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38–203 PDF 2007

FULL COMMITTEE HEARING ON THE

SMALL BUSINESS ADMINISTRATION’S

CONTRACTING PROGRAMS

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

SEPTEMBER 19, 2007

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

PANEL I 

Carranza, Hon. Jovita, United States Small Business Administration .............. 3

PANEL II 

Alford, Harry C., National Black Chamber of Commerce .................................... 19

Chamrin, Ronald F., The American Legion ........................................................... 21

Dorfman, Margot, U.S. Women’s Chamber of Commerce .................................... 23

Goel, P.J., Associated General Contractors ........................................................... 25

Newlan, Ron, HUBZone Contractors National Council ........................................ 27

Brown, Dr. Trevor, The Ohio State University ..................................................... 29

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 45

Chabot, Hon. Steve .................................................................................................. 47

Carranza, Hon. Jovita, United States Small Business Administration .............. 49

Alford, Harry C., National Black Chamber of Commerce .................................... 53

Chamrin, Ronald F., The American Legion ........................................................... 57

Dorfman, Margot, U.S. Women’s Chamber of Commerce .................................... 61

Goel, P.J., Associated General Contractors ........................................................... 67

Newlan, Ron, HUBZone Contractors National Council ........................................ 71

Brown, Dr. Trevor, The Ohio State University ..................................................... 74

Statements for the Record: 

Report Commissioned by the Black Caucus Foundation ...................................... 80

U.S. Hispanic Chamber of Commerce Submission ............................................... 85

(V) 

(1)

FULL COMMITTEE HEARING ON THE SMALL 

BUSINESS ADMINISTRATION’S CONTRACTING 

PROGRAMS 

Wednesday, September 19, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

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

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

[Chairwoman of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Braley, Clarke, Ellsworth, 

Chabot, Bartlett, Akin, and Jordan. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. Good morning. I call this hearing to 

order. Today the committee continues its work toward opening the 

Federal marketplace to small businesses. Important tools in this 

endeavor are an array of programs that through their training and 

business development help this Nation’s entrepreneurs get a foot in 

the door. The need for this initiative could not be greater. Recently, 

the Small Business Administration announced that for the sixth 

year in a row, the Federal Government failed to meet its small 

business goal costing entrepreneurs $4.5 billion in lost opportunities. The committee took an important step in building equity 

through our procurement system when we passed Mr. Braley’s bill 

H.R. 1873, The Small Business Fairness and Contracting Act. 

However, to fully benefit from the changes that were made a 

strong implement of contracting programs is also required. We rely 

on this initiative to spur the next generation of supplies providing 

diversity that allows the taxpayer to get the best value for his dollar. Unfortunately, many were created in the 1960s and have seen 

little change since then. As a result, they have fallen into complete 

disarray largely due to mismanagement, underfunding and neglect. 

Modernizing, and in some cases, such as with the veterans and 

women’s procurement program, simply implementing them will be 

a start. 

The way the government purchases services and products is constantly changing. And the bottom line is that this initiative needs 

to keep pace. No Fortune 500 company will enter into a long-term 

relationship without a strong understanding of the types of resources that are necessary to keep the partnership growing. But 

that is exactly what agencies are doing today with the 8(a) program. If we are serious about business development, then it is critVerDate 0ct 09 2002 16:21 Dec 14, 2007 Jkt 033615 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38203.TXT LEANN
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ical that barriers are removed, true incentives are provided and 

long-term relationships are treated as such. This will ensure efforts 

vested by both sides result in tangible benefits for the Federal marketplace. It is also vital that programs stay true to their original 

intent. 

Earlier this year, this committee took steps to address the practice of large businesses receiving small business contracts. Just as 

we closed loopholes which cost small business in opportunity, we 

also need to make sure that contracting initiatives don’t small prey 

to similar unintended consequences. Certain initiatives like the 

HUBZone have strayed from its initial purpose. 

On the surface, it has a goal of economic development in low-income communities. But in many cases, this program fails to accomplish that. Today, 80 percent of all firms are not even eligible after 

3 years. And a preliminarily committee review found that many 

HUBZones contain multi-million dollar homes. This is not exactly 

what one would expect for an initiative design to spur development 

in low income areas. Not only are more resources needed for oversight, but also greater protections to weed out the bad actors. 

While many who raise opposition over this initiative point to the 

shortcomings, it is important that as the committee proceeds, we 

focus on the regional intent of supplier development. They are not 

intended to be handouts and this Nation’s entrepreneurs aren’t 

looking for one. 

What they do want is a fair opportunity to provide goods and 

services. With proper reform, this program can do just that. Small 

businesses play an important role in all of our communities. They 

are innovators discovering one-third of all new patents. They are 

the market pioneers representing 99 percent of all exporters. And 

they are the job creators providing nearly 75 percent of Americans 

with their first job. Through thoughtful improvements, coupled 

with legislation passed earlier this year, small businesses can add 

another function to the list of critical roles that play in today’s 

economy; suppliers to the Nation’s taxpayers. With that, I yield to 

the ranking member Mr. Chabot for his remarks. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Good morning. And thank you for all being here as 

we examine the government contracting programs authorized by 

the Small Business Act and their effectiveness in providing greater 

opportunities for small business concerns to contract with the Federal Government. This hearing also will provide an overview of the 

Small Business Administration’s management of these programs. I 

would like to thank the chairwoman for holding this hearing and 

each of the witnesses for taking the time to provide this committee 

with the testimony that you will be giving here this morning. 

The Small Business Act states that the essence of the American 

economic system of private enterprise is competition. The preservation and expansion of such competition is basic, not only to the economic well-being, but to the security of this Nation. Such security 

and well-being cannot be realized unless the actual and potential 

capacity of small business is encouraged and developed. Small business embodies so much of what America is all about: Self-reliance, 

hard work, innovation, the courage to take risks for future growth. 

3

They are values to be passed on from generation to generation. We 

must ensure that our small businesses continue to thrive and prosper, not just for their own sakes, but for all our benefits. 

To help achieve this objective, Congress recognized that providing goods and services to the Federal Government would be one 

way to support the growth and development of small businesses. 

The Small Business Act contains congressional direction to use 

Federal acquisition policies to ensure that small business concerns 

receive a fair proportion of the total contracts for property and 

services. Despite the growth in small businesses, the overall share 

of small business in selling goods and services to the Federal Government does not reflect the growth of these businesses in the overall economy. This has occurred even with a number of programs 

that are specifically designed to help targeted small businesses sell 

their goods and services to the Federal Government. 

The SBA oversees programs providing contracting assistance to 

socially and economically disadvantaged groups, more commonly 

called the 8(a) program, firms located in historically underutilized 

business zones or HUBZones, including a number of such zones 

who happen to be in my congressional district in Cincinnati, service 

disabled veterans and a women’s procurement program that has 

yet to be implemented some 7 years after congressional enactment 

and 2 years after a judicial decision finding the SBA unreasonably 

withheld action in not implementing the program. As the committee continues its works on these programs I think it should seek 

legislation that meets the noble objectives of the various SBA contracting programs while reducing the friction that exists among 

these various groups of small businesses. 

In addition, the committee should ensure that these programs 

operate in the most cost effective manner possible. We have excellent witnesses here today to provide us with insight into government contracting programs authorized by the Small Business Act 

as amended. I look forward to their testimony and any ideas they 

may have concerning the objectives that I just laid out. And again, 

I want to thank Chairwoman Vela ́zquez for holding this important 

hearing and look forward to working with her on necessary improvements to the contracting programs overseen by the SBA. And 

I yield back the balance of my time. 

ChairwomanVELA ́ ZQUEZ. Thank you. Now I welcome Ms. Jovita 

Carranza. Ms. Carranza is the deputy administer for the United 

States Small Business Administration. Ms. Carranza was confirmed in December of last year. Welcome.

STATEMENT OF JOVITA CARRANZA, DEPUTY ADMINISTRATOR, 

SMALL BUSINESS ADMINISTRATION 

Ms.CARRANZA. Thank you. Glad to be here. Good morning. Chairwoman Vela ́zquez, Ranking Member Chabot, and members of the 

committee, I am Jovita Carranza, Deputy Administrator of the 

SBA. I appreciate the opportunity to testify today regarding the operations and successes of SBA’s procurement program and to discuss our continued efforts to make progress in terms of increasing 

opportunities for small businesses. 

4

Progress in the area of government contracting dollars going to 

small businesses has been significant since fiscal year 2000. There 

were 30.3 billion more in small business prime contracts in fiscal 

year 2005 than in fiscal year 2000 supporting an estimated 235,000 

jobs. However, SBA recognizes the need to improve our government 

contracting programs and is taking the lead, along with the Office 

of Management and Budget’s Office of Federal Procurement Policy 

to carry out a number of initiatives, including working with agencies to ensure their small businesses contacting number reporting 

is accurate. 

The integrity of the data reported is crucial to instill confidence 

in the Federal contracting system. Under Administrator Preston’s 

leadership, SBA has taken a number of steps to make contracting 

data more accurate. Last month we published the Official Small 

Business Goaling Report For Fiscal Year 2006. And we also reissued the fiscal year 2005 report based upon extensive scrubbing 

of data over the last year. While these reports may not be flawless, 

they reflect substantial improvement in the quality of small business procurement information, and we are committed to further 

improvements as we proceed. The restated goaling report shows that $77.7 billion in Federal 

contracts were awarded to small businesses in fiscal year 2006, up 

$2.7 billion from the previous year. This equates to 22.8 percent of 

all Federal contract dollars for fiscal year 2006 just short of the 

goal of 23 percent. We are confident that these improvements have 

increased accuracy and accountability providing a true reflection of 

the opportunities provided to America’s small businesses. 

Although the Federal Government was not successful in meeting 

the procurement goals for HUBZones, women-owned businesses 

and veterans, the report does show that contracts with small disadvantaged businesses were up from $21 billion in fiscal 2005 to 

$23 billion in fiscal year 2006 representing 6.76 percent of total 

contract dollars, well above the 5 percent goal. Contract dollars for 

participants in the 8(a) business development program were up in 

fiscal year 2006 to $12.5 billion. Contracts with women-owned 

small businesses increased 1.4 billion to $11.6 billion. Meanwhile 

contracts with HUBZones increased more than $1 billion to 7.2 billion. 

A great example of the progress being made in this area is SBA’s 

recent publication of the first of a twice annual small business procurement scorecard. The scorecard is a method of ensuring that 

Federal agencies provide the maximum possible opportunity for 

small businesses in the Federal marketplace. It reflects current 

performance. And more importantly, progress. Federal agencies are 

making and improving such performance. The new scorecard ensures that agencies have clear goals and action plans and are regularly assessed on their performance. This scorecard is a significant 

step or has taken significant steps in adding transparency to the 

goaling process. 

In the scorecard category of meeting small business goals,seven 

agencies scored green,five scored yellow, and 12 were red. In the 

category related to progress, 12 agencies were rated in the green 

column,eight were yellow, andfour were red. SBA is working with 

all agencies to improve these scores going forward. The administraVerDate 0ct 09 2002 16:21 Dec 14, 2007 Jkt 033615 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38203.TXT LEANN
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tion continues to give agencies the encouragement to meet small 

business goals and give them credit for this progress. Each scorecard will be tailored to the individual procurement characteristics 

of the agency and SBA will work with each agency to establish its 

milestones while addressing their unique procurement requirements and challenges. 

Each agency will be measured against its own achievements in 

identifying small business opportunities. I would like to take just 

a moment to let the committee know that SBA is in the process of 

implementing its new size recertification rules. This new regulation 

requires small businesses to re-certify their size status on longterm contracts at the end of the first 5 years of a contract and 

thereafter whenever a contract option is exercised. In addition, recertification is required for short term contracts when a small business is purchased by or merged with other business. 

When contractors can no longer certify their businesses as small 

business size status buying activities can no longer count awards 

to them toward their small business goals. Ultimately the new size 

recertification rule will ensure more accurate data and further support our efforts to help small businesses receive more prime contracts throughout the Federal Government. As we further our efforts to assist underserved markets, such as women-owned small 

businesses, HUBZone certified firms and service disabled and veteran-owned small businesses, we continue to be concerned and cognizant of making sure we do not set as rivals one program against 

another as they share the same end goal. 

