair. We project to award that to a local 

small business in September. In New Orleans, as to the demolition 

of a damaged building, a local small business has been identified, 

and we project to award that contract in September. At the VA 

medical center of gulf port, there is the environmental remediation 

of the property, tank removal. A small business set-aside is 

planned, and we project to award that in September as well. 

At April’s hearing, the VA shared with the Committee the fiscal 

year 2006 small business accomplishment of the South Central VA 

Health Care Network. Through June of this year, the network had 

spent approximately $270 million, fully one-third or 33 percent of 

that with small businesses, to include 12 percent with small disadvantaged and 8(a) firms. 

In closing, I want to reassure you, Madam Chair, that the VA is 

committed to small business in general and specifically to those in 

the gulf coast region. 

Thank you for this hearing, and I look forward to your questions. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

[The prepared statement of Mr. Henke may be found in the Appendix on page 75.]

ChairwomanVELA ́ ZQUEZ. Almost 4 months ago, we met in New 

Orleans, and at that hearing, you clearly saw firsthand the agony 

and the frustration of local small businesses. I hope that, today, 

you come out of this hearing understanding that this is more than 

just local small business participation. What this is about are people’s lives in the gulf coast, and of those who have been suffering 

so much, they have a lot to offer in the recovery and reconstruction 

of the gulf coast. 

So, as to my question to each of the witnesses, since I was not 

able to gather this out of your testimony, I would like to start by 

asking each one of you to share their local small business percentages since we met in New Orleans. 

Mr. Schneider. 

Mr.SCHNEIDER. Madam Chair, we wanted to wait until July 31st 

so we could get the most accurate, up-to-date numbers, which is 

why it was not in my submitted testimony, and we will provide the 

tables, but I will give you the rough numbers. 

From April 13th to July 31st, 69 percent of the DHS dollars obligated in the gulf coast were awarded to small businesses. 

ChairwomanVELA ́ ZQUEZ. Sir, I am asking about local small businesses. 

Mr.SCHNEIDER. As to local small businesses, 49 percent of the 

net dollars obligated in the gulf coast region were awarded to local 

businesses, small and large. 

ChairwomanVELA ́ ZQUEZ. No. We need to make a distinction here. 

It is not local businesses. It is local small businesses. 

Mr.SCHNEIDER. I have got that number. It is 33 percent of the 

total dollars obligated that were awarded to local small businesses. 

ChairwomanVELA ́ ZQUEZ. Why is it that you did not include that 

in your testimony? 

Mr.SCHNEIDER. We wanted to wait until the closeout of the books 

on July 31st. There was no way I could get those numbers, get it 

15

into my testimony clearing process and get it to you to meet the 

date or the time that you required. 

ChairwomanVELA ́ ZQUEZ. Let me ask my staff to put up the chart. 

Oh, I am sorry. No. No. I do not want to go there. 

Yes, I will come back to you, sir. 

Ms. Doan, what percentage? 

Ms.DOAN. Thank you. 

22.8 percent of all of the small local business contracts to Louisiana vendors were awarded since April 12th, and our time frame 

only goes through June 30th because that is when our books cut 

off. 

ChairwomanVELA ́ ZQUEZ. Local small businesses. 

Ms.DOAN. Local small businesses, 22.8 percent. 

ChairwomanVELA ́ ZQUEZ. General. 

GeneralVAN ANTWERP. Ma’am, we have awarded 60 of 65 contracts to small businesses. The local small businesses is in the 

neighborhood of 35 percent. 

ChairwomanVELA ́ ZQUEZ. Dr. Finley. 

Mr.FINLEY. Madam Chair, as to the numbers we have, all contractors in the area post 4/12 from our FPDS system are $670 million for all contractors. Instate local contractors amount to $560 

million of that. So it is well over 50 percent. 

ChairwomanVELA ́ ZQUEZ. I am sorry. 

Mr.FINLEY. It is well over 50 percent. 

ChairwomanVELA ́ ZQUEZ. I am asking if this is contracts or 

money, dollars. 

Mr.FINLEY. Dollars. 

ChairwomanVELA ́ ZQUEZ. Dollars. They are not contracts? 

Mr.FINLEY. Dollars. 

ChairwomanVELA ́ ZQUEZ. I will go back to the general. 

Dollars or contracts? 

GeneralVAN ANTWERP. Contracts, ma’am. 

ChairwomanVELA ́ ZQUEZ. Yes. 

Ms.DOAN. We are dollars. 

ChairwomanVELA ́ ZQUEZ. Sir. 

Mr.SCHNEIDER. Dollars. 

ChairwomanVELA ́ ZQUEZ. Mr. Preston. 

Mr.PRESTON. We are really not procuring down there. I think, 

though, you appropriately pointed out in the last hearing that we 

did have some issues with small businesses down there. Our overall percentages for small business were very good, and prior to 

April, they were not good for local small business, and we would 

be happy to work with your committee to help understand why we 

were not doing the job on that. 

ChairwomanVELA ́ ZQUEZ. Mr. Henke. 

Mr.FINLEY. Excuse me, Madam Chair. If I may, I read the number wrong. About 25 percent. All dollars. Local. 

Mr.HENKE. Yes, ma’am. As to the network, 16 South Central 

Health Care Network, the data I have says that they have procured about $88 million to date. 33 percent of that—excuse me. 

That is 33 percent to small businesses, and I also have data that 

indicates—

ChairwomanVELA ́ ZQUEZ. Local businesses? 

16

Mr.HENKE. Ma’am, I do not have that by local. I have it by small 

businesses. 

ChairwomanVELA ́ ZQUEZ. So I will ask you to please provide that 

information to the Committee—

Mr.HENKE. Yes, ma’am. 

ChairwomanVELA ́ ZQUEZ. —in the next 2 weeks. 

The staff, please. I need for Mr. Schneider to look at that. Would 

you turn that, please. Mr. Schneider, you awarded close to $12 million to larger busi- nesses since April, and this is in contrast to a net loss of $82 million in small business contracts due to modifications that removed 

work. 

I just would like to ask you why is it that large firms seem to 

be able to secure contracts when small businesses are losing 

ground. 

Mr.SCHNEIDER. I cannot relate directly to those numbers because 

they do not match with, frankly, the numbers that I work with. I 

think I need to take a couple of minutes to talk about why we deobligate money from contracts, which seems to be what the issue 

is here. 

Most of the contracts that we obligated in the gulf coast are on 

what we call ID/IQ, indefinite delivery/indefinite quantity-type contracts. We have two choices. Our contracting offices have two 

choices. They could either negotiate a specific price for each order 

or they can put out a max price not to exceed, and the reason we 

encourage them to put out the max price not to exceed is to get an 

agreement, to make sure that we have enough ceiling coverage so 

that the work can be done within that, and to get on with the business, okay? 

So what happens is, when we settle up and the work actually 

comes in less, we deobligate money from the contract. The work is 

done. Small business does not lose out. Industry does not lose out. 

The fact of the matter is it is a way of expediting the awarding of 

the contract. We have specific numbers that, in fact, by State show 

the deobligations, but that is the reason for the deobligations. 

ChairwomanVELA ́ ZQUEZ. Sir, first, those numbers are accurate 

numbers, and they are taken from the Federal procurement data 

system that each of you have to submit. Two, what it shows and 

what that chart shows is the fact that, indeed, you are taking 

money away from contracts that were given or awarded to small 

businesses. You came back. You modified those contracts, and you 

took that money away. Small businesses—local small businesses in 

the region—are losing money, but we do not see the same pattern 

with large firms. My question to you is why. 

Mr.SCHNEIDER. Most of the work at large firms is negotiated at 

the actual price of the work. Again, to get on with the work, it is 

contractually expedient that we put out a not-to-exceed ceiling 

price, and the fact is we have two choices. We could either negotiate down to the decibel point the cost of work, in which case that 

would actually delay the execution of the work, or we can agree 

that it will not exceed, get on with the work and settle up with the 

bills. We always make sure that the not-to-exceed is high enough 

to truly cover the cost of the work. So, when we deobligate the 

money from the contract, and this is done after the work is done, 

17

we are basically settling up. The work has been done. It is not a 

question of taking money from the small business. It is a question 

of basically removing the excess dollars that were obligated as part 

of the financial responsibility that we have. 

ChairwomanVELA ́ ZQUEZ. Why is it that it always happens with 

small businesses? You are not seeing that. We are not seeing that 

based on the data that we have analyzed. 

Mr.SCHNEIDER. With most of our large businesses, we negotiate 

the specific price. When we are talking about just in the past—

since post April—that 69 percent of the dollars are being obligated 

to small business, the majority of those dollars are, in fact, due to 

these emerging types of work where we issue the not-to-exceed, and 

where the large businesses are we basically negotiate the specific 

price as opposed to a not-to-exceed. 

ChairwomanVELA ́ ZQUEZ. Look at that chart. Those are the contract losses since April. 

Mr.SCHNEIDER. With all due respect, Madam Chair, they are not 

losses. They are deobligations. There is a significant difference. 

ChairwomanVELA ́ ZQUEZ. Call it the way you want it. 

Mr.SCHNEIDER. That is what the financial people call it. 

ChairwomanVELA ́ ZQUEZ. The fact, sir, is that it is happening 

with small businesses. It is not happening with big firms. Yet, we 

have not gotten to the fact that you are miscoding large firms as 

small businesses. 

Ms. Doan, during the last hearing, you stated that GSA awarded 

more than 70 percent of its contracts to small businesses. In fact, 

since April, when we met in New Orleans, GSA has awarded only 

6.3 percent of its contract dollars to local small businesses. Only 

$62,000 has been awarded to these businesses. When we asked you 

to identify five prime contract opportunities for local small businesses, the GSA provided five contracts but did not address local 

small businesses at all. So I ask you: 

What is it that the GSA is doing to increase the participation of 

local businesses in contracting opportunities? 