To this regard, SBA’s fiscal year 2008 budget includes a request of $500,000 to examine how best to serve these communities while 

not restricting the success of any one program. We recognize the 

agency can improve on the current progress in the management, as 

well as the effectiveness of these important programs and will use 

these resources to determine how to best do that. Furthermore, 

SBA has already committed to and is in the process of hiring additional procurement representatives with a proposal in our fiscal 

year 2008 request to fund five additional PCRs. 

Additionally, we are very focused on back-filling any positions 

that become vacant in a timely fashion as we realize the importance of these individual’s role. To better serve small businesses 

who do business with the government, SBA is redefining roles and 

responsibilities so that PCRs can devote more time to finding opportunities for small businesses with procuring agencies while the 

district offices, SBA and nonSBA resource partners, focus more 

time providing training and counseling to getting small businesses 

positioned to compete for Federal contracts. 

Chairwoman Vela ́zquez, this includes my testimony and I look 

forward to answering any questions you may have. 

[The prepared statement of Ms Carranza may be found in the 

Appendix on page 49.]

ChairwomanVELA ́ ZQUEZ. Thank you very much, Ms. Carranza, 

for your testimony. But I am disappointed that you know this hearing was about contracting programs, and you choose 5 minutes 

after your testimony to start talking about contracting programs. 

We needed to know what are the problems and what you intend 

6

to do or what are you doing to fix some of the problems that those 

programs are facing today. Maybe you can help me through the 

questions that I need to ask. The study done by RAND for the 

women’s procurement program identifiedfive industries as underrepresented when using contract dollars as an indicator. Only .005 

percent of women-owned firms will benefit using this metric. If a 

number of contracts were used as the metric 87 percent of the industry will qualify making the majority of businesses eligible. So 

I would like to ask you what do you intend to use; are you going 

to use contracting dollars or number of contracts? 

Ms.CARRANZA. Chairwoman Vela ́zquez, in all due respect, today 

was to actually discuss not only the acknowledgement that you 

have just expressed of the data that was made available during the 

RAND study, or the results of the RAND study. But at this point, 

I am not in a position to actually take one position or the other. 

I mean, I am not here to indicate which role we are going to take. 

We have been, though, in the process since April to develop the 

regulation SBA had submitted, and we have taken that particular 

analysis, along with the RAND study data that you are referring 

to, and have submitted all of that information and the position of 

SBA to the 24 agencies that are required and allowed opportunity 

to comment on it. 

ChairwomanVELA ́ ZQUEZ. Are you aware that the administrator 

came before this committee this past February and that I asked 

when the program will be up and running and what his answer 

was to my question. 

Ms.CARRANZA. Yes, Chairwoman Vela ́zquez. I believe you also 

asked the same question during my hearing as to when were we 

going to make progress. 

ChairwomanVELA ́ ZQUEZ. Not progress. Up and running. 

Ms.CARRANZA. Up and running. However, at the time that I indicated that I expected quick recovery results on the RAND study, 

I soon learned that it was a very onerous process where it requires 

not only receiving the results of the RAND report, but also sharing 

that information with the particular agencies for their commentary. 

Because we cannot, as I’m sure you are cognizant, and I am learning, cannot work in a vacuum. We have to obligate the other agencies to have participation in it, and that is what is gaining traction 

as we speak. 

ChairwomanVELA ́ ZQUEZ. But the administrator came to this committee and informed us that he will have this program up and running, up and running by the end of the summer. 

Ms.CARRANZA. What we learned in the process, Chairwoman 

Vela ́zquez, once again, is that our expectations were that. What we 

are very pleased to report to you, not that we have a result of the 

study, but that the results—not only that we have a result of the 

study, but it is now in play. It has gained traction, it is out in the 

agencies for review. 

ChairwomanVELA ́ ZQUEZ. I would strongly suggest an advice that 

when you come before this committee, you better tell us we don’t 

know, but don’t make promises that you cannot keep. This is 7 

years after this legislation was enacted. And you are doing everything between SBA and OMB to stall the process. This is the message that you are sending to women business owners in our counVerDate 0ct 09 2002 16:21 Dec 14, 2007 Jkt 033615 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38203.TXT LEANN
7

try; we are not interested in doing business with you. That is the 

message that the Administrator on the SBA is sending to the 

women business owners in this Nation. My next question. When 

the administrator—in the past when we have raised the issue of 

increasing the net worth for the 8(a) program, we have run into 

criticism. People have generally said that they are concerned about 

creating rich minorities. 

However, if Bill Gates or Warren Buffett owned a $1 million 

home in Park City, Utah, they will qualify for the HUBZone program. Why is this right? 

Ms.CARRANZA. We have received an IG assessment of the 

HUBZone and the 8(a), I am going to say HUBZone 8(a) because 

they interact programs. And I assure you that we are just as 

knowledgeable of the gaps and the deficiencies and vulnerabilities 

of each program Chairwoman Vela ́zquez. And between the administrator and the team that we have assembled and the resources 

that we have allocated to look at this completely and further, we 

are going to clamp down on three components; the oversight, the 

broad definition of the program and also a different focus as far as 

accountability. Because we have data—

ChairwomanVELA ́ ZQUEZ. Okay. Let me ask you a specific question. Do you think that the HUBZone program has flaws? 

Ms.CARRANZA. Yes. We have recognized the flaws, we have actually taken the position where we are going to implement, if not 90 

percent, approximately 100 percent. 

ChairwomanVELA ́ ZQUEZ. When did you recognize that the 

HUBZone program has flaws? 

Ms.CARRANZA. Well, I have been in the Agency about 5 months 

or so, and 8 months really engaged in the programs. Actually, 8 

months in the Agency and 5 months really engaged in the programs. The Administrator and I have been very focused in all of 

the program, not only the process reengineering, the integrities of 

the program, and I will—

ChairwomanVELA ́ ZQUEZ. Do you intend to propose anything to 

rectify the flaws of the HUBZone program? 

Ms.CARRANZA. Yes. Once again I will review that, reiterate, emphasize that the recommendations of the IG team has positioned 

for us to recognize and acknowledge, and that we have already positioned to put in place. 

ChairwomanVELA ́ ZQUEZ. Do you, right now, have any internal 

control to deal with the flaws of the HUBZone program so that 

there is not fraud and abuse? 

Ms.CARRANZA. We are cognizant and fully aware of those 

vulnerabilities, and we are addressing them. 

ChairwomanVELA ́ ZQUEZ. How? 

Ms.CARRANZA. We have automation, we have resources tracking 

that, we are reengineering the process, we have actually allocated 

the $500,000 to contract—

ChairwomanVELA ́ ZQUEZ. You will qualify that as internal controls. 

Ms.CARRANZA. The development of internal controls, much more 

sophisticated, much more focused and much more simplified, so 

that we can execute them immediately, Chairwoman Vela ́zquez. 

8

ChairwomanVELA ́ ZQUEZ. As the ranking member said here, we 

are about having programs in place that are cost effective. And how 

are you preventing abuse and fraud from being committed in terms 

of the HUBZone program right after there is an investigation and 

a report by the inspector general? 

Ms.CARRANZA. I will reiterate, working with the IG closely, who 

has closely assessed the program, made recommendations and immediate execution of those recommendations. 

ChairwomanVELA ́ ZQUEZ. So let me ask you, of the 14,200 companies that are in the program, how many examinations are conducted every year? 

Ms.CARRANZA. We have a goal of 5 percent—

ChairwomanVELA ́ ZQUEZ. No, no, no. I am not asking a goal. I am 

asking you how many examinations are you conducting every year? 

Ms.CARRANZA. I can’t give you the exact number, but I will tell 

you that—

ChairwomanVELA ́ ZQUEZ. So I guess that the next time I need to 

bring the Administrator here so that he can be able to answer 

questions. 

Ms.CARRANZA. I could get back to the staff to make sure that I 

have that exact number. But the reviews are being conducted 

Chairwoman Vela ́zquez. Also, recognizing that as we conduct those 

reviews, the decertification of HUBZone is at a high number. 

ChairwomanVELA ́ ZQUEZ. Let me ask a question to you so that 

maybe you realize that, yes, there is not only flaws in the program 

and how it is being used and abused, but also that it requires immediate action. There are now more than 14,200 companies in the 

program with 500 program examinations each year and 2,000 companies approved. How can the Agency keep up with that? Does it 

make sense to have additional on-site reviews? 

Ms.CARRANZA. Which we are recognizing and putting in play, not 

only through automation, but also through the advisory council for 

procurement, advisory council. There is 24 agencies that we are 

bringing this concern to them as well. Identifying the particular 

controls that we have agreed as a result of the IG audit. 

ChairwomanVELA ́ ZQUEZ. You say automation. My question is onsite reviews. 

Ms.CARRANZA. On-site reviews in the headquarters office, yes. 

ChairwomanVELA ́ ZQUEZ. No. I want for you to send your people, 

and this is all those companies that are established in HUBZone, 

so that you determine if it is a valuable and lawful company and 

not shared with a telephone company and one person. 

Ms.CARRANZA. Chairwoman Vela ́zquez, I share your frustration 

in this area. 

ChairwomanVELA ́ ZQUEZ. All I need to know is are you prepared 

to have on-site reviews given the extent of what the inspector general found? 

Ms.CARRANZA. Yes. And with that on-site audit, we have to recognize the fact that it will require additional resources. Because 

the resources we have now, Chairwoman Vela ́zquez, are processing 

the audits that you just referred to. The business of HUBZone companies that we have, once again when we perform the certification 

evaluations, we recognize that 81 percent of those companies or 

9

firms are decertified, which says that maybe the frequency of those 

particular reviews has to be accelerated. 

ChairwomanVELA ́ ZQUEZ. Yes. I want to move to my next question. The SBA’s 8(a) program has a personal network limitation of 

250,000 for small business owners that has been the same since 

1988. Things have changed since 1988. Then a gallon of gas was 

$0.91. Now it is $2.79. The average price of a new home was 

$91,600. Now it is $300,100. A 1998 Ford F-150 truck was around 

$13,000. In 2000, it is at least $30,000. So my question is, can I 

get a commitment from you today that the Agency will start the 

process to raise the limitation within the next 30 dayssince the net 

worth limitation of the 8(a) program can be changed to a rule making? 

Ms.CARRANZA. I will share with you, Chairwoman Vela ́zquez, 

that the administration is looking at revamping the 8(a) in three 

areas. One recognizing exactly what you indicated that in the past 

30 years, the threshold has not—the net worth threshold has not 

been revisited, and legislation is being proposed to raise that particular threshold. So I acknowledge your concern, and I also heard 

you loud and clear about 30 days. I am not in a position to commit 

to 30 days, but I will tell you that there is legislation to revisit that 

threshold. 

ChairwomanVELA ́ ZQUEZ. Legislation? 

Ms.CARRANZA. Legislation being proposed, it is being proposed, I 

am sorry. 

ChairwomanVELA ́ ZQUEZ. Now I recognize the ranking member. 

Mr.CHABOT. Thank you, Madam Chair. Good morning. First I am 

curious about your compensation. Do you have to get combat pay 

or anything when you come over to this committee? 

Ms.CARRANZA. No. Actually, UPS kind of prepared me for that 

after 30 years there, but I welcome the inquiries. 

Mr.CHABOT. Thank you. I guess my second question I guess, the 

Chair mentioned first of all that the OMB and the SBA are sending 

out a message that neither is necessarily interested in contracting 

with women-owned businesses. I don’t think you really had an opportunity to fully answer that comment. Would you like to do so 

now. 

Ms.CARRANZA. Yes. The process that is required to keep the integrity of the proposal and the positioning, because of the fact that 

this is not only disparity study, but it is also the first Federal gender-based proposal. And with that we are actually just processing 

all the due diligence that is required. When we initially indicated 

that would be resolved, the intent was to resolve it as quickly as 

possible because of the chronology of that particular study. And I 

am confident that based on the progress we are making, we will 

bring that to fruition. 

ChairwomanVELA ́ ZQUEZ. Will the gentleman yield? 

Mr.CHABOT. I will be happy to yield. 