Ms.DOAN. First, Madam Chairwoman, out of the contracting dollars, I would like to say that what we reported are Katrina-related 

contracts. We also have contracts which are just for general procurement work, and none of these, of course, show within the construction field contracts that are actually subcontract dollars, 

which would actually also be local small businesses. Unfortunately, 

the way the system is set up for metrics it does not allow you to 

count all of that. 

As for the things that we are doing for small businesses, for local 

small business, first of all, we have issued guidance on the Stafford 

Act, which allows them to have the opportunity to have a local 

preference. I think this is one of the, probably, most important 

things that we are going to be able to do because it became clear 

that a lot of our contracting officers, while they understood that 

was a requirement there, did not necessarily feel as empowered to 

do that, and that is something that I can change. 

We have our Chief Acquisition Officer, who is getting procurement folks who are trained only in disaster recovery. There will be 

training sessions to make them aware of how to utilize and write 

the justifications for local small businesses. We have an invoice 

18

modification process which requires our prime contractors to account on the front of the invoice for all dollars awarded to local 

small businesses. 

We have put in place something called ′′workplace solutions,′′ which allows us to combine our public building service, which has 

the large contracts for construction, and our Federal acquisition 

service, and those—

ChairwomanVELA ́ ZQUEZ. Are you talking about the gulf region? 

Ms.DOAN. Yeah. I am sorry. Yes. Yes, Madam Chairwoman. Yes, 

we are talking about within the gulf region. 

ChairwomanVELA ́ ZQUEZ. But we met in April. 

Ms.DOAN. Yes, I know, ma’am. 

ChairwomanVELA ́ ZQUEZ. From April to this day, you come here, 

and we can point to just only 6.3 percent. You did the same at that 

hearing. 

Ms.DOAN. With all due respect, Madam Chairwoman, I would appreciate the opportunity to come to you at the end of our fiscal 

year. Much of our procurement at GSA happens in the August to 

September time frame when the end of your spending occurs and 

we have put and positioned our contracting folks in place within 

Louisiana, Mississippi, Texas, and Alabama to handle these procurements, and we are set up to handle, and we expect quite a bit 

of procurement in that time frame. 

ChairwomanVELA ́ ZQUEZ. You will come back at the end of fiscal 

year. I promise you that. 

Ms.DOAN. Thank you very much. I appreciate that. 

ChairwomanVELA ́ ZQUEZ. My next question is: Since you spent so 

much time in your testimony talking about VETS GWAC, how 

many local small businesses got awarded any portion of VETS 

GWAC—

Ms.DOAN. I do not have that. 

ChairwomanVELA ́ ZQUEZ. —for the gulf region? 

Ms.DOAN. I do not have that information at this point, but I will 

be happy to follow up with the Committee on that. 

ChairwomanVELA ́ ZQUEZ. Well, your answer is totally irrelevant 

because it did not pertain to the gulf region at all. So that is why 

we cannot have any information as to any of the contracts going 

to local small businesses. It was nationwide. It did not have anything to do—but you spent all of your time talking about this. I 

asked in the letter that I sent to you specifically for you to address 

local small business participation in the region. 

With that, I recognize Mr. Chabot. 

Mr.CHABOT. Thank you, Madam Chair. 

Mr. Schneider, let me begin with you if I can. 

After the gulf coast hurricanes, did FEMA undertake a critical 

review of its coordination with the SBA in responding to natural 

disasters, and if so, what lessons did it learn, and have those been 

implemented? 

Mr.SCHNEIDER. I am not familiar in detail with how they coordinated. I do know, because I researched it in preparation from the 

previous hearing in April, that we were not prepared post Katrina 

for what happened. So I can tell you that we had no people on the 

ground. We had no awareness of small local business. We had no 

contracts people. We had no market analysis of what the industry 

19

could do locally, and so those are the major lessons learned across 

the board. Though, there really was, from what I understand, very 

little interfacing down in that area with the Small Business Administration. 

So what we have done since then is, you know, beef up. We have 

about 60 people. We have contracting officers on site. We work very 

closely with the SBA. We do a tremendous amount of outreach. 

While in the immediate response to Katrina, we awarded major 

contracts to big business, close to 70-some-odd percent of the work 

was actually done by small businesses. So, in the course of doing 

that, we built up a pretty good knowledge on the ground of what 

the capabilities were of small and local business, and we have used 

that. We keep databases. We have outreach. We do forums jointly 

with SBA. We have what I consider to be—I have actually met 

with the people who are working it on the ground, and I think we 

have done a pretty good job to make sure we are much better positioned to handle that type of problem today. 

Mr.CHABOT. If such a review were performed and is in writing 

somewhere, could you make sure that the Committee acquires a 

copy of it, assuming that it is within security requirements and 

thing of that nature? 

Mr.SCHNEIDER. Yes, sir. I will go back and look at that. 

Mr.CHABOT. Thank you very much. 

Ms. Doan, let me turn to you if I can now. 

Is one of the issues associated with contracting with small businesses in these areas such as we are discussing here, in areas 

where there was a disaster, the fact that the area is still recovering 

and that the number of small businesses operating in the area remains well below the prehurricane totals? 

Ms.DOAN. Yes, this is very much a problem. And on Friday, when 

I was actually in New Orleans talking with our contracting officers, 

one of the commitments that we made together is that every month 

we will be hosting from now on training sessions in New Orleans 

that we are going to work around the small business person’s 

schedule because a lot of them, they are the owner of the business, 

and they are working in the business. So they will be very early 

in the morning, during lunch or in the evening, and we will try to 

get them on the GSA schedule, making them aware of procurements. What we have found every month, more businesses are returning to the region, and therefore, it is important for us to be 

constantly refreshing that information. What we have been doing 

in the past—we need to have a regularly scheduled meeting where 

new businesses, when they return to the region, can come to us 

and know that they can get that help and guidance to get those 

Federal contracts. 

Mr.CHABOT. Okay. Thank you. General, are there some functions 

performed by the Corps of Engineers that small businesses, for one 

reason or another, are unable to perform or incapable of performing? And do any of those functions relate to disaster response? 

GeneralVAN ANTWERP. Generally there are always contracts that 

some small businesses can do. But in a disaster, we are finding 

most of those contracts are in the area of water, ice, debris removal, temporary roofing and those things, that they are capable. 

Now, we have found that in some instances, the affected area, the 

20

contractors and some of their workforces are affected initially. So 

one of the things we are looking at is, how do you get them under 

these long-term contracts that are standing so they are geared up 

for it, and they are ready to respond. And then, secondly, can we 

get them re-engaged for those—because we will go to them and say, 

you know, a temporary roof contract, can you do this and do you 

have the capacity. And during the disaster or right after the disaster, we are going to have to contact each one of those firms. But 

we do know who they are, and we have them under a standing contract. So that is our commitment to use them and then we’ll work 

with each one. 

Mr.CHABOT. Let me follow up on that if I can. From your written 

testimony, it appeared that small businesses were to a considerable 

degree limited to debris removal. And are small businesses capable 

of providing other services to the corps in response to the aftermath of the gulf coast hurricanes? And if so, are you going to pursue that area and try to do a better job in the future. 

GeneralVAN ANTWERP. Yes, sir. I think there are two areas. We 

separate this. One is the response to the disaster immediately, and 

then there is the rebuild and restoration. Right now, most of that 

$5.8 billion that I spoke of—and it is in my testimony—is first rehabilitation and restoration of the hurricane protection system. 

And we are using to the maximum extent small businesses in those 

local areas. I would report on one area. Most of our response efforts 

are under FEMA. And there was one area—and this is in the area 

of demolition—that we had a number of contracts prepared for 

demolition, but it has been slow in identifying those areas in the 

parishes for demolition. So FEMA has gone back and taken those 

dollars back. And they will go to individual parishes to do that 

demolition with the idea that the small businesses from those parishes would help with that response. So that is one area we have 

decreased a little bit because the work wasn’t there yet. 

Mr.CHABOT. Thank you. Secretary Finley, in your written testimony, you were—you may have done this in your oral as well—

refer to the reference guide. Does the DOD plan to make the reference guide available on the Web so that small business owners 

know exactly what contracting officers in the field are utilizing 

when they are determining emergency contracts? 

Mr.FINLEY. Yes, sir. The guide has been going through numerous—I have a copy of the latest updates here. It has been going 

through what we call red team review. It will be on the web. It has 

gotten inputs back from the air force, the Navy, Marine Corps and 

the Army. We plan to post this, you know, on the Web site this 

week and start to get feedback. And the first addition of this is 

planned to be issued on or around 1 September this year. 

Mr.CHABOT. Good. I think it is important to let the small business community know exactly as much as possible so they are able 

to bid and that sort of thing. 

Secretary Preston, last year, storm forecasters predicted a more 

active than normal hurricane season and, of course, as we know, 

no major storm made landfall in the U.S. How difficult is it to be 

fiscally responsible with an employee budget yet maintain appropriate readiness for a major disaster on the level of Hurricane 

21

Katrina or Rita or other major disasters that we have had or a 

major earthquake, for example, in California? 

Mr.PRESTON. Sir, it is a balancing act. I do think it takes money 

to be prepared, but I think there are ways that we have looked at 

preparedness that we think are fiscally responsible but also, and 

most importantly, ultimately will be sensitive to the people that we 

are here to serve. I think it hits in two areas. Primarily it hits in—

probably three. It hits in having a system’s capacity to handle the 

volume with your computers. It hits with facilities, having backup 

facilities to help people because we ramp very quickly. And most 

important and most challengingly, it deals with people. And what 

we have done in those areas is we have already expanded our system’s capacity fourfold. So it has been dramatically expanded. We 

have a very specific facility expansion plan with currently active 

backup facility. And then we also work with people at the GSA 

every month to understand what is available in the Federal network should we blow through that which would only anticipate an 

event much bigger than Katrina. And what we have never done before is dramatically expanded our reserve corps. That does cost 

money. It costs money to bring people in every year for a week so 

we can train them. But they stand ready to come and serve. We 

have significantly expanded our lending train for people who are 

not in our disaster business in the SBA. That costs money, but we 

think it is a very frugal way because we are identifying people, 

training them but not fully employing them at this time. And you 

really have to kind of understand how that ramps with the needs. 

But I think we have done a good job of balancing that. 

Mr.CHABOT. Finally, Mr. Henke, since you lived in Cincinnati, 

what I should ask is more, do you miss Skyline Chili, Graeter’s ice 

cream or La Rosa’s Pizza. But I won’t put you on the spot for that. 

Although I will ask—

Mr.HENKE. All of the above, sir. 

Mr.CHABOT. If a similar event like Katrina occurred in the gulf 

coast region or elsewhere, how would the VA’s response differ from 

the response in Katrina? 

Mr.HENKE. We have taken a look at our emergency contracting 

procedures and are trying to establish a core competency in the acquisition workforce to handle that. If you look at VA’s response to 

Katrina, we had frankly a remarkable achievement. Our gulf port 

facility was completely destroyed. It was planned to be consolidated 

with the facility at Biloxi anyway, and we moved ahead and are 

now rebuilding—or expanding our campus in Biloxi, Mississippi. 

The VA care providers in the hospital in New Orleans, there are 

many of them who stayed in the bed tower, in the hospital in New 

Orleans tending to their patients and evacuating their patients as 

they could. And they could see from the hospital tower where their 

own homes had been flooded, had been destroyed. So we are actually quite proud of our performance and our response. We didn’t 

lose a single patient and many of them were in critical care. But 

we did extraordinary things to evacuate them to safety. We quickly 

established three new community clinics in Hammond, Slidell and 

LaPlace, Louisiana, to re-establish the VA presence in the area and 

start to provide that care. And the workload for veteran patients 

22

is showing up and is reappearing in the New Orleans area. So we 

are very proud of what the VA employees did in that region. 

Mr.CHABOT. Thank you very much. 

Yield back, Madame Chair. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Gonza ́lez.Mr.GONZA ́LEZ. Thank you very much, Madame 

Chairwoman. First, it is going to be an observation. 

Assistant Deputy Schneider, you made a comment about legislative language out there, about having full and open contracts that 

you think may impede. But let me explain, I guess, from the perspective of Congress. The purpose of that language that we are attempting to put in legislation is to address some problems. And one 

of those, of course, is to assure that we don’t have a proliferation 

of no-bid contracts, for instance, or to make sure that we don’t have 

favoritism based on political party affiliation demonstrated in the 

awarding of contracts. I will agree with you that we have to be 

very careful that there may be some unintended consequences 

which I think we can address. So I do appreciate the import of your 

observation, but I want everyone to be abundantly clear of why we 

would have such language. 

My question to you would be the following, and it was somewhat 

addressed with the graphs and stuff. But I am still somewhat confused. In our memo, it says, although the Department of Homeland 

Security awarded 297 of its 340 contracts to small businesses, the 

total dollar value of these awards was negative in your responses 

to the chairwoman’s questions. Let me see if I sort of understand 

this. Let us say you have 100 small business contracts each at a 

dollar, and that is the upper limit—because you are not real sure 

what it will cost at the end of the process. But at the end of this, 

you still have 100 contracts fully completed but you have de-obligated and you are down to $30 for those 100 small businesses. 

Now, you would still take credit for contracting with a hundred 

small businesses, would you not? 

Mr.SCHNEIDER. The number of the small businesses that we contract with doesn’t change. 

Mr.GONZA ́LEZ. Let me stop you there. Now, in reporting to us, 

would you reflect that you have contracted with the small businesses to the tune of $100 or $30? 

Mr.SCHNEIDER. It would originally be—

Mr.GONZA ́LEZ. No, no, no. I want to know, when we look at your 

figures, are you going to report to us that you invested $100 in 

small businesses or $30? 

Mr.SCHNEIDER. The net ultimately would be reported as 30. The 

process would show a de-obligation in the system of what the excess money was. So initially but not to exceed would be recorded. 

Then when the work was done and the work actually came in at 

less money, what was not spent—because it didn’t need to be 

spent—would then be de-obligated. And that de-obligation would 

show as a negative in the system. So you ultimately see the net. 

Mr.GONZA ́LEZ. I will tell you something. I don’t know. Maybe my 

fellow members are in disagreement with me. We are really interested in the net. We understand how you have to do business, and 

I think it is good common sense to say, this is the ceiling, and you 

are not going to exceed it. I understand that. But I think for our 

23

purposes to see what small businesses are really receiving in this 

country, we need to figure out what is the bottom dollar that any 

department or agency is actually paying to that small business. 

That is the reality. Let me move on to something else because I believe our time is going to be up. 

Mr.SCHNEIDER. In response, I will submit these detailed charts 

so you will be able to actually track the flow by State, put in not 

to exceed, de-obligated and net. 

Mr.GONZA ́LEZ. I understand. But we have individuals out there 

that will be using the not-to-exceed numbers as representing the 

effort out there by a department or agency. I am just placing people on notice that, to us, that is irrelevant. It is totally irrelevant. 

If you are the business person on the end of this transaction, I 

guarantee you it is totally irrelevant. 

The next thing is about miscoding. And I am going to quote from 

the memorandum. In looking at the data, the Committee found 

that hundreds of these contracts had been miscoded. Contracts 

with fire departments and cities have been listed as small business 

awards and then also subsidiaries of bigger companies. Now, you 

would think some of these subsidiaries may have misled you. But 

this is the comment that we have in the memo. More often, the 

companies made no effort to self-identify a small business. The 

miscoding then largely occurred at the agency level. Now, as it applies to FEMA and to the Department of Homeland Security, how 

do you respond to that particular assertion in our memorandum? 

Mr.SCHNEIDER. I am not sure that the memorandum that you 

are reading from—yeah, I am not sure specifically how that is 

worded. But let me tell you a little bit about the coding. I went 

through after the last hearing with the contracts expert to actually 

understand how something gets coded in the system. And I asked 

the question, like, how many contract actions we have. We have 

66,000 a year. So with an experienced contract expert, I went 

through them and I said, show me why it is so hard to enter this 

data. What they did was actually walk me through each of the 

lines and show how an experienced contracting officer, sometimes 

based on the choices you have, can make a mistake. Okay? 

And that is why what we do is the following. We have been working closely with the GSA folks. We have identified approximately 

20 different changes that could be made to facilitate the entry. We 

have an outreach program with all of our contracting people in 

terms of how we can do a better job of coding. In November 2006 

and May of 2007, we reviewed 4,000 entries to see how many errors there were. We found errors, and we fixed them. What we try 

to do is figure out where in these lines are the errors being made 

and then let us focus on the attention to fix them. 

The other thing I might point out is this. This is the very last 

thing a contracting officer does after they basically sign off on a 

contract. What we have found is that some of the practices vary. 

Sometimes they actually enter right after they sign off on the contract. Sometimes they wait until the end of the week. Sometimes 

they wait longer. And the longer they wait, the less fresh it is in 

their memory, and there is an opportunity actually for more errors. 

So I think we were aggressively looking at the errors, what causes 

the errors—

24

Mr.GONZA ́LEZ. Secretary Schneider, because my time is going to 

be up. Look, I am not questioning your sincerity and everything. 

I think you were finding some of the problems. We just want you 

to hurry up and fix them. And let me explain why I am saying 

that. I have been handed some information that, in the spring, 106 

miscoded contracts were identified. You still have them on the 

books as constituting small businesses when they are not. One of 

those is the water board of New Orleans. And I can name Oakley, 

Avery Dennison and Global Charter Services and such. So much of 

what you said right now, I don’t think you have even instituted. 

We just want to see something that is a lot more aggressive, much 

more thorough in addressing these problems. When you give us 

these numbers about how you are engaged with small businesses, 

they are not representative. And we are starting off with some base 

information which is incorrect and inaccurate. So we are starting 

with a foundation that is faulty and trying to build on faulty foundations. That won’t do anybody any good, whether it is Congress 

or the department or the agencies. 

With that, I yield back. Thank you, Madame Chair. 

ChairwomanVELA ́ ZQUEZ. The Committee stands in recess subject 

to the call of the chair. 

[Recess.] 

ChairwomanVELA ́ ZQUEZ. The Committee is called to order. 

Mr. Preston, I want to follow up on the miscoding issue that was 

raised by Mr. Gonza ́lez. As we all know, your agency is responsible 

for submitting an accurate report to Congress of small business 

goals. Yet the Committee found approximately 250 miscoded contracts in FPDS, the Federal Procurement Data System, for 

Katrina-related actions and most are still in the data. Since you 

have stated that cleaning up this problem is a priority, can you 

provide the committee with a timeline for when these errors will 

be corrected? 

Mr.PRESTON. Yes. As you know, this has been a big issue for you, 

this has been something we publicly talked about a lot. Last year, 

I sent a letter to all the agency heads, along with people in the 

White House asking for clean data not only going forward but to 

restate 2005 and make sure 2006 was correct. We have worked 

with the agencies very extensively to get to a much cleaner output 

when we look at that data. Paul Bennett from OFPP has also 

asked all the Federal agencies to represent to the White House the 

validation and verification procedures they will have, having third 

parties do that. People are responsible back to him for that. We 

will be making a resubmission of the 2005 data available within 

the next few weeks. That is the result of many months of work 

with the Federal agencies. We think it is a much higher quality 

product. 