ChairwomanVELA ́ ZQUEZ. Seven years, a lot of due diligence, you 

have given new meaning to it. Thank you, sir. 

Mr.CHABOT. In your testimony, you note that the government is 

not meeting its goals for the targeted programs that are the subject 

of this hearing, at least some of them. Would you again expound 

10

somewhat on what actions the SBA is taking to ensure that agencies meet these goals. 

Ms.CARRANZA. If you will allow me, Congressman, I would like 

to display the scorecard. 

Mr.CHABOT. Sure. Could you tilt that just a little bit so that perhaps the people who have taken the time to come here can also see 

it. It is so small I don’t think the members can probably see the 

numbers anyway necessarily. 

Ms.CARRANZA. What the scorecard has done for us is actually put 

the performance of 24 agencies in a particular accountability 

framework. One that it gives us total transparency to the performance. Also the understanding and appreciation of the goaling process that we have used. With this most recent exercise of putting 

all of the data, cleansing the data, as well as applying the data to 

ranking and evaluating the 24 agencies in the particular program, 

it has revealed opportunities to us as a procurement advisory council that we should go back and look at how the goaling has actually 

been established. 

So as a result of that, knowing that there are some areas that 

need to be revisited, we have developed a steering goaling committee within the procurement advisory council to ensure a couple 

of things; data integrity every year, best practices as it relates to 

how some agencies have been able to achieve a green status, those 

that are in the bottom list, the red. We need to look at how much 

more effectively and aggressively we can partner with those particular agencies. 

I should share with you that as a result of revealing this performance, which is not favorable for some agencies, much more 

promises for others, however still requiring revisiting of the particular goaling strategy, is that we have had a lot of calls from the 

agencies where we are looking at developing some partnerships 

with the VA, with DOD and GSA. The executive level of those particular agencies have visited already our office. 

And we are forming a strategy on how we can move forward to 

make significant gains because we are not pleased with the results, 

this is not a finished product and there is work to be done. So 

again, it is one of simplifying the process, but much more effectively applying the goaling concepts. 

Mr.CHABOT. Thank you. I notice you have a couple more charts 

there. I don’t know if those would shed any light on the purposes 

for this hearing that would be of any help or not. I don’t know if 

those are yours there. 

Ms.CARRANZA. Yes. As a matter of fact, I should take you to the 

next level and that is the procurement. We have a community 

within the agency of procurement contracting resources. Now, we 

always delve into the number of PCRs from 53 current to what we 

are going to be putting in place by 2008, which will bring us at a 

ceiling of 66. But we have also recognized under roles and responsibilities our focus has been where we have only required them to 

work with the agencies. And what we are going to do is also incorporate, because it has been the committee’s urging that we should 

access our resource partners SBDC, as well as the field offices from 

the bottom up. 

11

So what we are doing is taking about 340 what we call business 

development specialists and realigning their responsibility so it is 

not totally focused on 8(a), we call it annual reviews. But a portion 

of their day is now going to be business development. And we will 

leave the procurement personnel, the PCRs, to work with the agencies on-site. 

As a matter of fact I attended a base myself at a transitional assistance program to get a feel for how SBDCs score and our field 

people interact to reinforce not only contracting opportunities but 

technical assistance. And with that we have identified, we have 

mapped out where the PCRs are located. We have also identified 

where the government goods and services are actually sold. And 

with the SBDCs, the district offices, as well as the PCRs, I think 

we can service quite adequately those needs to penetrate the government contracting. 

Now, there is other chart which is the one behind that. You will 

see that—and the recent one is actually allocating where the new 

PCRs are going to be assigned. And then this one is the top 100 

buying activities. So what does that say? We are analyzing it, we 

are looking at resource optimization and we are also taking to heed 

what the committee has always urged us to do, is optimize the resources that we have in play and do more with other agencies 

partnering with the 24 other government agencies. 

Mr.CHABOT. Thank you, Deputy Administrator Carranza. And in 

order to give other members the opportunity to ask questions, I 

yield back my time. 

ChairwomanVELA ́ ZQUEZ. Mr. Ellsworth. 

Mr.ELLSWORTH. Thank you, Madam Chair. Thank you, Ms. 

Carranza for being here today. Going back to your testimony on 

page 1, it talks about Administrator Preston’s leadership. SBA has 

taken a number of steps recently to make contract data more 

transparent and accurate. Can you just give me a quick what some 

of those things, how recently they have done that and what some 

of those steps are to make it more transparent? 

Ms.CARRANZA. When the Administrator began working, and I 

will give you an example, with the scorecard, when the Administrator began working with Paul Dennett and jointly pushed forward the agenda of transparency accountability, it was an unprecedented act to have two administrators pursue framing our performance of agencies and gaining the support from OFPP, engaging 

GSA to make sure that they were responsive to the data needs that 

we had on the recertification, as well as just the data cleansing for 

2004, 2005—I should say 2005, 2006 and then protecting 2007. 

So the rules of engagement have been expanded. We also have 

a focus on compliance. And compliance means you have to reveal 

how out of compliance you are. And once we have identified those 

gaps, we now track the exposure and we apply resources to it. And 

on a weekly basis, we have metrics that tell us where we stand in 

each one of those programs, whether it is our outreach project planners, our MOU status with other agencies, as well as sending out 

strong messages, not only internally, this is inter-agency, intraagencies, and we have stakeholders sitting behind us where we 

have attended summits, conferences, trade association meetings, 

town hall meetings, to project the message that we have of hold us 

12

accountable for what the committee has been urging and challenging us with. I think we are on the same page. 

ChairwomanVELA ́ ZQUEZ. Will the gentleman yield for a second? 

Mr.ELLSWORTH. Yes, ma’am. 

ChairwomanVELA ́ ZQUEZ. Ms. Carranza, I am so happy to see the 

type of partnership, historic partnership between SBA and OMB 

regarding the collection of data and transparency process so that 

we guarantee that you have the most accurate data reporting coming from all the Federal agencies. But does that action correspond 

with the fact of the committee’s report regarding $12 billion, contracting dollars, going to large businesses that were intended to go 

to small businesses. 

Ms.CARRANZA. That is a start of discovery as it relates to once 

we started cleansing the data, Congresswoman Vela ́zquez. There 

are other areas that we need to continue looking. One, work aggressively with the procurement advisory council to not only, 

should we say, urge them to ensure that the data input is accurate. 

Secondly, we are in the process of looking at anomaly reports. And 

we are working through that to ensure that any discrepancy of a 

large business on there, we can justify it and expose it on the Web 

site. So we are working through that, another level of oversight 

and transparency. 

ChairwomanVELA ́ ZQUEZ. I yield back. 

Mr.ELLSWORTH. Thank you. Ms. Carranza did you come straight 

from UPS to your position now? 

Ms.CARRANZA. Yes, I did. 

Mr.ELLSWORTH. Then I am sure that after coming from a very 

efficient company like that, that the Federal Government frustrates 

you. I have been in Federal Government about the same amount 

of months you have and I find that it is not as efficient as private 

companies like UPS. I saw on page 3 of your testimony that the 

SBA requested $500,000 to examine how best to serve the 8(a) 

HUBZone and small SDAC. In your past experience, isn’t that 

what you and the other administrators, they are supposed to be the 

ones that are deciding, that is why they brought you on, with the 

expertise. Can you tell me what the $500,000—that is not a consultant from outside when they have experts like you and others 

to examine that, and I hope that is not coffee and donuts or we 

need to check the prices of that too. So can you kind of go into that 

a little bit? 

Ms.CARRANZA. Absolutely. What we have identified in the Agency 

is that project analysts, systems analysts, because we are going 

through process redesign on a lot of the programs, we are proposing electronic applications in about four of our programs from 

ODA disaster recovery, to improving the HUBZone accessibility, as 

well as electronic application for, improving the electronic application for the 8(a) certification. There is a great need for streamlining 

our processes. We have identified the skill-set gaps. And we can 

train. 

But time is not on our side. The needs and the demands of the 

constituency are great. The need to restructure and upgrade, enhance all of our programs needs to be accelerated. So to expedite 

that we have what we call rapid results, it is people that are very 

specialized in trying to get 30, 60, 90-day implementation. So the 

13

methodology of UPS is not that we have 24 months to get a job 

done. The urging by this committee is when are we going to get it 

done. And it is holding us accountable. So that is the backdrop. 

That is the reinforcement that the Administrator and I have asked. 

They have mapped out every program that we are responsible for. 

And we have revealed opportunities in service, cost and resource 

allocation. I think it is money well spent. Thank you for the question. 

Mr.ELLSWORTH. Thank you very much. 

ChairwomanVELA ́ ZQUEZ. Mr. Bartlett. 

Mr.BARTLETT. Thank you very much. I apologize for being late. 

I am on the Armed Services Committee also and we had a classified hearing on how we inadvertently transferred six live nuclear 

weapons from Minot Air Force Base to Bardsdale Air Force Base. 

I am sure you have seen the references to that in the public press. 

But I am very pleased to be here. More than half of all the employees in our country work for small businesses. And far more than 

half of all of the innovation in our country comes from small businesses. That is because large organizations, whether they are government or big businesses tend to be stifling. So our government 

agencies, and I am more familiar with the intelligence and defense 

community, where the lion’s share of all our contracting dollars are 

spent. 

Those two cultures are really cognizant of the value small business involvement because they recognize that most of the new creativity innovation is going to come from small business. But the 

red tape in dealing with government is so intimidating that many 

small businesses are just turned off. What we have done very successfully is to hold now for several years procurement conferences 

where we have the government people there. And they come outside the gate at Fort Detrick because you are intimidated just 

going through that security to get inside to the procurement office. 

So they come outside the gate. We have had more than 500 

attendees at this. And always, the Small Business Administration 

is always there, thank you very much for your participation. 

We have actually had the reverse of that where the government 

contractors come and listen to the ideas that our small business 

people have. Because you can’t ask what you don’t know exist. And 

so these cultures, defense and intelligence, need to know what is 

out there that they don’t know about. So I want to thank the Small 

Business Administration for your participation in those conferences. We have been trying to help move the small business activity in our government contracting along with another way too. 

Bundling is both good and bad. And the first bundling that came 

to our attention was when DOD decided to bundle all of their moving. 

Now, it is obvious that one mover can’t move everybody in the 

whole world for DOD. And what we had previously done was to 

compete that. And one company won and they could move all that 

they could move. And anybody else could move at the same rates 

that were negotiated with that company. So this was a great winwin situation. Most of the movers are mom-and-pop shops. And so 

our small business community was really, really concerned when 

this was bundled. And so we worked with DOD to make sure that 

14

the prime who got this was going to in fact have a lot of small subcontractors working for him. The second bundling was a really interesting one, and that is one that I supported. And that was the 

Navy and Marine Corps were bundling their procurement of information technology equipment. 

Our bureaucracy in the government prohibits us from rapidly 

buying things. If it takes you 14 months to buy something and 15 

months is the life stock of what you have bought, you have got one 

month of useful life in it after you bought it. And so we sympathized with their need to be able to procure very rapidly. And 

they could do that by bundling this. 

And so we asked them to come in because small business was 

concerned they were going to be cut out. And to the great credit 

of the Navy and Marine Corps, they withdrew their RFP and they 

issued another one which said that 35 percent of all of the money 

was going to go to small business and 10 percent of that was going 

to be direct pay. And the next bundling was the big ground breaker 

program at NSA, and they had the same problem; you got to buy 

this new equipment and with the government procurement cycles 

it takes too long to buy it. So they were bundling. We went to talk 

to them and they said, oh, gee, you know, we are so big and spread 

out that we can’t really commit to that. We reminded them that 

the Marine Corps and the Navy were more spread out than they 

were. And so they now are committing to 35 percent of all of their 

subcontracting will be with small business. We have a long way to 

go in some of the programs. And in a few minutes, Mr. Newlan will 

testify relative to the HUBZone program, which is a relatively new 

program which has had enormous benefits to the district that I 

have the honor of representing. And most of our government agencies are falling woefully short of meeting those goals. 

We will have more time to talk about that with his testimony. 