I will tell you, 3 and 1/2 million small business actions a year, 

it won’t be perfect. The other thing we are doing is we are working 

with the people at the GSA to make that data—every one of those 

lines of data publicly available and easier and in a more userfriendly format. We are working with people a lot in the process. 

We have a lot of support broadly in the administration. I think the 

agencies have worked very hard on this, but it is a very extensive 

25

project I think that will continue forward for a while before I think 

we really get it right. 

ChairwomanVELA ́ ZQUEZ. When do you think this will be ready? 

Mr.PRESTON. We will have 2005 and—cleaned up 2005 and 2006 

data available this month. 

ChairwomanVELA ́ ZQUEZ. Mr. Schneider, I asked the Department 

of Homeland Security to identify five new prime contracts after our 

April hearing in New Orleans. And in your response, you included 

one that was posted prior to the hearing in April. So since I requested for each one of the agencies to identify five new contracts, 

I will ask you that you identify one new contract, one new prime 

contracts and explain to me first why, when I asked for five prime 

new contracting opportunities, you included one that was old. 

Mr.SCHNEIDER. I wasn’t aware at the time that one contract was 

old. I think it was the seven total, which were, I think, two over 

and above the five you asked for—

ChairwomanVELA ́ ZQUEZ. Well, I want to—

Mr.SCHNEIDER. I will go back and find out why and we will take 

a look to see if there is any other additional contracts. But, you 

know, I don’t know why the one. But we did provide five. 

ChairwomanVELA ́ ZQUEZ. Well, I will ask that, in the next 2 

weeks, you provide information with the five new contracts going 

forward after the April hearing. My understanding is that two of 

the contracts were listed twice, so that is why you come up with 

the seven contracts. So we need accurate information. And I please 

ask you that you submit it to the Committee in the next 2 weeks. 

Mr.SCHNEIDER. Sure. 

ChairwomanVELA ́ ZQUEZ. Mr. Van Antwerp, In your testimony, 

you mentioned that your debris removal contracts will be more 

small-business friendly. You mentioned 8(a) and HUBZone set 

asides. But now only one mechanism to ensure local firms are included. So my question is, why is it that you are not using set 

asides for local small business participation. 

GeneralVAN ANTWERP. Ma’am, I am not sure exactly how we can 

code local small business. And we are trying to come to grips with 

this as we look at how we code them. But we have small business. 

But we will go after that local small business set aside. 

ChairwomanVELA ́ ZQUEZ. If your staff has problems in identifying 

or the definition, I would suggest that you get the assistance of the 

Small Business Administration. 

GeneralVAN ANTWERP. Thank you, ma’am. 

ChairwomanVELA ́ ZQUEZ. Mr. Henke, at the hearing in April, Admiral Dunn, who represented your agency at the time, testified 

that the agency’s policy for the veterans’ medical center was to 

have large prime contractors and involve small businesses only at 

the subcontractor level. And he, in our exchange, basically made 

the statement that he thought, based on experience but not on 

data, that there will be no local small businesses that could do the 

job that was required. So in the contracts that you are submitting 

to the Committee, there were prime small business contracts for 

the VA medical center; right? 

Mr.HENKE. Yes, ma’am. 

ChairwomanVELA ́ ZQUEZ. So, I guess that Mr. Dunn was wrong in 

his statement because when he came in April, he said there is no 

26

way that we could identify or set aside five prime contracts for 

small business, yet you are submitting prime contracts for small 

businesses to our Committee. So what happened between then and 

now? 

Mr.PRESTON. Ma’am, I am not exactly sure what Admiral Dunn 

said before the Committee. Perhaps the discussion was about the 

construction effort that the VA must undertake in New Orleans. 

But I know that when the admiral responded, when the VA responded in the letter, we did provide the five, and we are executing 

two of them this month and three of them next month. We expect 

to award all five here in the next month or two. 

ChairwomanVELA ́ ZQUEZ. You are expecting to? 

Mr.HENKE. Yes. 

ChairwomanVELA ́ ZQUEZ. When. 

Mr.HENKE. Two in August and three in September is the expected award date for these five efforts. 

ChairwomanVELA ́ ZQUEZ. Mr. Finley, at 4:30 p.m. Yesterday, 

DOD finally provided contracts in response to the Committee’s request. These were all contracts that had already been awarded. 

The purpose of my request after the April hearing was for the 

agency to show what they planned to do going forward. What DOD 

did instead was wait until the last minute and then simply go back 

and pull from the contracts that they have already let. And I have 

to tell you that this demonstrates a lack of goodwill on the part of 

the department. And then to wait 4 months for you to comply with 

the Committee’s request and not providing any new prime contracts, that is unbelievable. Four months. Sir, I thought that military time was more prompt than 4 months. Do you have anything 

to say? 

Mr.FINLEY. Yes, Madame Chair. 

First of all, I apologize for the very late response. The letter that 

you sent to us unfortunately did not reach our office in what you 

might consider a normal fashion. Everything gets checked for 

chemical, biological things. It came in through our normal mail and 

it—

ChairwomanVELA ́ ZQUEZ. Two months—excuse me. What do you 

mean by, ′′it didn’t reach your office in a timely manner′′? 

Mr.FINLEY. It didn’t reach our office in more of what I consider 

a timely fashion. I am not using it as an excuse. I am using it as 

an example of what slowed our system down. 

ChairwomanVELA ́ ZQUEZ. Sir, you have to check your system. 

This is the military. Huh? We send it electronically, too. 

Mr.FINLEY. I will double check on that as well, ma’am. As a point 

of the contracts themselves, Madame Chair, I am not aware that 

these were already awarded prior to 4/12. My information was that 

these were awarded post-4/12. And I will take that question for the 

record, and we will get back to you on the facts of those programs. 

And if we cannot find that those are the proper timed programs, 

we will certainly work to identifying in the next 2 weeks five contracts that do fit post-4/12 awards. 

ChairwomanVELA ́ ZQUEZ. Those contracts were awarded prior to 

the April field hearing. I am asking you that you go back and identify five new prime contracts that will be posted after this hearing 

for local small businesses. 

27

Mr.FINLEY. Okay. Ma’am. 

ChairwomanVELA ́ ZQUEZ. I ask that you comply in 30 days. 

Mr.FINLEY. I will. 

ChairwomanVELA ́ ZQUEZ. Now I recognize Mr. Chabot. 

Mr.CHABOT. Thank you, Madame Chair. 

Mr. Preston, let me begin with you if I can. I just have a few 

questions. Not terribly in depth with anybody at this point. But did 

the SBA use the disaster response plan in response to the tornados 

that occurred a few months back that devastated Greensburg, Kansas? Because, obviously, Katrina was, you know, a number of years 

ago and you all came up with a different disaster plan, I think, 

which was supposed to be more efficient. And how did it work in 

the Kansas situation? What kind of differences—

Mr.PRESTON. In Kansas, also with the tornados in Florida and in 

many other cases, a lot of the changes that have occurred over the 

last year and many which are described in the disaster recovery 

plan were in place for those disasters. We saw a very responsive 

turnaround time both for people getting approved for their applications and actually getting disbursements. In fact, in Florida, the 

local newspaper highlighted the reforms of the agency and how responsive we had been down there. 

Mr.CHABOT. Thank you. 

And finally, for any of the panel members that might like to respond, I would be happy to give each of you, you know, a minute 

or so if you would like to just to maybe clarify anything that you 

think you would like to bring out in response to any of the questions that might have been asked or any points that you think that 

you didn’t have adequate time to explain your answers. I would be 

happy to give you that time now, approximately a minute each. 

You don’t have to take it. But if there is something you would like 

to clarify, I would be happy to hear it. I begin with you, Mr. 

Schneider. 

Mr.SCHNEIDER. Yes, sir. I appreciate the opportunity. I would 

like to follow up on the discussion with Congressman Gonza ́lez. His 

discussion of our concern about the appropriations bill where specifically that Section 537 where he, I think, used the term there 

may be some unintended consequences. We are very much worried 

about this. While our department clearly supports the tenets of 

competition and the benefits of it, basically the restrictions, the 

way we see this would be absolutely detrimental to all of our efforts in small business HUBZones, small disadvantaged businesses, 

woman-owned businesses, et cetera. So the Secretary is given by 

the statute very limited authority only in terms of national emergency. So anything that you can do, we would really ask for your 

support basically in conference in getting this turned around. This 

is a big deal for us, so we would appreciate your help in that regard, as well as frankly the salary lines for the account that basically funds the small business office. 

Mr.CHABOT. Thank you. And we can just go down the line. 

ChairwomanVELA ́ ZQUEZ. Yield? 

Mr.CHABOT. I would be happy to yield. 

ChairwomanVELA ́ ZQUEZ. Sir, can you explain to me more specifically how to have these full and open is bad? 

28

Mr.SCHNEIDER. Yes, Madame Chair. Section 537 states none of 

the funds appropriated in this act may be obligated for a grant or 

a contract awarded by a means other than full and open competition other than a grant distributed by a formula or other mechanism that is required by statute. The Secretary of Homeland Security may waive the application of this subsection during a national 

emergency. So full and open competition is full and open competition for all businesses. That means we would, except in the case 

of a national emergency, not be able to set aside a procurement for 

small business. We are all for competition. We want the benefits 

to be able to execute the small business programs that we have 

been executing because we think they are absolutely essential to 

stimulate growth in that particular area of the economy. 

ChairwomanVELA ́ ZQUEZ. That is a matter for interpretation. 

Mr.SCHNEIDER. This is one of the reasons why we have taken, 

our department, very strong exception to this because we believe 

we are significantly disadvantaged by that statute as currently 

written. 

Mr.CHABOT. I reclaim my time, unless you need to continue, Madame Chair. 