We have got a long way to go. And what we need to do is to partner at all levels. In the business community, our government agencies that are procuring and Small Business Administration is working with them to make sure that they adhere to the—this is not 

really a law, these are goals and they are failing to meet those 

goals. And the shame is that their failure is meet those goals is 

they are denying the taxpayer the benefits that would accrue to 

these agencies if they were able to have more contracting with 

small business, because that is where the creativity and the interest is. So I want to thank you very much for what you are doing 

to help move this along. 

ChairwomanVELA ́ ZQUEZ. The time is expired. Mr. Braley. 

Mr.BRALEY. Thank you Madam Chairwoman. I am pleased to see 

that on Thursday, Administrator Preston is scheduled to be appearing before the committee, because I think it would be good for 

someone to ask him why he should not be held in contempt of Congress for failing to deliver on his promise that this women’s procurement program would be implemented by the end of the summer. Because the summer is starting to end here in Washington, 

D.C. And at the rate we are going, this women’s procurement study 

program will make the Capitol Visitors Center seem like it is on 

a fast track towards completion. 

15

And I would ask you, Ms. Carranza, who do you think should be 

held accountable for the failure of the administration to complete 

that program after more than 7 years when it was directed to do 

so by Congress? 

Ms.CARRANZA. Congressman, I can tell you who the public holds 

responsible for that. Every time I attend a women’s summit or I 

attend a WHIP function or a Chamber of Commerce where 60 percent of the attendees are women, the question they ask me is 

where do we stand and when will we see it? So in addition to being 

here and addressing your question, I also, as well as the Administrator, deal with the consequences of having to explain the process 

when we are in general public. 

Mr.BRALEY. But there is no accountability. What has happened 

to change the status quo? When you worked at UPS, can you fathom the CEO of UPS tasking an individual with the responsibility 

for a major review of the failing program and accepting year after 

year after year for 7 years no results. 

Ms.CARRANZA. I can speak Congressman that when I arrived here, there was $500,000 allocated by this administrator to implement the RAND study. As a result of that, for the past 5 months 

each month there has been progress in the roll-out in addition to 

the anticipation that you and I would not have to talk about this 

again based on the progress that is being made this year. I can’t 

answer for the previous 7 years, and I can’t get into the technical 

aspects of what occurred in the past years, but I can answer, and 

you can hold me accountable for the process that is in place today. 

Mr.BRALEY. Well, everyone in this room knows that if this happened at UPS, the person tasked with that responsibility would be 

gone, fired. That is what happens in the private sector. We all 

know that. And one of the things that concerns me is that we have 

people come here in front of this committee time and time again 

making apologies for the conduct of someone who preceded them in 

their position without accepting responsibility for getting it done. 

That is what we expect, that is what the American people expect. 

Now, you have brought some very nice charts with you here 

today, and I would like to talk to you about some of them. Let’s 

start with the first chart, which is this scorecard. And when you 

were asked by the committee chairwoman about this, your comment was that you were not happy with these results. Do you remember that? 

Ms.CARRANZA. Correct. 

Mr.BRALEY. Now, I understand the red to mean that is a failing 

grade, right? 

Ms.CARRANZA. Yes. 

Mr.BRALEY. Yellow means somewhere in between making 

progress and not making progress. 

Ms.CARRANZA. Yes. 4 out of 5. We look at how many of the programs they have made, not only progress, but have hit their targets. The only way that you can get green is you can make all your 

targets. And you hit your goal and you have shown significant 

progress. 

Mr.BRALEY. So this column that says current status color, to me 

as a member of the committee, suggests that is the current status 

that each of these agencies is at in reaching those targets? 

16

Ms.CARRANZA. Correct. 

Mr.BRALEY. And so the way I read this report card, currently 

over half of these Federal agencies are getting a failing grade. 

Ms.CARRANZA. Correct. 

Mr.BRALEY. So what does this progress status color mean? What 

does that suggest to us, this column? 

Ms.CARRANZA. Well, that they are showing progress. They may 

not have hit their target, but they have all the right mechanisms 

in place; they just missed the mark. Now, that gives us a window 

of opportunity to say you have to intensify it, you have the right 

program in place or the right initiative in place, but what more can 

we do so that you can make the necessary gains. 

Mr.BRALEY. But given your earlier example of this women’s procurement program, they have had a process in place to complete 

that study so they could be given a green score even though it has 

not been completed in 7 years. 

Ms.CARRANZA. And to that point, what I am encouraged about 

Congressman, in this particular stage of the women’s procurement 

or women’s small business gains is that we are not waiting for the 

RAND study to keep us focused on what is necessary to address 

the underserved. We developed outreach programs that addresses 

both socially economic disadvantage and also with focus on the 

women’s procurement and/or small business goals. 

Mr.BRALEY. Okay. Well, let us move on to the discussion about 

the PCR locations. You don’t have any PCRs located in the State 

of Iowa, you would agree with that? 

Ms.CARRANZA. That’s correct. 

Mr.BRALEY. There are none that are scheduled to be included 

there? 

Ms.CARRANZA. No. 

Mr.BRALEY. And there are no plans to put one there in the future? 

Ms.CARRANZA. At this given time. 

Mr.ELLSWORTH. [Presiding.] The time is up. 

Mr.CHABOT. Mr. Chairman, I would ask to speak out of order for 

just a second. 

ChairwomanVELA ́ ZQUEZ. Without objection. 

Mr.CHABOT. Thank you. I think the gentleman was obviously excellent in the courtroom, I think is excellent in this committee and 

I would just note that I agree with the gentleman’s point about the 

relevant efficiencies of the private sector versus the government. 

And I would invite the gentleman, if he can identify any of the 

areas of the government that we could put more in the private sector and privatize, I would be willing to join him in that effort, both 

in the small business and a whole range of other governmental 

agencies as well, because I think you make a good point. And that 

is that, in general, the private sector seems to be more efficient 

than the government, and we ought to therefore have less government and ought to rely more upon the private sector in individual 

responsibilities, et cetera. Thank you very much for making that 

point. 

Ms.CARRANZA. Congressman Chabot, may I speak? 

Mr.ELLSWORTH. If it is brief. 

17

Ms.CARRANZA. Very brief. I just wanted to acknowledge Congressman that we have identified those areas that do not have 

dedicated PCRs. And that is why we are galvanizing our resources, 

so that if there is a need of a contracting entity they have access 

to technical assistance and support. So we will see to that. 

Mr.BRALEY. Mr. Chair, if I might, since the witness has made a 

response to a concern I raised, I would like a chance to respond to 

her comment briefly. 

Mr.ELLSWORTH. This will be the last response back and forth. We 

will move to the second panel. 

Mr.BRALEY. Every witness who has appeared before this committee on the subject of PCRs I have asked whether they had plans 

to put one in the State of Iowa which has never had one and ranks 

48 percent in the percentage of Federal contract dollars. And if you 

look at these underserved areas, it is obvious to me that the administration’s plan to implement new PCRs is not going to address 

some of these states that are getting a very small share of Federal 

contract dollars, and that was a concern that I was raising. 

Mr.ELLSWORTH. Thank you very much. In all the excitement I 

overlooked Ms. Clarke, so I will recognize Ms. Clarke for her questions. 

Ms.CLARKE. Thank you very much and to our Chair in absentia, 

our ranking member. This is a very important hearing. We can see 

by the tenor of the discussion here how critical it is. And I would 

like to first of all associate myself with the remarks of my colleague 

from Iowa and to say to our ranking member that there is a place 

for the private sector and there is a place for government. 

When we appoint individuals to our government agencies, particularly one with this domain, we expect the utmost in professionalism and integrity in the work that we do. I don’t believe that 

we have to supplant that intellect, that talent and that skill in our 

government in order to make sure that it works. I think that is 

what the people of the United States require of us and request of 

us, and that is part of what our conversation is here today. 

But I would like to say that my good friend Congressman Braley 

introduced the Small Business Fairness and Contracting Act so the 

small businesses from Brooklyn, Iowa to Brooklyn, New York 

would have a better chance to compete for Federal contracts. While 

overall contract spending has grown to more than 425 billion, up 

from 388 billion last year, the percentage of awards to small businesses has continued to decline. We can’t reconcile this. And I 

think again the points that have been raised by Congressman 

Braley really hits the nail on the head with respect to our expectations and the fact that we are not meeting them, we are not meeting them. We have to say that forthrightly in order for us to get 

on track and get to the business at hand, which is to meet these 

marks for the small businesses that will be the employers of the 

people of our constituencies. That is why it is such an urgent matter. 

The concentration of contracts in the 8(a) program is severe. In 

1999 the top 10 companies received 13 percent of the dollars. In 

2005 the top 10 companies received more than 40 percent. Are you 

aware of this problem? 

18

Ms.CARRANZA. Yes. Are you referring, Congresswoman, to the 

8(a) or government contract? 

Ms.CLARKE. The 8(a). 

Ms.CARRANZA. Yes, we are cognizant of the fact that there are 

about 9,000 firms in our portfolio and the tendency has been that 

a portion of those firms are utilized more often than others. And 

the acknowledgment that once you hit a success rate with a firm 

obviously, Congresswoman, they are going to keep going back to 

that firm. It does not make it right, we have addressed it. We have 

been acknowledged to the fact that there is a vulnerability there 

and it is up to the agency as well as the 24 other agencies to recognize that, and we are going to bring that to a test. 

Remember earlier I said we need to clamp down on the administrators about oversight, about accountability. It is about definition 

of each of these programs. It is program integrity and focus. 

Ms.CLARKE. But with all due respect, Madam Deputy, the agencies are not charged with developing 8(a) companies. That is the 

SBA’s responsibility in statute. Why is the SBA side-stepping its 

obligations here? 

Ms.CARRANZA. Congresswoman, I cannot agree that we are sidestepping. Could we have missed the mark as it relates to ensuring 

that we had everyone engaged in the oversight and assessment—

Ms.CLARKE. But if you are mandated by statute, it would seem 

to me that that would be foremost in the mind of anyone who is 

presiding over the program. And so it is semantics to say we are 

not side-stepping when indeed the results demonstrate that. 

Ms.CARRANZA. The integrity of the program is of utmost importance to the agency. Side-stepping, I could not accept that term. 

Could I say that we have missed the mark as it relates—not intentional, but because of the focus and/or execution of the program, I 

can share with you the same frustration and also the same focus. 

And I look forward to working with your particular staff to address 

those particular issues and perhaps collectively we can work to a 

resolve. 

Ms.CLARKE. Madam Deputy, are you aware that in 2005 93 percent of the companies got nothing? 

Ms.CARRANZA. In 2005? 

Ms.CLARKE. Um-hum. 

Ms.CARRANZA. I am not in a position to answer that. 

Ms.CLARKE. Well, I think that should be something that you 

really focus on. 

I have run out of time. I want to thank you, Mr. Chair. 

Ms.CARRANZA. Thank you very much. 

Mr.ELLSWORTH. Thank you. This will conclude the first panel. 

Ms. Carranza, I would like to thank you for your testimony. I appreciate you coming before this group this morning. I am sure we 

will run into you again down the road. 

Ms.CARRANZA. I am sure, thank you very much, I appreciate it. 

Mr.ELLSWORTH. We invite the second panel to come forward. I 

would like to advise the Committee and the panel members as we 

switch that we have been notified that there is a possibility we will 

be interrupted for votes some time during this part, and hopefully 

Ms. Vela ́zquez will be back and will determine how to handle that 

at the time. 

19

Mr.CHABOT. Mr. Chairman, I would ask once again that while 

the panel is coming in to speak out of order for just a moment just 

to make a point. This will take me about 60 seconds. 

Mr.ELLSWORTH. Without objection. 

Mr.CHABOT. I happened to be at a meeting this morning and the 

speaker was former Speaker Newt Gingrich, in comparing the private sector versus the government and how efficiently both operate. 

He used an example of—I do not recall if it is Federal Express or 

UPS versus the government, and he said whichever one it was, 

UPS or Federal Express has at any one time about 25 million packages that are going around the world, you can literally go on-line 

and know in real-time where your package is in that process. That 

is the private sector. The Federal Government, we have 11 to 12 

million people here illegally, the government has no idea where 

they are at. Sort of difference between the private sector and the 

government. And then he also mentioned that somebody suggested 

that perhaps we could mail a package from Federal Express or 

UPS to illegal folks here in this country and we could figure out 

pretty quickly where they are at. But in any event that was Newt’s 

suggestion. 

I yield back. 

Mr.ELLSWORTH. We will start hiring people away from those 

great companies to work for the government. I agree that we 

should do a better job. 

If it please the panel, I will introduce you one at a time. We will 

hear the testimony in that order. Just be advised we do try to keep 

it strict to the 5-minute rule. If your testimony or your paper, your 

written testimony, is longer than that, it will be submitted for the 

record. 

With that, if everybody is in place Panel II consists of Mr. Harry 

Alford. Mr. Alford is the President of the National Black Chamber 

of Commerce. The Chamber represents nearly 100,000 companies 

through a network of nearly 200 chapters. With that, Mr. Alford 

we would appreciate your testimony. 

STATEMENT OF HARRY ALFORD, PRESIDENT, NATIONAL 

BLACK CHAMBER OF COMMERCE 

Mr.ALFORD. Thank you, Mr. Chairman, acting chairman. Distinguished members of the Committee, thank you for giving the National Black Chamber of Commerce the opportunity to speak about 

the contracting programs of the Small Business Administration. 

We will submit a full testimony within the subsequent 5-day time 

span, but for now I want to voice a few important views about the 

current status of the SBA and how it impacts our membership. 

The National Black Chamber of Commerce is a nonprofit 

501(c)(3) organization that is dedicated to the economic development of African American communities through entrepreneurship 

and capitalistic activities. We have over 130 chapters located in 41 

States and various chapters in eight nations. We have reach to 

over 100,000 black owned firms and consider ourselves the largest 

business association representing black owned firms. 

Back in 1996 the Deputy Administrator of the SBA told my 

Board of Directors that the SBA was no longer going to concentrate 

on procurement and become simply a lending guarantee institution. 

20

We protested her attitude and demanded and eventually received 

her resignation. As time went by, it appears that her forecast has 

slowly taken form. It was in the late 1990s that the SDB contractors with the Federal Government was dropping at the rate of a 

billion dollars per year. In the early 2000’s it started to take a miraculous turn upwards. However, that appears to be due to misrepresentation, fraudulent reporting and a skyrocketing increase in 

Alaska native corporation activity. Minority businesses in the lower 

48 States have been decimated in direct government contracting 

and subcontracting. 

As a current example, the SDB contract participation in the gulf 

rebuilding seems to be approaching, in terms of black business participation, at $400 million. Contracts affected by the National Black 

Chamber of Commerce in southeast Louisiana is approaching a billion dollars. I never would have thought that our fledgling organization could effect more contracts for black business owners than 

the Federal Government, but that is indeed the case. 

Now if you take that $400 million that they have alleged with 

black businesses, most of that has come from the tirade, if I may 

say, of the Honorable Bennie Thompson when we submitted a report to him that FEMA and others were at 0.02 percent in black 

business participation in the gulf. He hit the ceiling and FEMA 

jumped. And all of a sudden we had $400 million in forecasted dollars. We will audit this later and see if that comes true. 

We at the National Black Chamber of Commerce are so fed up 

and disgruntled with the SBA lack thereof, district directors, PCRs, 

business opportunity specialists, PTACs. Where are they? They are 

gone. They are more than endangered, they are gone. Los Angeles, 

Kansas City, Chicago, Brooklyn, Cleveland, they are not around. 

Some of my chapters have not seen an SBA individual in 7 to 8 

years, not since the beginning of this century. 

So what are we doing? We are encouraging our members to follow the Federal dollars through State agencies. U.S. DOT, the billions that they give to the State Department of Transportation officers. Follow the HUD money. Most of the money in southeast Louisiana that we proclaim is HUD money, Housing Authority of New 

Orleans, who has $1.6 billion in RFPs. Two of our members have 

50 percent of that, and the other two RFP winners are committing 

to working with the local minority business community. 

DOT, we have a model location in Illinois. The Illinois State 

Black Chamber of Commerce has put every contractor in central 

and downstate Illinois at full capacity through the IDOT program, 

to the point that the Governor has given them two contracts worth 

over a million dollars for technical assistance for minority contracting in the State of Illinois. 

The State of Ohio legislature has just appropriated $1.2 million 

to develop two more black chambers within the State of Ohio for 

economic development within that State. Everyone has given up 

out there on the SBA for developing small and minority businesses. 

The point I hear about women business, they obviously have decided they are not going to do it. That is the deal. And I think that 

is the challenge to this Committee. What are we going to do to 

make them do it? We have given up. 

21

Now, we are doing other creative things. We are working in a 

partnership with the Alaska native corporations. We are using 

their expertise for technical assistance in finding contracts with the 

Corps of Engineers. We have had some good examples. The only 

problem is the SBA is trying to stop us from doing this, which we 

have resisted and are turning that around. 

8(a) program, we are supposed to have 45 days to have your application processed. We have got people who are taking 6, 7, 8 

months trying to get an 8(a) application processed. I have had one 

guy who waited 7 months and he was told, a native of New Orleans 

was told, a survivor of Katrina was told he is not economically disadvantaged. He lost all his business in the storm, he was born in 

the inner city of New Orleans, and they are telling him he’s not 

socially disadvantaged. I think it is absurd. 

At the same time you have 8(a) males in the greater D.C. Area 

where these white males are out recruiting some of our members 

asking them to sign up for the 8(a) program through them. They 

can get them in 2 to 3 weeks guaranteed because they have connections with the SBA. Then when they get approved as an 8(a) business they assign them a new address somewhere in D.C. To be a 

HUBZone in addition to 8(a). 

Then they have what is known as a handshake agreement, which 

says they are deviating from the application from the 8(a) program 

and assigning them project managers doing the bidding, doing the 

project work, and all they have do is just sign paperwork and 

checks. This is fraud. And if I can see it, I am the last person they 

want to know about this. It seems like the SBA might want to pick 

up a phone, talk to us and we can take them to the door. 

That is my time. I will answer your questions, sir. 

[The prepared statement of Mr. Alford may be found in the Appendix on page 53.]

Mr.ELLSWORTH. Thank you, Mr. Alford. I’m sure we will give you 

a chance with some questions. 

Next, Mr. Chamrin is the Assistant Director of Economic Commission for the American Legion. The American Legion was established in 1919, has 3 million members and nearly 15,000 posts 

worldwide. 

Mr. Chamrin, we welcome your testimony. 

STATEMENT OF RONALD F. CHAMRIN, ASSISTANT DIRECTOR, 

ECONOMIC COMMISSION, THE AMERICAN LEGION 

Mr.CHAMRIN. Thank you. Mr. Chairman and members of the 

Committee, thank you for this opportunity to present the American 

Legion’s view on the SBA’s contracting programs in relation to veterans. American Legion views small business as the backbone of 

the American economy. It is the driving force behind America’s 

past economic growth and will continue to be a major factor as we 

move further into the 21st century. 

Currently more than 9 out of every 10 businesses are small 

firms, which produce almost one-half of the GNP. The impact of deployment on self-employed reservists is severe with a reported 40 

percent of all veteran owned businesses suffering financial losses 

and in some cases bankruptcies. Many small businesses have disVerDate 0ct 09 2002 16:21 Dec 14, 2007 Jkt 033615 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38203.TXT LEANN
22

covered that they are unable to operate and suffer some form of financial loss when key employees are activated. 

Additionally, the Office of Veterans Business Development within 

the SBA remains crippled and ineffective due to a token funding 

of only $750,000 per year. This amount, which is less than the office supply budget for the entire SBA, is expected to support an entire nation of veterans entrepreneurs. 

The American Legion feels that this pittance is an insult to 

American veteran business owners that undermines the spirit and 

intent of Public Law 106-50 and it continues to be a source of embarrassment for this country. 

American Legion strongly supports increasing funding of the SBA’s Office of Veterans Business Development to $2 million. This 

will provide enhanced outreach and community based assistance to 

veterans and self-employed members of the Reserves and National 

Guard. Additionally, the American Legion supports allowing this 

same office to enter into contracts, grants and cooperative agreements to further its outreach goals. 

The Office of Veterans Business Development must be authorized 

to develop a nationwide and community based service delivery system specifically for veteran and members of reserve components of 

the United States military. 

I’ll talk about the Federal procurement opportunity for veterans. 

The American Legion has supported legislation in the past that 

sought to add service connected disabled veterans to the list of 

specified small business categories receiving 3 percent set-asides, 

and Public Law 106-50 was passed in 1999. Agency compliance 

with Public Law 106-50 has been minimal and non-compliant. In 

2004 President Bush issued Executive Order 13360 to strengthen 

opportunities in the Federal contracting for service disabled veteran-owned businesses. 

In contrast to the SBA scorecard, if you dug a little deeper, the 

following agencies have failed to meet the 3 percent goal for fiscal 

year ’06 for service disabled veteran-owned businesses. That has 

been established since 1999 and enhanced by the Executive order 

in 2004. 

Agriculture, Homeland Security, Transportation, Justice, Labor, 

Nuclear Regulatory Commission, Treasury, Defense, Interior, Education, the EPA, GSA, HHS, NASA, State, National Science Foundation, OPM, Social Security Administration and USAID. Once 

again these 19 agencies did not meet the 3 percent goal. SDVOBs 

had the potential to award it approximately $7 to 8 billion for fiscal 

year ’06 and about the same for fiscal year ’07. 

Brief recommendations, we with like to incorporate Executive 

Order 13360 into SBA regulations and standard operating procedures. The American Legion agrees with the recommendations 

given from the SBA Advisory Committee on Veterans Business Affairs in their fiscal year ’06 report. The SBA needs to reemphasize 

implementation of the Executive Order 13360 and establish it as 

a Federal procurement priority across the entire Federal sector. 

Federal agencies need to be held accountable by the SBA for 

their implementing of Executive Order 13360 and their progress toward the 3 percent goal. The SBA needs to establish a means to 

monitor agencies’ progress and, where appropriate, establish a veVerDate 0ct 09 2002 16:21 Dec 14, 2007 Jkt 033615 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38203.TXT LEANN
23

hicle to report or otherwise identify those that are not in compliance and pursue ongoing follow-up. 

To achieve the SDVOB procurement goal contained in the Executive order the SBA must identify all agencies affected by the Executive order and under the directive of Congress. Then the SBA 

should assist these agencies to develop a demonstrable, measured 

strategic plan and establish realistic reporting criteria. 

A change of sole source contracting methods. To provide parity 

among special emphasis procurement programs, the SBA should 

take immediate appropriate steps to promulgate regulations to revise 13 CFR 125.20. The proposed revision would eliminate existing 

restrictions on the award of sole source contracts to SDVOBs such 

as the ′′Rule of Two′′. This change should mirror 13 CFR 124.508 

part C which applies to the 8(a) program and states, in order to 

be eligible to receive a sole source contract in regards to 8(a) the 

firm must be in current participation on the day of the award. Accordingly, adopting this language would eliminate all restrictions 

on sole source awards to SDVOBs. 

And finally, our final recommendation, is to develop a user 

friendly procurement database. The American Legion supports that 

the Federal Government and DOD utilize its available technology 

to create, fund and support a veteran procurement spending database within the DOD. Why the DOD? As Congressman Bartlett 

said before, they have the largest dollar amount of contracts 

awarded, yet have awarded only one-half of 1 percent of all the 

contracts to service disabled veteran-owned businesses. This action 

will finally put veteran-owned and service disabled veteran-owned 

businesses on equal footing with all small business special interest 

groups in regards to Federal procurement opportunities. 

In conclusion, the American Legion appreciates the opportunity 

to present this statement for the record and to continue our proud 

history of advocating for veterans. I appreciate this opportunity 

and would be happy to answer any questions that you have. 

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

Appendix on page 57.]

Mr.ELLSWORTH. Thank you, Mr. Chamrin. 

Next is Margot Dorfman. Ms. Dorfman is the CEO of the U.S. 

Women’s Chamber of Commerce based in Washington, D.C. The 

USWCC represents 500,000 women-owned companies throughout 

the country. 

Ms. Dorfman, we appreciate your testimony. 