ChairwomanVELA ́ ZQUEZ. Yeah. The issue at hand today is local 

small business participation. This is going forward. The fact of the 

matter is small business participation by each and every one of the 

agencies represented here in the gulf coast. And there is no way 

that we can rebuild the gulf coast region if we do not address the 

issue of fair participation by the same businesses, local small businesses that will be the ones creating the jobs, to help the region 

recover. This segment called for transparency, and that is good for 

big business and small business. 

Mr.CHABOT. Reclaiming my time. 

Ms. Doan, did you—

Ms.DOAN. I would also like to add that GSA believes the other 

way to revitalize the gulf coast region is by ensuring that local 

small businesses actually participate in the National Federal contracting arena. And that is one of the reasons why our GWACs are 

so important. If we can get them on the schedule, our GSA schedules, if we can get them on our other government wide acquisition 

contracts, it gives them a chance to participate in all of the Federal 

contracting dollars that are available. 

And I appreciate, Madame Chairwoman, that you mentioned that 

the gulf coast region is more than just Louisiana. Because, for example, you know, Alabama was also affected, and we have 8(a) 

stars which are the 8(a) set-aside contracts awarded to gulf coast 

companies there. Each of these are ways, even though they are participating on a nationwide arena, to help revitalize that region. And 

GSA is small-business friendly. We are local-small-business friendly. And we will continue to work with this Committee to be aggressive in pursuing these opportunities. Thank you. 

Mr.CHABOT. Thank you. And we can go down the line. If you 

don’t need to take time, that is fine. 

GeneralVAN ANTWERP. I might just very quickly say—give a status report. We are at about the pre-Katrina authorized level as we 

do the recovery, but that means we have got a very large effort to 

get to the 100-year storm protection. So there will be more opporVerDate 0ct 09 2002 09:23 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36115.TXT LEANN
29

tunity here from the Corps of Engineers where we have a good acquisition plan to involve local small businesses in that next piece 

to go to the 100-year storm protection. And then, as I said earlier, 

for the advanced contracts to be ready for the next hurricane, we 

have the RFPN, and we have got a situation in place where we will 

use as much small business effort as they can provide. 

Mr.CHABOT. Secretary Finley? 

Mr.FINLEY. I will simply reinforce and endorse that local small 

business is the key, is the focus. We have boots on the ground 

through our PTACs in New Orleans, and we are absolutely using 

them as a focus and barometer of our success in making results 

happen in New Orleans in particular. 

ChairwomanVELA ́ ZQUEZ. Director Preston. 

Mr.PRESTON. I want to say, in the last year, certainly some of the 

successes we have had down there as well as the lack of successes 

has taught us a lot this year. And it has allowed us to refocused 

our PCRs. We are in the process right now—in fact, I think we 

rolled it out last week, a tool to help Federal contracting officers 

electronically identify small businesses specifically in the preference areas to support their work. I think it has helped us get a 

much better degree of coordination across the agencies going forward. That is going to be a critical element. And certainly, just as 

the leader of the agency, it is put on my radar screen much more 

clearly in the realization that the leadership for this type of thing 

does need to be at the top. I think we are in a better position than 

we have been before, and we will continue to make good progress. 

Mr.CHABOT. Secretary Henke. 

Mr.HENKE. Yes, sir. I’d just make two quick points. The VA is 

very committed to ensuring that we meet our small business goals. 

We met them last year. Our goal is 23 percent. We made 28 percent. End of note, VA—as VA should be—we made the goal for 

service-disabled veteran-owned small businesses, one of two agencies to do that. We are proud of that accomplishment, and we are 

moving forward to implement new legislation that the Congress 

gave us last year, to put service-disabled veteran-owned and veteran-owned businesses at the head of the line. 

Second point, sir, on the VA medical center in New Orleans, we 

are very committed—the VA is very committed to re-establishing a 

presence, a commanding presence in New Orleans. We want to put 

our medical center back down there. We do need Congress’s help 

in one way. We have the $625 million appropriated for construction 

to build a facility. We have only $300 million authorized to do that. 

So we need congressional authorization to move ahead on that 

project when the time comes. We are very committed to a partnership with LSU in the area. And we are very close to a site selection. But this hospital in New Orleans, the VA facility will be a 

million—more than a million gross square feet. We hope it will include more than 140 hospital beds. The outpatient clinic has the 

capacity to receive 410,000 visits per year and a 60-bed nursing 

home. So we intend for this to be a state-of-the-art facility. We are 

pursuing collaboration vigorously with LSU and want to find ways 

we can collaborate and work together. We need congressional help 

to get the project fully authorized so that, when we come to the 

construction point, we can do that. Thank you. 

30

Mr.CHABOT. Madame Chair, I yield back the balance of my time. 

ChairwomanVELA ́ ZQUEZ. Mr. Braley. 

Mr.BRALEY. Thank you, Madame Chairwoman and Ranking 

Member Chabot for holding this important hearing. 

One of the important pieces of legislation to come out of this 

Committee this year was a Small Business Fairness in Contracting 

Act which I was very proud to sponsor and which had overwhelming bipartisan support from the Committee as a whole and 

on the House floor where it passed with 409 votes. And the chairwoman and Ranking Member Chabot were both cosponsors of that 

legislation. So my question for the entire panel is, are you aware 

of the requirements of the act? And what, if anything, are your 

agencies doing to prepare for it in the event that the President 

signs it into law? 

Mr.SCHNEIDER. I am not. 

Ms.DOAN. I know there were several portions—and, yes, we are 

aware of the act, and our chief acquisition officer is working on a 

plan. One of the clauses, or whatever you want to call it, in the 

plan is, of course, the anti-bundling, and we at GSA, and I in particular, are very proactive in trying to prevent anti-bundling because it is probably one of the hardest things as a small business 

to try to perform on these really huge contracts. And I might add 

that is one of the initiatives that we are working on because one 

of the ways that we can prevent the tendency to bundle is to make 

our contracting officers comfortable with taking the risk and making those awards to small businesses and knowing that they can 

provide those goods and services, that they have that ability to 

excel. And that is one of the things we are working on, is to provide 

that guidance to our contracting officers so that they will give those 

small businesses a chance. And you missed my earlier statement, 

but I said I actually think that it is terrific. The small womenowned business clause is in it. We also have a group that is working on trying to make opportunities available to women-owned 

businesses. We are working on, how do we handle mid-size business opportunities? So, yes, we are aware of it. We look forward to 

working with the Committee on all the many aspects of this legislation. 

Mr.BRALEY. Ms. Doan, can we take it from that testimony, then, 

you would be on record as supporting the anti-bundling provisions 

of the Small Business Fairness in Contracting Act. 

Ms.DOAN. Actually when I was looking at it the other evening, 

there are four or five different clauses or phrases or caveats in it. 

And what we are doing at GSA is trying as hard as possible to develop our approach to each one of these. The ones that we can support, we obviously will. I will tell you that there are some challenges with it in that we have to balance this with the need to respond to other congressional requirements and other statutes. For 

example, enterprises architecture. Enterprise architecture in and of 

itself is in a way a sort of bundling because they are saying that 

you have to have one platform, one performing in a particular area. 

But those are things we will look forward to working with the 

Committee on trying to redefine and find ways to make these opportunities available to small business. 

31

Mr.BRALEY. But can we take it from your testimony that you at 

least in concept support the idea of eliminating bundling obstacles 

that prevent small businesses from getting their fair share of the 

Federal pie? 

Ms.DOAN. As much as possible whenever something comes over 

my desk that I have actually seen that implies there is bundling 

involved, I usually say no. 

GeneralVAN ANTWERP. Sir, I am aware of the Fairness in Contracting Act, and I would agree with your statement that we want 

to make sure that we have removed the obstacles and so, in your 

words, eliminating the bundling obstacles. We are in agreement 

with that. 

Mr.FINLEY. Sir, I would reiterate that we would very much like 

to work with the Committee on this. I personally have not reviewed 

the language. Bundling is something that we are opposed to. And 

from an acquisition strategy, we do everything we can to avoid it. 

But we very much would like to work closely with the Committee 

and perhaps yourself to better define what the concerns would be, 

if any, and work together to find a way out so that when it became 

law, we could implement it right away. 

Mr.BRALEY. Mr. Preston? 

Mr.PRESTON. I think the big issue for us is how to support the 

people at the table as effectively as possible. It will require us to 

really redouble our focus in ensuring that they see the right small 

businesses, that we see all the contracts that are available for 

small business to work our network. So, in some ways, I think it 

will up our workload, but that is a good thing because I think it 

will intensify people’s focus on the small business needs and give 

us an opportunity to be in the middle of that process. 

Mr.BRALEY. Administrator Henke. 

Mr.HENKE. Sir, I am not familiar with the details of the legislation you cited. But the VA has a proactive effort to reduce contract 

bundling. It is required that we review every action that is $2 million or above. At the VA, we cut that threshold in half. We review 

every action over a million dollars. We have reviewed over a thousand contract actions and returned about 20 percent of those back 

to the acquisition professionals to say that this needs to be 

unbundled. So we take that effort very seriously. 

Mr.BRALEY. Thank you, Madame Chairwoman. 

ChairwomanVELA ́ ZQUEZ. Mr. Jefferson. 

Mr.JEFFERSON. I am going to commend you and the ranking 

member for the work that you have done in New Orleans and the 

field hearings, all the special attention you’ve paid is extraordinary. 

And on the awards received this past weekend from the Black 

Chamber of Commerce, the Mitchell award, the highest award they 

can give, I think you deserve it. And I appreciate the work you 

have done to continue the focus on the recovery of the gulf. Mr. 