STATEMENT OF MARGOT DORFMAN, CEO, U.S. WOMEN’S 

CHAMBER OF COMMERCE 

Ms.DORFMAN. Thank you very much. I greatly appreciate the 

time to be here today. I am here today representing the millions 

of American women business owners seeking your urgent assistance. 

In 2000, Congress recognized that the gross underrepresentation 

of women-owned businesses and Federal contracting had to end 

and established the set-aside program to reach women-owned businesses in underrepresented industries. Through a bipartisan effort 

Congress passed the Equity and Contracting for Women Act. This 

24

act required the Small Business Administration to conduct a study 

to identify industries in which women-owned small business were 

underrepresented and established procedures to verify eligibility to 

implement the program. 

Nearly 7 years later the SBA has still not implemented this important law. The U.S. Women’s Chamber of Commerce filed a claim 

against the SBA for failure to implement this law. The court 

agreed with the Women’s Chamber and said that the SBA had sabotaged the implementation of the program. The court demanded a 

timeline for implementation, which the SBA provided and then 

failed to meet. 

Let me now address why this was so urgently needed. We read 

endlessly about the huge growth in women-owned businesses for 

marketers seeking to sell to women. One of my favorite hyped up 

headlines states that over the last decade women-owned businesses 

grew 42.3 percent, but the real story is that while the number of 

women-owned businesses grew by 42.3 percent, their annual revenues grew by only 4.4 percent. 

One of the reasons women-owned businesses are not seeing 

stronger growth is for the devastating failure of the Federal Government to provide fair, competitive opportunities for womenowned firms. Without access to government contracting opportunities, women-owned businesses are struggling to get the traction 

they need to grow their businesses and increase their capacity. 

Even though women own nearly one-third of all businesses in 

America we received only 3.4 percent of the total 2006 Federal contracting dollars, resulting in losses of billions of dollars annually. 

After 7 years the SBA is still not ready to implement the women’s contracting program, and has even signaled that they plan to 

only implement a very, very narrow version of this law. If the SBA 

takes this narrow action, the intent of Congress will not be fulfilled, and women-owned businesses will not receive increased access to contracts. 

The SBA has taken three steps. Step 1, in 2002 the SBA prepared a draft study containing a preliminary set of estimates. On 

step 2, the SBA asked the National Academy of Sciences to conduct 

an independent review of relevant data and estimation methods 

prior to finalizing the study. NAS recommended that a new study 

be completed, employing four data sets measuring options of contract dollars and actions as well as the whole universe of womenowned small businesses versus only those listed in CCR. 

The NAS recommendation entitled Clear Cases of Underrepresentation states and I quote, ′′Because almost any data source 

and measure of disparity will be subject to errors, and because 

stakeholder views of appropriate disparity measures may differ according to their views on the usefulness and appropriateness of 

preferential contracting programs, it is unlikely that a single disparity measure will go unchallenged.′′

We recommend that the SBA identify industry groups for which 

more than one disparity measure finds underrepresentation using 

a disparity ratio of.80 or less. The NAS also makes it clear why it 

is important to look at a diverse picture of underrepresentation 

rather than narrowly at only one view. 

25

The report states differences in purchasing methods caused differences between different agencies, making it important to look at 

both contract actions and dollar amounts. Shares and terms of dollars and actions are similar from any cabinet departments, but 

there are exceptions. Notably the Department of Energy in fiscal 

year 2003 exhibited a relatively high share of contract actions 

going to women-owned small businesses, 15 percent, but the share 

of its contract dollars awarded to women-owned small businesses 

was only.5 percent. 

The point the NAS makes is that the SBA should not narrow the 

selection of industry severely, as purchasing methods and contract 

sizes across different agencies vary. 

Step 3, using the RAND study outcomes, the SBA should now select industries that appear on more than one of the disparity measurement tables. Using the standard to determine underrepresentation, women-owned businesses are underrepresented in over 86 

percent of the industries. 

In summary, the NAS told the SBA how to prepare the relevant 

data and estimation methods. The RAND study provided the relevant data. The next step is clear, the SBA should immediately implement this program for all industries that appear on more than 

one of the four data sets. I call upon you today to do everything 

within your power to compel the SBA to implement the law as you 

had intended it to be done so. 

Thank you. 

[The prepared statement of Ms. Dorfman may be found in the 

Appendix on page 61.]

Mr.ELLSWORTH. Thank you, Ms. Dorfman. 

Our next witness is Mr. P.J. Goel, the President of Goel Services, 

Incorporated here in Washington, D.C. Mr. Goel is the President of 

a local company in the construction industry. Goel Services, Incorporated is certified in both the 8(a) program and the HUBZone program. He is testifying on behalf of the Associated General Contractors. The AGC is the oldest organization representing the construction industry, has 33,000 members, 100 chapters throughout this 

country. 

Mr. Goel, thank you very, very much. 

STATEMENT OF P.J. GOEL, PRESIDENT, GOEL SERVICES, INC., 

ON BEHALF OF THE ASSOCIATED GENERAL CONTRACTORS 

Mr.GOEL. Thank you very much, Acting Member Ellsworth, 

Ranking Member Chabot, members of the Committee of the SBA 

which is here, and the agency for letting me speak. 

I submitted testimony, but I think after listening to what most 

of your concerns are I was going to try to focus in on what the 

problems are as a small business in these programs and what 

would the recommendations be to fix them. 

First of all, there are six programs that the Federal Government 

recognizes: Alaskan Native, Tribal Indians, Service Disabled, 

Woman Owned, 8(a), HUBZone. It is very hard for the government 

contracting officials that we have met with over time to actually 

know all of the individual rules for each of these six programs. Five 

of the six programs are socio-disadvantaged programs. Everything 

26

except for HUBZone is race based or whether you have been injured or whether you came from an area where you have been disadvantaged. 

My personal recommendation as a small business outside of any 

organization is to consolidate them into one program. Immediately 

women owned could have equal parity to 8(a) and the HUBZone 

would run parallel. Alaskan natives, who have an unlimited cap on 

the amount of sole source, would be restricted by 8(a). Tribal Indians, which have an unlimited cap on sole source, would be unlimited by 8(a). Service disabled, which are seeking to have parity 

with 8(a), would have 8(a). Either to make all five programs similar, identical in nature so that there is equal competition and to 

make it simple for the government to use. The more simple it is, 

the contracting folks at GSA or all the ones who are not meeting 

the goals will have an easier way of meeting their goals. 

The second issue is the SBA does not have enough money for onsite inspection. Instead of increasing the budget the recommended 

approach would be make the contractors applying for these program pay for the fee. For example, DSS uses third-party investigators for clearances for employee background checks. We are the 

ones that benefit from the background check to make sure that the 

fraud doesn’t exist. Why not eliminate the fraud, make sure that 

there is a third party. You can have guys in Brooklyn, Iowa, even 

though the SBA isn’t there, you could have people representing the 

SBA instantly on a roll out across the country. 

Accountability, accounting-wise the SBA is underfunded to actually implement, manage and watch what the other agencies are 

doing. The State of Maryland, MDOT does on-site inspections and 

they make every contractor comply. They make the contractors that 

subcontract, the subcontractors that are small businesses actually 

submit affidavits stating that they were paid the funds that were 

claimed to have been paid by them, reducing fraud. There is an actual body that actually cross references all these documents and 

comes up with it. That I believe the SBA needs significant funding 

for, and that could put the teeth into this program for enforcement. 

Agencies like GSA have been undermining a lot of the rules, like 

for example on HUBZone there is a price preference. In 2005, they 

wrote a memorandum of understanding stating that they weren’t 

going to do evaluations. One year later after zero comments were 

issued, I didn’t even know that there was a rulemaking issue, they 

enacted it. So today there is no price preference for GSA. They are 

one of the ones in red across the board. I believe all programs 

should have equality, should be fair, simple, easy to use. 

One of the issues brought up was that a majority of the contract 

dollars were going to a select group of contractors, brought up by 

Representative Clarke. This is because there is a high degree—

from the contracting side there is a risk of using small business. 

To replace a small business costs a lot of time and money. And so 

there is not equality. I mean to the government we are all commodities. I provide asbestos, demolition. There are a hundred companies that provide it. We are commodities. The question for the government, how do they reduce their risk exposure? 

I don’t know if I could be afforded more time. I have four or five 

more items as problems and solutions. 

27

Mr.ELLSWORTH. Mr. Goel, they are going to call votes probably 

during this testimony. If we could do it and maybe get to it during 

the question and answer period, that would probably be preferable 

to the Committee. 

Mr.GOEL. Thank you very much for your time. 

[The prepared statement of Mr. Goel may be found in the Appendix on page 67.]

Mr.ELLSWORTH. Thank you, Mr. Goel. 

I will introduce Mr. Newlan. If it please the chairwoman, Mr. 

Newlan is our next guest. Mr. Newlan is founder and board member of the HUBZone Contractors National Council. The council represents companies participating in the SBA’s HUBZone program. 

Mr. Newlan, thank you for being here. 

STATEMENT OF RON NEWLAN, DIRECTOR, HUBZONE 

CONTRACTORS NATIONAL COUNCIL 

Mr.NEWLAN. Thank you, Acting Chairman. 

With the Chair’s permission, I would like to put up a large visual 

display of New York’s 12th District and the HUBZone areas within 

that district. In a few minutes we will swap it out and put up 

Ohio’s First. I do have packages to hand out to the members and 

the staff of the HUBZone map of your own district, of every district 

represented on the Committee. And with your concurrence, Madam 

Chairwoman. 

ChairwomanVELA ́ ZQUEZ. [Presiding.] Without objection. 

Mr.NEWLAN. We will hand those out as I am testifying. 

Thank you for inviting me here today. I am particularly honored 

to be testifying before the Committee and a special hello to my 

good friend Congressman Bartlett, who has been a strong, strong 

supporter of the HUBZone program since the beginning of the program. 

The HUBZone council is the only national trade association that 

focuses exclusively on expanding the implementation of the Federal 

HUBZone contracting program. A HUBZone is an area of our Nation that has high unemployment or low household income or both. 

Today nearly 37 million Americans live in poverty. There is a 

strong correlation between the locations of America’s HUBZones 

and the locations where these 37 million impoverished Americans 

live. 

This program was designed to create good jobs where America 

needs the jobs the most. The program creates these jobs by offering 

competitively awarded contract opportunities to small businesses 

that locate in a HUBZone and hire employees who live in these 

HUBZones. 

Awarding Federal procurements to HUBZone firms is good policy 

for several reasons. Firstly, awards under the program are almost 

always based on competition so the government receives the advantages of competitive pricing. 

Secondly, each HUBZone firm must have its largest office in a 

HUBZone. This stimulates the economic development in these 

zones of poverty. 

Thirdly, at least 35 percent of each HUBZone firm’s employees 

must live in a HUBZone. In many instances these employees before 

28

being hired by a HUBZone firm were drawing unemployment and/

or welfare. So there is a double win. We move the unemployed or 

welfare recipient back to the rolls of productive tax paying employees. 

Today there are approximately 13,000 HUBZone firms. Their col- lective annual revenues exceed $25 billion. If they were collectively 

ranked they would be ranked number 90 on the Fortune 500 list, 

larger than General Dynamics or Coca-Cola. Our resources as a 

community are vast. For example, in the district represented by 

Chairwoman Vela ́zquez, New York’s 12th District, I estimate that 

approximately 25 percent of the land area of the district has been 

classified as a HUBZone. In the 12th District there are 9 HUBZone 

firms and they employ approximately 200 people. 

In Ohio’s First District represented by the Committee’s Ranking 

Member Chabot, a large majority of the geographical area in and 

around Cincinnati has been classified as a HUBZone. Ranking 

Member Chabot’s district has 24 certified HUBZone firms that employ normally 1,500 people. In Texas’ 20th District, represented by 

Congressman Gonzalez, there are more than 85 HUBZone firms 

that create more than 1,500 jobs annually. 

Unfortunately, this well designed program has been very poorly 

implemented by the Federal agencies that buy America’s goods and 

services. The HUBZone statute sets a goal for contracting for 

HUBZone firms at 3 percent. Despite the large size of our 

HUBZone contractor community the Federal Government has 

never come close. In 2005 they achieved 1.9 percent and in 2006, 

2.1 percent. 