Braley asked the question whether you supported his act. This 

bundling issue is one of the largest ones that we are dealing with 

down home. The question that I would like to ask is—because the 

chair lady is concerned, and we all are, about going forward. We 

know that it hasn’t worked so far. Whatever you have done to deal 

with the anti-bundling issue hasn’t really worked now. My question 

is, if you support this legislation, in what particular ways do you 

32

envision undoing this issue of bundling? What specific steps are 

you going to take to make sure this doesn’t happen in the future? 

Each of you, if you want to answer that. And the other question 

I want to ask—because Mr. Hsu came before us sometime ago to 

say that—he was the associate administrator for government contracting—who said that his job is to contact each agency under the 

leadership of Mr. Preston and to engage each agency in finding 

new opportunities for small business. I wonder, have you been contacted, any of your agencies, by Mr. Hsu? Has he gotten his program underway to help you identify—work with you to identify 

small business procurement opportunities? And has he emphasized 

the issue of local small business opportunities that we are emphasizing at this hearing? 

Mr.SCHNEIDER. Well, Congressman, I will answer that last part 

first. The talking to Mr. Boshears, who is the head of our small 

business, yes, his staff has worked with our staffs looking at potential opportunities. So it sounds like that is working, at least from 

what Mr. Boshears tells me. I can tell you just—

Mr.JEFFERSON. What kind of schedule are you on with him to get 

back to him with some answers? 

Mr.SCHNEIDER. It is an ongoing dialogue. And I would expect 

frankly that it would be because what we would be interested in 

is a continuing evolution to continuously identify those capabilities. 

I think as I indicated in response to your earlier question, I have 

not read that legislation. Just picking up from the discussion, clearly it addresses bundling. I can tell you that what we do in terms 

of our—from our contracting—from our chief procurement officer 

perspective and in her dealings with all the chief procurement offices in the department, what we do is encourage and we highlight 

the need to basically eliminate the bundling of contracts where it 

doesn’t make any sense. 

Mr.JEFFERSON. I’d encourage you to think hard about that, think 

about some new ways to get after this issue. Have you given this 

any thought, Madame Secretary. 

Ms.DOAN. I have given it enormous thought. And the first thing 

I have done is, every time an opportunity has come across my desk 

that appears to be bundling, I say no to it. I did that my second 

week on the job with a $200 million award that was going to go 

to a large business. And I said this has to be offered to our small 

and minority business community before—

Mr.JEFFERSON. Have you given particular emphasis of this and 

what is going on—

Ms.DOAN. Yes. As a matter of fact, I did. And one of the things 

I realized is required is our contracting officers get a little risk 

averse because they have to write justifications or validations because of the nuances. Is it debris removal? Is it collections? So it 

occurred to me that I as administrator have the ability to issue a 

GSA order that gives them the cover, that basically says all contracts that are performed in the region—

Mr.JEFFERSON. This is something new you have come up with. 

Ms.DOAN. Yes, it is, because I realize more has to be done in 

order to empower our contracting officers to—

Mr.JEFFERSON. This is a very recent action you are taking. 

Ms.DOAN. Yes. 

33

Mr.JEFFERSON. So you think this will cure some of the issues we 

are talking about here with respect to this fuzziness that may exist 

as to what agencies can and cannot do. 

Ms.DOAN. I believe it will help. I intend to monitor it very, very 

closely. And since we will meet sometime after September 30th, I 

imagine I will be happy to present you with any results that we 

have had as a result of that. But I also believe that it is really important for us to work with our contracting officers. And our chief 

acquisition officer is providing training for them to make sure that 

they feel empowered to go to the local small businesses. 

Mr.JEFFERSON. General? 

GeneralVAN ANTWERP. First of all, I don’t believe that we have 

been contacted from my small business people, so we need to make 

contact on that. Of your question with Mr. Hsu—

Mr.JEFFERSON. Mr. Hsu’s job is to contact you and to try to advocate for small business, to find opportunities within your agency. 

GeneralVAN ANTWERP. To my knowledge, we haven’t been contacted yet. 

Mr.JEFFERSON. What specific steps are you taking different from 

what you have taken in the past to deal with the bundling issue? 

GeneralVAN ANTWERP. It is a great question. The best indicator 

is in our advance contract initiative. We have three task force orders that we have out there, and we have set two of those aside 

for small businesses. And that is because the theory before was, get 

someone that has the total capacity to do it in all different phases 

of it. But now we are breaking it up so it may be on a parish-byparish level. So we are carving that out and taking those things 

apart, and we will apply them as the small businesses have capacity. 

Mr.FINLEY. Congressman Jefferson, we have a regular discussion 

ongoing that the small business—Mr. Preston and myself stay in 

touch a couple of times every couple of weeks. Mr. Hsu has clearly 

been in touch with myself. He has been in touch with Anthony 

Martocchia, our new director of small business programs. This particular subject matter has come up. We in the DOD have been 

streamlining and simplifying our acquisition processes on a 

grander scale. And as it comes into small business programs, we 

are putting in metrics and our acquisition strategies have checks 

and balances to eliminate bundling. We are fundamentally opposed 

to this. We want more—

Mr.JEFFERSON. Is this a new procedure you are talking about? 

GeneralVAN ANTWERP. These metrics are new, yes, sir. 

Mr.PRESTON. I just want to say thank you for acknowledging Dr. 

Hsu. He is a true American success story. He was an 8(a) firm 

owner. And it is sort of a rags to riches story. We hired him because of his tremendous passion not only for small business. And 

he is very actively getting out there, meeting with the agencies as 

is his staff. So I appreciate your acknowledging that. 

Mr.JEFFERSON. Is he getting results out of his work? 

Mr.PRESTON. I think he is. The other thing he does is he chairs 

the Procurement Advisory Committee which has small business 

representatives from all the major agencies. And I can tell you the 

deputy or I are at all of the those meetings or at least a portion 

of them. Paul or Dr. Hsu chairs them. And I feel like there is—

34

even the dialogue among the agencies on these issues has expanded dramatically. 

Mr.JEFFERSON. Anything with specific recommendations on the 

anti-bundling that you might pass on to the other agencies? 

Mr.PRESTON. I think we are working with them on a number of 

those issues. I don’t have anything specific here today. But what 

I would tell you is, we work very hard to see bundled contracts in 

the field. Our procurement center representatives look at those. A 

very significant percentage of the small business contracts that go 

out are awarded after we file actions to have agencies relook at 

those procurements and redesignate them for small business. And 

I don’t have that data here today, but I would be happy to share 

it with the committee. So I believe that our interaction with the 

committees, with the other agencies is a very important part of getting those contracts to small business. And much of it is in looking 

at potential bundling situations. 

Mr.HENKE. Sir, I do know that Mr. Hsu has been in contact with 

our small business office on a regular basis. I am not sure of the 

exact status of those discussions, but I do also know that Administrator Preston had a visit with our deputy secretary about 2 and 

1/2 to 3 weeks ago. So that just reflects the level of dialogue we 

have with the VA, with SBA. 

ChairwomanVELA ́ ZQUEZ. Time has expired. 

Mr.JEFFERSON. Can I ask one last—this is about the—there was 

a commitment on the part of the Homeland Security to go back and 

undue those things and let them be rebid. But most of us think 

that never really happened, that the old contracts were added to 

and people kept on. Am I right on that or have you unbundled 

those things and gotten them out for local folks to have a chance 

at them? 

Mr.SCHNEIDER. Congressman, I don’t know the details of that. 

Mr.JEFFERSON. The no-bid contracts, the early ones that were 

put out, $500 million a piece—

Mr.SCHNEIDER. The large contracts I think are the ones you are 

talking about? What they did was—if it is the four big ones that 

were awarded immediately after Katrina where they were awarded 

to large businesses, we are in the final—I believe in the final closeout phase of most of those contracts. I might point out that roughly 

70 percent of all the work under those four big contracts was done 

by small business, and so I think we are still in the closeout phase. 

Mr.JEFFERSON. It is way down the—

ChairwomanVELA ́ ZQUEZ. Would the gentleman yield? 

You said 70 percent of those four large contracts were performed 

by small businesses. What percentage was performed by local small 

businesses? 

Mr.SCHNEIDER. I do not have those numbers. 

ChairwomanVELA ́ ZQUEZ. Interesting that you remember the 70 

percent but not the other one. 

Now I recognize Mr. Braley. 

Mr.BRALEY. Thank you, Madame Chairwoman. Certainly contract bundling was one of the principle focuses of the Small Business Fairness in Contracting Act, but another major component 

had to do with miscoding of contracts. And we discussed this at our 

earlier hearing on this issue and also during the field hearing. And 

35

one of the problems that was identified during the field hearing 

was that, during an analysis of a list of over 15,000 Katrina-related 

contracts, hundreds of contracts had been identified as miscoded; 

106 in the Department of Homeland Security; 79 at GSA; 71 at 

DOD; and totaling 259 at the relevant agencies. 

And, Ms. Doan, let me start with you. Given the fact that the Committee has identified $4.6 million in miscoded contracts, including 79 that were counted as small business contracts that were 

not in fact awarded to small businesses, can you explain for us how 

it is possible to express satisfaction with your agency’s small business achievements when they include so many awards to large 

businesses and nonprofits? 

Ms.DOAN. GSA scrubbed its numbers, and we are standing by 

them. We can’t actually certify the validity of the other agencies’ 

data at this point. But when we were alerted by the SBA that 

there were some significant miscoding, we identified those, and we 

corrected them in May of 2007. So that is a very recent correction 

that we did. The contracting officers who are responsible for the 

procurements were not always the same people who were entering 

the data in the database. We have corrected that. And it is possible 

that the folks who had been entering them in were not sufficiently 

knowledgeable to complete the information. The contracting officers 

themselves from now on will be entering the coding and that can 

assure a level of validity that we didn’t have previously to that. In 

addition to that, our chief acquisition officer is going to stress the 

importance in our current emergency response training program 

that we are hosting, and they are going to stress the importance 

of coding at the time of the award of the contract to ensure that 

the data is going to be accurate. 

Mr.BRALEY. I wasn’t able to tell from your testimony whether 

there have been any specific changes in interagency operations and 

procedures in direct response to miscoding problems. Has that been 

implemented in any formal way other than just a directive to do 

a scrubbing of the numbers. 

Ms.DOAN. I believe that actually came from the SBA, and I think 

they sent letters to every government agency asking them to go in 

and scrub their numbers because each agency is responsible for its 

own numbers within the database. GSA has already done the scrub 

of its numbers as of May 2007. I think you will also find now that 

we have cleaned up the numbers—I think government wide, at 

least within GSA for 2005 and 2006. That allows the data that is 

now going to be certified for 2007 to be a lot more accurate. 

Mr.BRALEY. Getting back to my question. Were there formal 

changes in policies and procedures within the agency to deal with 

the problem of miscoding other than in response to a directive from 

SBA? 

Ms.DOAN. Yes. Our chief acquisition officer issued a letter to all 

of our regional contracting officers who are responsible for performing the contract work within GSA. And I will be happy to follow up with you and the Committee with the various letters and 

guidances that our chief acquisition officer has put out to correct 

these issues. 

Mr.BRALEY. We would appreciate that. And also if there is any 

intended or anticipated training for these contract officers on the 

36

coding problem that has been identified and to make sure that the 

numbers being reported going forward are accurate. 

Ms.DOAN. There is training that is planned, and I will have the 

chief acquisition officer follow up with that information. I will take 

responsibility for sending that over to you and the committee. 

Mr.BRALEY. And just for the benefit of my information, who is 

that? 

Ms.DOAN. Molly Wilkinson. And she is our chief acquisition officer for the General Services Administration. 

Mr.BRALEY. And does she report directly to you. 

Ms.DOAN. She reports directly to me. 

Mr.BRALEY. Thank you. Administrator Preston, one of the things 

you talked about was the need for better cooperation among the 

agencies. Do you remember that in your earlier testimony. 

Mr.PRESTON. Yeah. 

Mr.BRALEY. One of the things we have been dealing with a lot, 

in terms of implementing the recommendations of the 9/11 Commission, which we just voted on yesterday, is this whole concept of 

interagency interoperability, and that is breakdowns in communication system that prevent governmental agencies from communicating effectively among each other. Based upon your unique role 

in dealing with a host of Federal agencies in trying to reach the 

small business target goals pursuant to the directives from this 

Committee and Congress, have you identified specific factors that 

are preventing the type of interagency communications that can 

lead to better outcomes for small businesses in this country? 

Mr.PRESTON. Yes. I think there are some, a number to point to. 

Some of it is interagency communications. Some it of it I think is 

enabling the agencies to do their job better and having us give 

them better support as well. I think there needs to be formalized 

bodies that interact on these issues consistently. And we do have 

a consistently standing meeting with all of the small business representatives at all of the agencies. As I mentioned before—and I 

am not sure if you were in the room yet—either I or the deputy 

participate in every one of those meetings now. We get readouts. 

It is a terrific forum for us to raise issues. We learn a lot of things 

we are not doing right, and it allows us to communicate out as 

well. It also gives me the ability to call people at this table if issues 

arise. So that is on the block in the tackling site. And I don’t know 

that it can happen any other way than actually having that kind 

of communication and that accountability with individuals. On the 

systemic side, I think what we are seeing is there is a much better 

opportunity for us, especially with some of the improvements that 

GSA continues to make in the Federal procurement contracting 

system, for us to support people by getting them access to better 

data on who is out there, who is available to do contracting. And 

then putting our people in the mix to make sure we help the agencies connect the dots. We are also looking very specifically once 

again within our agency and the productivity of our people in the 

field in getting in front of contracting actions and ensuring that 

those get to small businesses where they should. 

Mr.BRALEY. Thank you. 

ChairwomanVELA ́ ZQUEZ. Mr. Preston, I would like to address 

some questions to you regarding the improper loan cancelations 

37

that was reported by the general inspector. And, of course, they are 

all related to victims from the gulf coast region. Did loan processing employees have any incentive to cancel or withdraw disaster 

loans in order to appear more efficient, yes or no? 

Mr.PRESTON. The only incentive programs we had in place were 

to increase disbursements. It was clear based on what we were trying to achieve that the real issue was getting money into people’s 

hands. 

ChairwomanVELA ́ ZQUEZ. Okay. Isn’t it true that your agency 

gave bonuses to employees who resolve the most loans irrespective 

of whether that was by cancellation or approval? 

Mr.PRESTON. I don’t believe so. I believe that the only incentive 

plan in place had to do with disbursements. 

ChairwomanVELA ́ ZQUEZ. Mr. Preston, clearly the inspector general believes there was a deliberate effort by your agency to cancel 

outstanding loans. Was it? 

Mr.PRESTON. No. 

ChairwomanVELA ́ ZQUEZ. If there was not a deliberate effort from 

your agency, then why were these loans cancelled? 

Mr.PRESTON. Well, the inspector general report deals with a very 

specific campaign we had. One of the issues we had at the agency 

is that our interactions with people are primarily through the mail. 

People who needed help in New Orleans didn’t have somebody to 

call. So we either took—we fully reengineered our process as you 

know and one of the things we did is we gave every individual a 

human being to talk to, to manage their cases. There were about 

30,000 people that we—whose loans had expired. 

ChairwomanVELA ́ ZQUEZ. And that didn’t work. 

Mr.PRESTON. It did work. 

ChairwomanVELA ́ ZQUEZ. Were you able to have physical contact 

with those that applied for those loans? 

Mr.PRESTON. Yeah. Out of the people that we did not get to, that 

the IG is focussing on, is about 3,000 people. These are people 

whose loans had expired. Historically they would have simply gotten a letter that said your loan expired. Instead we attempted to 

call every one of them. There were about 7,700 people that we 

could not contact. We left messages for them. Their loans had expired. We sent them a letter that said, your loan has expired. If 

you want to contact us in 6 months to get reinstated, please contact 

us. A week later we attempted to recontact everyone by phone; 

1200 people said, actually, we don’t want our loan reinstated—we 

don’t want our loan cancelled, please reinstate us. About 3,000 we 

couldn’t contact. 

ChairwomanVELA ́ ZQUEZ. Let me ask you. What harm could possibly have come from leaving these loans open for borrowers to use 

when circumstances permitted? We knew that some of these victims were no longer there, that they moved and they were living 

either in New York or with some relatives. 

Mr.PRESTON. They have the ability even today, ma’am, to come 

back and reinstate those loans. We gave them a 6-month timeline. 

Our policy at the end of those 6 months is we extend it another 

6 months. Today when borrowers come back and say, you know, I 

am sorry, my loan is expired, you haven’t heard from me, we would 

still reinstate them today. 

38

ChairwomanVELA ́ ZQUEZ. Isn’t it true that cancellations—that 

people that apply got a letter stating that their loans were cancelled even though they had not been contacted? 

Mr.PRESTON. Their loans had expired. So they were given a 

timeline and that timeline was extended once to get back in contact 

with us and provide us closing documents. That had expired. So 

what we did was called out to say, do you really want this to expire 

or do you want us to extend it? Those people we couldn’t contact 

after two call campaigns—there are about 3,000 of them—had their 

loans cancelled.RPTS SCOTTDCMN BURRELL[12:45 p.m.] 

ChairwomanVELA ́ ZQUEZ. We know that your agency—explain it 

to me. Maybe it is not so—has policies in place whereby a disaster 

victim’s application may be withdrawn from consideration unilaterally. This is without express consent from the person who is applying for that loan. 

So what proportion of loan applications from the 2005 hurricanes 

were withdrawn without the express consent of the applicant? 

Mr.PRESTON. Well, I do not know. From that particular campaign, there were somewhat over 3,000 people, but once again, 

these are people we reached out to more than once, sent them a 

letter, and they said, ′′Call us back if you want, and we will reinstate the loan.′′

So, you know, let me just also mention, Madam Chairwoman, 

that I have looked at the e-mail traffic that went between the leaders and the call campaign people. I have looked at the call scripts. 

I have looked personally at all of the files the IG pulled, and these 

people in Buffalo who undertook this project are devastated by the 

implication that they were doing something inappropriate. They 

worked long hours, 7 days a week, with a tremendous heart of 

service here, and so I think, you know, we really need to look at 

the whole picture on this one. 

ChairwomanVELA ́ ZQUEZ. Of the 3,000 loans that have been canceled, how many of them did you contact? 

Mr.PRESTON. Well, the 3,000 were the ones we did not, who we 

were not able to contact. So out of the 94,000—and what I cannot 

tell you is that I do not know how many of those people got back 

to us to reinstate, but if they called today, even today, they will 

still get reinstated. 

ChairwomanVELA ́ ZQUEZ. Yes. I understand that 1,200 borrowers 

requested to be reinstated. 

Mr.PRESTON. That is right. That is correct. 

ChairwomanVELA ́ ZQUEZ. So it tells us that, if there is a contact 

between the agency and the borrowers, most probably they will ask 

for their loans to be reinstated. 

Mr.PRESTON. No, I do not think that is the case. The vast majority of the people we contacted from that group either went to someplace or—of the 7,700 that we recontacted, that we tried to contact 

again—most of the people who we contacted did not want the loan, 

but they had gotten multiple written communications from us, and 

we have attempted to reach them at least twice telephonically. 

ChairwomanVELA ́ ZQUEZ. So you are telling me there was not a 

deliberate effort from your office to respond or to react to criticism 

about the backlog on these loans? 