If I had to attribute the program’s lack of success to one thing, 

I would attribute it to the procurement community’s reluctance to 

change their method of doing business. For every one HUBZone 

set-aside competition conducted in 2005 there were 78 small business set-aside competitions conducted. Yet the statutes and the 

regulations are clear, the HUBZone program is a higher priority 

program than the small business set-aside program. 

The HUBZone statute and regulations require a contract to be 

set aside for HUBZone competition when a contracting officer has 

a reasonable expectation of receiving two or more offers from 

HUBZone firms and if the award can be made at a reasonable 

price. We refer to this as the HUBZone ′′Rule of Two′′. It is very 

disappointing to see how often a procurement community ignores 

the ′′Rule of Two′′ and conducts tens of thousands of procurements 

each year outside the HUBZone program that should be awarded 

using the HUBZone set-aside procedures. 

If current regulations were followed by the Federal contracting 

community, more than 100,000 more jobs could be created annually 

for America’s poorest residents. Now to make matters even worse, 

the House of Representatives has passed a bill, H.R. 1873, and sent 

it to Senate. One aspect of this bill is to increase the contracting 

goals for SDBs and women-owned firms to 8 percent annually. The 

House bill did not increase the HUBZone bill to 8 percent. If this 

was become law this would increase emphasis on SDB and womenowned contracting at the expense of the HUBZone and the service 

disabled veterans program. It is time for the Federal procurement 

community to follow the law. 

29

ChairwomanVELA ́ ZQUEZ. Um—

Mr.NEWLAN. I ask the Committee to convey to all senior officials 

and Federal procurement officials that the HUBZone ′′Rule of Two′′ means what it says and reemphasize that the HUBZone program 

has priority over the small business set-aside program. 

ChairwomanVELA ́ ZQUEZ. Mr. Newlan, unfortunately we have to 

go to the floor to vote, but in the question and answer period you 

will be able to accommodate your statement. 

Mr.NEWLAN. Thank you, Madam Chairwoman. 

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

ChairwomanVELA ́ ZQUEZ. Now the Committee stands in recess. 

[Recess.] 

ChairwomanVELA ́ ZQUEZ. The Committee is called to order. Our 

next witness is Dr. Trevor Brown. Dr. Brown is an Assistant Professor at the John Glenn School of Public Affairs, Ohio State University. Mr. Brown’s research focuses on public management, contracting and contract managing and performance measurement. 

Welcome, sir. You have 5 minutes to make your presentation. 

STATEMENT OF DR. TREVOR BROWN, ASSISTANT PROFESSOR, 

JOHN GLENN SCHOOL OF PUBLIC AFFAIRS, THE OHIO 

STATE UNIVERSITY 

Mr.BROWN. Thank you very much. Before I begin, I think Mr. 

Newlan was partly through his testimony. I don’t know if there is 

time for him to finish off his testimony. 

ChairwomanVELA ́ ZQUEZ. He will have time during the questioning. 

Mr.BROWN. I wanted to make sure I did not cut in. 

Well, Chairwoman Vela ́zquez, Ranking Member Chabot and honored members of the Committee, thank you for the opportunity to 

share my thoughts on the Small Business Administration’s contracting program. 

As a professor in the John Glenn School of Public Affairs at Ohio 

State University, as you just heard I study government contracting 

and contract management. My research examines why governments decide to contract for some services and not for others, perhaps more importantly what investments governments make in the 

capacity to manage contracts once they have been let. 

This morning, or this afternoon I am going to offer my professional opinions on some of the SBA’s contract requirements. In particular, I am concerned that the increased push to further limit 

combining multiple tasks into a single contract vehicle, sometimes 

referred to as contract consolidation or contract bundling, will inhibit Federal procurement personnel from maximizing public value. 

I think that everyone would agree that government agencies 

should target two primary goals when they turn to the market, 

first, the procurement of high quality goods and services and, second, acquisition of those goods and services at the lowest possible 

cost. The problem is that these two objectives may at times be in 

conflict with each other. 

Lower costs may undermine the quality. Reflecting on the launch 

of his mission to orbit the Earth, former Senator, U.S. Astronaut 

30

and patron of the school where I teach, John Glenn replied, All I 

could think about was the 2 million parts that I was sitting in were 

built by the lowest bidder.′′ Senator Glenn’s seemingly prosaic 

thoughts as he hurtled through space starkly illustrate the challenges faced by public sector procurement personnel: How to use 

purchasing to deliver high quality goods and services at the lowest 

post cost. As a taxpayer this is exactly the question I want Federal 

Government procurement personnel focused on. 

Fortunately, policy and practice has evolved since Senator 

Glenn’s first days in space when procurement personnel were mandated to focus on cost and cost alone. Now procurement personnel 

have been given more flexibility and discretion to balance cost and 

quality. For example, the FAR, Federal Acquisition Regulations, 

now allow the use of vendor past performance as a decision criteria 

in contracting decisions. 

Over the years additional requirements have been layered on top 

of the basic costs and quality calculus, and high on the list are 

goals for targeted classes of organizations of central importance to 

this Committee, Small Businesses. Now from the perspective of 

this Committee, taking steps to ensure government agencies utilize 

small business and procurements is an admirable goal. The SBA’s 

data and other data clearly show the important role that small 

businesses play in the American economy. 

However, the more goals, preferences, set-asides and other associated requirements that are layered into the procurement process, 

the more difficult it becomes for Federal procurement personnel to 

achieve the sweet spot between cost and quality. My written testimony that I have submitted discusses some of these reasons, but 

for time I will not go into those. 

Increased requirements and the increased oversight and scrutiny 

that follow will cause public procurement personnel to focus more 

on the maze of rules and regulations, perhaps at the expense of 

maximizing public value and contract decisions. This tension is perhaps the most apparent in the SBA requirements restricting and 

combining of previously independent task requirements and the 

larger procurements, again referred to as contract bundling, but 

goes under the name sometimes of contract consolidation or strategic sourcing. 

As the Subcommittee is well aware, contract consolidation increased considerably after Congress passed the Federal Acquisition 

Streamlining Act in the 1990s. Now there are good reasons for this 

increase. It can potentially lead to reduced costs as a result of price 

competition among larger firms, or as a result of scale economies. 

Contract consolidation can also increase the government’s leverage 

over vendors. Private firms routinely use bulk purchasing to manage their supply chains. And as we heard from the honorable Representative Bartlett, contract consolidation can also result in reduced time in the acquisition process. 

Contract consolidation or the consolidation of tasks into the single contract can, however, have detrimental impacts on small businesses. A growing body of research shows that bulk purchasing is 

a primary barrier to small business participation in government 

contracting as a prime contractor. On this point in the research 

31

there is little debate. Individual small businesses are unlikely to 

win bids from many bundled contracts. 

As you can see, clearly the question of contract bundling sits at 

the center of the tension between providing Federal procurement 

personnel the flexibility to optimize cost and quality and the goal 

of trying to ensure the equitable participation of small businesses 

and Federal procurements. 

I am concerned though, based on information that I have seen, 

that the trend is toward excessive policing which comes at the expense of public value in Federal procurement. 

As members of this Committee, you are chiefly concerned with 

the plight of small businesses. I propose that as you continue to 

make changes to the Federal procurement process you also continue to assess the impact of your decisions on the ability of Federal procurement personnel to deliver public value to the American 

taxpayers. This does not have be a zero sum trade off. 

In moving forward, I strongly encourage the Committee to try to 

identify ways to achieve your goal of maximizing small business 

participation in the procurement process without unduly inhibiting 

the other goal of achieving best public value for American taxpayers in the form of the balance between cost and quality. 

To that end I just briefly will offer three specific recommendations that focus on increasing the capacity of the Federal procurement system. 

ChairwomanVELA ́ ZQUEZ. Dr. Brown. Are you able to summarize 

the three recommendations? 

Mr.BROWN. Sure. To address both goals. The first is to enhance 

SBA capacity to facilitate rather than police. I think you have 

heard that already from members today, increasing the number of 

staff. 

The second is to encourage collaboration of learning within the 

procurement system. There is a real opportunity over the next several years to build networks between SBA procurement staff and 

the contract staff within Federal agencies. The partnership for public service projects that the need for procurement staff there will 

be 8300 new opportunities throughout the Federal Government by 

2009. The more that SBA’s staff can work in partnership with 

those staff the better. 

Finally, the third recommendation is to gather more information 

on the impact of contract bundling. As noted earlier, research is 

clear that contract consolidation harms small businesses in their 

drive to service prime contractors. But we don’t know a lot about 

the impact from the research standpoint on small business participation and subcontractors. 

I was happy to hear this morning about efforts to improve the 

access you all have to data. The other one that I would recommend 

you if you are not involved in already is that I am hopeful that recent congressional action to improve the quality of information in 

the Federal Procurement Data System, FPDS, is scheduled to go in 

effect in 2008 will also improve the knowledge base. To that end 

I encourage you to include information in that process on small 

businesses and subcontract arrangements. 

I thank you for my time. 

32

[The prepared statement of Mr. Brown may be found in the Appendix on page 79.]

ChairwomanVELA ́ ZQUEZ. Thank you. Thank you, Dr. Brown, and 

thanks to all the witnesses for your participation this morning. 

Mr. Newlan, we reviewed a sampling of HUBZone awards. Five 

went to large businesses. 40 percent of the companies weren’t even 

certified into the HUBZone program. Can you tell us why is it that 

so many improper certifications are taking place? 

Mr.NEWLAN. Well, I think it would be the same reason there is 

improper certifications taking place in all the programs. Contracting officers aren’t checking. There is a database that you could 

go to and you could determine quickly whether they were 

HUBZone certified or not. That is a less than a 30-second drill on 

the Internet. A contracting officer has a HUBZone set-aside procurement, 5 HUBZone bidders, ready to make an award, doesn’t 

bother to check. 

ChairwomanVELA ́ ZQUEZ. Mr. Newlan, Mr. Goel in his written 

testimony testified that SBA does not take the allegation seriously 

that the program is being abused. What would you propose that we 

need to do to ensure that these allegations are properly addressed? 

Mr.NEWLAN. I am not going to agree that the program is being 

abused. However, one incident of improper certification is one too 

many. But it is a pretty clear-cut program. You are either in compliance or not. It is self-policed by your competitors. 

ChairwomanVELA ́ ZQUEZ. Um-hum. 

Mr.NEWLAN. There is a very clear avenue for protesting the 

HUBZone size status of any winner of a HUBZone procurement, 

just like there is for a small business size protest of a small business procurement. And we encourage our members to protest if 

they have any reason at all to believe the winner of a HUBZone 

procurement is not a certified, in compliance HUBZone firm. I have 

firsthand experience that the SBA takes those protests seriously 

and renders detailed, meticulous decisions in each and every case. 

ChairwomanVELA ́ ZQUEZ. So you don’t agree with the Deputy Administrator who previously stated that the program is flawed? 

Mr.NEWLAN. I’d have to hear what flaw she’s talking about. 

ChairwomanVELA ́ ZQUEZ. Well, it was in response to my answer. 

Mr.NEWLAN. Well, again, maybe I’d have to meet with her or perhaps you and your staff and hear what flaws you have. I don’t believe any program in the Federal Government is perfect. HUBZone 

would be in that category. It is not perfect and there is always 

room for improvement. 

ChairwomanVELA ́ ZQUEZ. So you disagree with the Inspector General’s report? 

Mr.NEWLAN. Which aspect of the report? 

ChairwomanVELA ́ ZQUEZ. Where he found that there are serious 

flaws in the program. 

Mr.NEWLAN. I would disagree with that. 

ChairwomanVELA ́ ZQUEZ. Mr. Newlan, the government has a program, Section 8, that allows residents of low income areas to receive vouchers for housing assistance. Clearly no one will support 

low-income housing vouchers to be used to rent million dollar 

homes. Why should we have a program that allows people who own 

33

million dollar homes to get contracts intended for low income communities? 

Mr.NEWLAN. Because the contracts are intended to create jobs 

where we need them the most. Just as in a similar fashion you 

were asking questions earlier, Madam Chairwoman, regarding increasing the net worth of the 8(a) program. 