39

Mr.PRESTON. The criticism—and you know, I read this very carefully coming into the job. The criticism was that we were not getting money in people’s hands. I did not see any criticisms that we 

had loans that we were—there was criticism that we were taking 

too long. When you look at the information we track, it is customer 

response times backlog, that kind of thing. So my view is I do not 

see any incentive for us to cancel loans. In fact, the only incentive 

people had was to disburse, and like I said once again, I have reviewed this pretty deeply. 

Now, I will tell you there are thousands of people working these 

processes. I cannot tell you that every person on these phone calls, 

you know, conducts business the way we would like them to. You 

know, I get concerned that, you know, in some circumstances, people might—you know, nerves fray, whatever, but I believe, by and 

large, these are good people who cared about what they were doing. 

ChairwomanVELA ́ ZQUEZ. Mr. Johnson. 

Mr.JOHNSON. Thank you, and I must apologize for being absent. 

I had a markup on the Judiciary Committee. 

I wonder if each of you could take about 15 seconds to—do each 

of you have a spare sheet of paper, a blank sheet of paper, and 

something to write with? If you would, take about 15 seconds to 

just write down your definition of a ′′small business,′′ and if someone would be prepared—Scott, if you could, go down and collect 

those. It may sound crazy, but I think it is important. It does not 

have to be too verbose either. It can be pretty simple maybe with 

some dollar amounts down there also. 

Do you have dollar amounts? Do each of you? Okay. 

While we are collecting those, I might ask Mr. Preston a question. There is a memo dated May 10th of 2007 from the SBA Inspector General, which addressed an audit of the section 8(a) contracts related to gulf coast construction. The memo concluded that 

the handling of data collection was inadequate and that there was 

not one central collection point existing to compile data on the 

awarding of these loans or on how the loans were being spent. 

Specifically, the Inspector General noted that the database tracking these loans was missing data because, according to the district 

office, that office was short-staffed, and the data was not being entered. In addition, the memo notes with concern that the database 

SACS/MEDCOR ceased to exist on April 30th of 2007 and that the 

interim database was not known. 

My question to you is this: Is the situation with the 8(a) database—well, how does that situation affect the tracking of the 8(a) 

loans? 

Mr.PRESTON. Okay. Are you referring to 8(a) contracts? 

Mr.JOHNSON. 8(a) contracts. I am sorry. 

Mr.PRESTON. Yes. The SACS/MEDCOR is an internal system, so 

what that does is it helps us follow how—it helps us work with information on the 8(a) firms. 

What I would tell you is right now a lot of our systems, in my 

view, are deficient. Our systems that we use to work with 8(a) 

firms to track them, to work on their annual certifications and to 

work on their initial applications when they come in to us all need 

significant work. In fact, I just spent 2 hours with my team earlier 

this week to work out a pathway on how best to upgrade those sysVerDate 0ct 09 2002 09:23 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36115.TXT LEANN
40

tems because I think what it does—and correct me if I am wrong. 

Maybe Lurita understands this better than I do, but I do not think 

that affects how these people gather data on 8(a). It affects how we 

manage those firms and how we get data on how they are doing. 

So it is very important for us to improve that system as well as 

the other systems that relate to 8(a). 

Mr.JOHNSON. I have noticed that neither the 8(a) nor the SACS/

MEDCOR is addressed in the newly released disaster plan. 

Mr.PRESTON. The newly released disaster plan deals with disaster lending and all of the issues around disaster lending. It does 

not address specifically the contracting side. 

Mr.JOHNSON. So exactly what will be your plan? Do you have a 

plan for addressing those deficiencies? 

Mr.PRESTON. Yes. We have a number of major projects in place 

right now that deal with two things—number one, improving our 

processes around helping 8(a) firms, making sure that we are compliant in what we do and also in making sure that we have the capacity to provide them business development and then, thirdly, in 

making sure that we can identify the right firms for the right contracts as they come up. A lot of this deals with, you know, as you 

rightly noted, IT systems. 

Mr.JOHNSON. Okay. All right. Well, let me look at these definitions here. 

Mr. Schneider, I think your answer was ′′small business has a 

revenue of less than—′′ and then it is blank. 

Mr.SCHNEIDER. I left it blank because it depends on what the 

field, if you will, is that—and I forget what the code is an NC or 

NAC, depending on what your field is. It is graded by field, and it 

is graded by the number of employees, and I just do not remember 

what the field designation is. Prior to this, for 3-1/2 years, I was 

a defense consultant prior to taking this job 7 months ago. I was 

a small business. I just do not remember what the coding was because I know the criteria is different. 

Mr.JOHNSON. What were your gross revenues? 

Mr.SCHNEIDER. Very low. 

Mr.JOHNSON. Okay. A private firm? 

Mr.SCHNEIDER. Well, me. Plus, what I would do is contract out 

for temporary work depending upon the nature of the jobs. I also 

was an employee for a better part of that 3-1/2 years for one of the 

most successful women-owned small businesses in the State of 

California. 

Mr.JOHNSON. How many employees—

Mr.CHABOT. Madam Chair, I would just note that the gentleman’s time has expired and that, if he wants an additional minute 

or two I would be pleased to go with that. 

Mr.JOHNSON. I would love to have an additional minute or so, 

but will we have a second round? 

ChairwomanVELA ́ ZQUEZ. This is the third round, basically. You 

may have an additional minute. 

Mr.JOHNSON. Well, all right. I will note for the record that you 

have no idea what a ′′small business′′ is, Mr. Schneider, according 

to your definition. 

Then from Ms. Doan, the definition of a ′′small business′′ is ′′as 

per the NAICS and the SBA guidelines,′′ but there is no definition. 

41

Ms.DOAN. Sir, the NAICS code specifies certain categories, if you 

are in manufacturing with a size standard of 500 employees or 

more. If you are in technology, for example, it might be 2,500 or 

more employees. It might be that technology is like $23 million as 

your upward ceiling. Depending on what your line of business is, 

there is a NAICS code that corresponds with that particular discipline, and it gives you a size standard, and that is the definition 

of ′′small business.′′

Mr.JOHNSON. Okay. Then General Van Antwerp, ′′a business that 

has certain limitations of size and capacity that distinguishes it 

from large business. A categorization is based largely on past contracts.′′

ChairwomanVELA ́ ZQUEZ. Mr. Johnson, your time has expired. 

Mr.JOHNSON. All right. 

ChairwomanVELA ́ ZQUEZ. Okay. Mr. Chabot. 

Mr.CHABOT. Yes. I do not have any more questions. I just want 

to make the point that, to be fair to the panel, I think that there 

are a number of definitions depending on whether you are in the 

construction industry or in steel producing or services. There is a 

whole range of definitions. So I think, if we got an exact answer 

from every one of the panel members, I would be very surprised, 

and my crack staff has advised me that the definition is ′′a small 

business is one that is independently owned and operated and not 

dominant in its field,′′ section 3(a) of the Small Business Act, 15 

USC, section 632(a), which is what I would have said off the top 

of my head, of course. 

ChairwomanVELA ́ ZQUEZ. I guess the point that the gentleman is 

trying to make is, you know, how can we make sure that—look, the 

President in 2002, during the Small Business Week, made a great 

speech. He said, ′′This is my small business agenda.′′ the number 

one priority on top of that agenda was to unbundle contracts, and 

so the direction has to come from the head, from the chief secretary, from the secretaries of the different departments, to instruct and to make sure that the contracting officers comply with 

the contracting goals for small businesses. I guess that he is trying 

to make—

Mr.JOHNSON. Would the gentlewoman yield? 

ChairwomanVELA ́ ZQUEZ. Yes, sir. 

Mr.CHABOT. It is my time, but I will yield. 

Mr.JOHNSON. All right. Thank you. Thank you. 

I was leading up to the fact that ITS, which has $69 million in 

contracts with Homeland Security, is a company that in 2004 reported revenues of $108 million with 950 employees. Yet, they are 

qualified as a ′′small business.′′ SRS is a company that just was 

purchased for $195 million, a company with $294.3 million in revenue in the first quarter of 2007, but it has got $32 million worth 

of contracts. Also, last but not least, Clear Brook, has multiple contracts, one that is more than $16 million, but you know, it is another company whose Federal paychecks were suspended in 2005 

when the DHS Inspector General found that they had overcharged 

the Government by millions of dollars. Yet, they are receiving small 

business contracts as well. 

Thank you. 

42

Mr.CHABOT. Reclaiming my time, I think this hearing has been 

helpful to the extent that it continues to focus attention on the 

need to make sure, to the extent that we are able to, that small 

businesses do get their fair share of contracts whether it is Katrina 

or anything else. 

I also want to thank the panel for their testimony, each and 

every one. This can be a very challenging Committee to testify before, maybe not to the degree it is if you are on patrol in Baghdad 

or something, but as things go it is pretty challenging, and I think 

the members have done very well, but I am sure the Chair and this 

Committee will continue to keep an eye on it to make sure that the 

small business community in this country is being served well. 

I yield back my time. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Chabot. 

One thing is clear. We have a lot of work to do, and we will be 

exercising our responsibility of this Committee in terms of oversight. People love to talk to us and preach in this country about 

accountability. So we are going to hold the agencies accountable, 

and this is the responsibility that we have as good Americans in 

terms of helping in the reconstruction and in the rebuilding of the 

gulf coast. We cannot accomplish that without an important element. 

Do not come here and talk to me about small businesses in general. We are asking about local small business participation from 

the gulf coast. We will be coming back, and you will be asked to 

report on the progress. 

With that, I want to thank all of the witnesses for your cooperation and for your testimony here today. The Chair will ask unanimous consent that any statements admitted for the record be accepted. 

Hearing adjourned. 

[Whereupon, at 1:05 p.m., the Committee was adjourned.]

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