ChairwomanVELA ́ ZQUEZ. So is Winter Park in Florida one of 

those areas? 

Mr.NEWLAN. Excuse me? 

ChairwomanVELA ́ ZQUEZ. Winter Park. 

Mr.NEWLAN. I’d have to check the SBA map to determine. I have 

never been to Winter Park, so I don’t know. 

ChairwomanVELA ́ ZQUEZ. Well, I have been there, I know the 

area. I know that it is a part of Florida where you find multi-million dollar houses. They don’t qualify, that area doesn’t qualify for 

HUBZone. 

Mr.NEWLAN. Are you suggesting that it shouldn’t qualify but it 

is now qualified? I’m trying to understand the question. 

ChairwomanVELA ́ ZQUEZ. HUBZone companies are in that area. 

Mr.NEWLAN. Well, the definition of a HUBZone is where unemployment is high and wages are low. I suspect there is no county 

in the country or very few counties in the country as you get into 

rural America—as you know HUBZones are determined based on 

county basis in rural America, but as you go to rural America I 

suspect just about every county has one or more multi-million dollar homes while they have a lot of poverty in the county as well. 

ChairwomanVELA ́ ZQUEZ. Winter Park is not a rural area. 

Mr.NEWLAN. Pardon? 

ChairwomanVELA ́ ZQUEZ. Winter Park is not a rural area. I assure you Winter Park does not have the unemployment rate that 

would qualify the area for HUBZone companies to be established. 

Mr.NEWLAN. If Winter Park is not rural, it would be urban and 

in urban the determination is by census data regarding average 

household income. So they must have average household income 

under the statewide average for Florida. 

ChairwomanVELA ́ ZQUEZ. I want for SBA—and they are here 

today—to submit to this Committee the rationale for Winter Park 

to have HUBZone companies. 

Mr.NEWLAN. I would just state that I am not firsthand involved, 

but I have heard that it is HUD that determines whether some 

area is or is not a HUBZone and SBA just implements the HUD 

determination. 

ChairwomanVELA ́ ZQUEZ. It doesn’t matter, it doesn’t matter. 

Ms. Dorfman, in 2001 the regulations to implement the women’s 

procurement program were in an OMB review with an extension 

granted by the SBA. Today the regulations are in the exact same 

place. Given this, what do you believe about the SBA’s commitment 

to implement the program? 

Ms.DORFMAN. It is my estimation that they have no commitment, 

especially when talking to Administrator Barreto a few years back 

and he actually stated to me, and this is a quote, that this administration has no intention of implementing this program. 

It is now 7 years later and it has still not been implemented and 

we are hearing echoes in the hallways that perhaps that if it gets 

34

implemented it would be implemented only by the narrowest way 

of assessing women-owned firms which would be to a detriment to 

our members and to the American women businesses across the 

United States. 

ChairwomanVELA ́ ZQUEZ. Mr. Chamrin. 

Mr.CHAMRIN. Yes, ma’am. 

ChairwomanVELA ́ ZQUEZ. What are some of the unique challenges 

faced by service disabled veterans in accessing government contracts that other small businesses don’t share? 

Mr.CHAMRIN. First of all, I want to thank you, Madam Chairwoman, for allowing the American Legion to testify. 

Service disabled veterans can be anywhere from 0 percent to 100 

percent, they could have PTSD, traumatic brain injury, amputations, blindness. Some of these factors are hindering them from 

going to these contracting officers. A lot of these small business 

owners are individual owners, they are IT experts, they are computer experts. So they are sitting at home and it is hard for them 

to travel. 

Another problem is that the contracting officers are not knowledgeable of all the service disabled veteran laws, especially Public 

Law 106-50, Executive Order 13360 and the Comptroller General 

decision B-299291. And we believe that if these contracting officers 

knew the laws and then implemented the laws service disabled veteran businesses would be gaining the 3 percent goal. 

ChairwomanVELA ́ ZQUEZ. So in your testimony you state that 

each Federal agency should incorporate Executive Order 13360 into 

the regulations and standard operating procedures. Why is it so 

important to the American Legion that each agency incorporate 

this Executive order? 

Mr.CHAMRIN. Well, veterans along with other people on my panel 

have access to the entire federal Government and their procurement authority. And the Department of Veteran Affairs, a lot of 

these agencies feel that the Department of Veteran Affairs should 

have the onus and should have the priority of helping veterans. 

Well, that is just not the case, especially in procurement and contracting. And Executive Order 13360, it is an Executive order by 

the President of the United States to the Secretaries at the Cabinet 

level positions. And if they don’t implement the orders, then one 

has to become accountable for it. 

ChairwomanVELA ́ ZQUEZ. So let me ask you, under current law 

there are no penalties if a company falsely represents itself to be 

a service disabled veteran business. Should there be penalties? 

Mr.CHAMRIN. American Legion has no position on penalties. 

However, there is a Center of Veterans Enterprise operated by the 

VA which has the veteran business roster and each veteran-owned 

business is advised to go to the VA, and then they get certified by 

the VA as a veteran and as a service disabled veteran-owned business. We along with the Center of Veterans Enterprise and other 

small business owners are advising the Federal agencies to refer 

back to this list so that they guarantee that these are certified veterans and certified service disabled veteran-owned businesses. 

You asked one question about false representation and you 

talked about contract bundling. We are chiefly concerned with some 

of the prime contractors going to our service disabled and veteranVerDate 0ct 09 2002 16:21 Dec 14, 2007 Jkt 033615 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38203.TXT LEANN
35

owned businesses, having them on the initial contract, checking the 

block and having them be part of the award paperwork. And then 

when the actual implementation of the contract and the services, 

and especially the payment goes out, these companies are not being 

awarded these monies. 

ChairwomanVELA ́ ZQUEZ. That is the problem we are seeing 

across the board and, believe me, we are looking seriously to see 

what kind of remedies we can put into the law to prevent it from 

happening. 

Mr. Alford, when the SBA has testified about the 8(a) net worth 

limitation they have said that the average net worth for companies 

in the program is less than $750,000. In your view is the $750,000 

personal network ceiling realistic for a business owner in 2006? 

Mr.ALFORD. No, it is not realistic at all and I think it is kind of 

a self-fulfilling prophecy to limit people to a net worth of $750,000 

and then turn around and say, you see, everybody is less than 

$750,000. I think we need to get up to the modern days and times. 

ChairwomanVELA ́ ZQUEZ. Mr. Goel, your business is construction. 

Mr.GOEL. Yes. 

ChairwomanVELA ́ ZQUEZ. Is the $750,000 personal net worth limitation reasonable for your industry? 

Mr.GOEL. I would say no. To get bonding you need capital. 

ChairwomanVELA ́ ZQUEZ. Are you required to personally guarantee bonds and other business-related loans? 

Mr.GOEL. All of my bonds I personally guarantee them. I am 

signed as an indemnity for the bonding company. 

ChairwomanVELA ́ ZQUEZ. Mr. Alford, several years ago agencies 

could limit competition to only minority-owned companies. That 

was put on a 2-year moratorium that has never been lifted. How 

important would it be to minority businesses to allow agencies to 

once again have this ability? 

Mr.ALFORD. In effect in moratorium it became law I guess you 

could say, but yes, it should be lifted and we should be able to go 

back. It was an excellent instrument to get into the fray and to develop them. 

ChairwomanVELA ́ ZQUEZ. Would allowing agencies to restrict competition to minority-owned businesses help to ensure that companies survive after graduating from the 8(a) program? 

Mr.ALFORD. Yes, indeed. They have got to have that experience 

before they graduate. Graduating with nothing is like graduating 

from high school and you can’t read or write. What good is it? So 

you have to have that experience and that is the best approach to 

take. 

ChairwomanVELA ́ ZQUEZ. Thank you, and I will recognize Mr. 

Chabot. 

Mr.CHABOT. Thank you, Madam Chair. Mr. Alford, I will begin 

with you if I can. 

Mr.ALFORD. Yes, sir. 

Mr.CHABOT. It is my understanding that the majority of the 8(a) 

contracts are awarded to our relatively small subset of companies. 

What recommendations would you make to spread it out more so 

that more businesses are able to participate? 

Mr.ALFORD. I think lifting the moratorium for one. And I would 

like to see an analysis of these so-called super star 8(a) companies. 

36

You have got one in Silver Spring, Maryland that is in the staffing 

business. The chairman of my association is in the staffing business, and somehow this person goes to $200 million first contract, 

$150 million. Now she is up to about a billion dollars in work and 

there is no way in the world that this has any sense of logic to it 

other than she is representing somebody else who is well established and are using her 8(a) status to get in there and get some 

preferences. 

Now, going back to the talk of these false certifications, Attorney 

General Janet Reno took a very good approach when she came in 

and she considered false certifications a violation of the False 

Claims Act, and she made a very good example of Peter Kiewit, the 

largest construction company, and a few others who were using 

these front companies. And she tracked some off to jail and seriously fined Peter Kiewit and that sent a word out for a few years. 

Mr.CHABOT. Thank you. 

Mr. Chamrin, I will go next to you if I can. In your opinion, what 

is the primary barrier to greater participation by service disabled 

veteran-owned small businesses in the Federal procurement sector 

and what changes would you suggest that we make to remedy 

that? 

Mr.CHAMRIN. As I said earlier, it is the lack of knowledge of 

these contracting officers. They are not educated in the law, and 

if they were educated and if there was proactive enforcement coming from the top down, from the Secretary level down to the Administrator and make these contracting officers have not just a tutorial, but a competency based test to make sure that they are 

aware of these laws. And with the recent decision, the decision 

from the Comptroller General dealing with Porta-Pottys, there was 

a decision that allowed these contracting officers to award a sole 

source contract as long as they have the intent of knowing that 

there are two possible service veteran-owned businesses out there. 

And what these contracting officers have been doing is requiring 

that they have two possible contracts in hand and that is not the 

law. They are enforcing something that is more strict and stronger 

than what the actual law is. 

Mr.CHABOT. Thank you. 

Ms. Dorfman, if you were to lead the U.S. Women’s Chamber of 

Commerce as one of the top folks at the SBA, what would be the 

changes that you would make in order to remedy some of the 

failings that you address this morning? 

Ms.DORFMAN. Well, first I have to say I am very happy to say 

you would hire me and not appoint me, because my only allegiance 

is to small businesses and I think that is the downfall. We have 

two people who are at the top of the SBA who come from large corporations that have no idea of the complexity of the small business 

environment. And I think we need to get knowledgeable people in 

there that are not the dog and pony show for every administration, 

Democrat, Republican, it doesn’t matter, but we need qualified people heading up these. 

The other thing is if you get somebody who has been a small 

business owner that you are going to get the best quality of I guess 

fiduciary responsibility, so to speak, because we know the value of 

a dollar, and we are going to make sure that we have the broadest 

37

programs available with the least amount of money going out the 

door. So there is that to it. 

I think a lot of things have to happen that we first of all must 

go back to listen to Congress and implement the laws that are put 

forth. We also need to be part of the Cabinet at the leadership level 

to make sure that the voice of small business is heard so in the 

changing environment that there are experts there at the table 

that can help folks understand what needs to happen and the shifting climate, the different programs that need to happen right now. 

We have had some comment and discussion about well, we have 

got all these small business programs, different set-asides, and can 

we combine them, what would that look like? I think one flaw in 

all the programs is that they keep you small. The small businesses 

are not able to grow, they get to a certain size, they graduate the 

program and, lo and behold, they are out competing with Lockheed 

Martin and there is no in between place to grow. 

So we need to have some support so that instead of having these 

false ceilings of growth that we can help small business grow, and 

I think ultimately the SBA has to get back to the roots and realize 

that small businesses are the answer to the growth of the economy, 

that we are here as an investment for the American people and 

that small business has always been. When you think of the United 

States, you think of small business growth and the opportunities 

that are here and I would love to see that return. 

Mr.CHABOT. Thank you very much. 

Mr. Goel, in your testimony you asserted that the HUBZone program really isn’t achieving its goals. What reforms would you like 

to see made in order to accomplish that? 

Mr.GOEL. Well, in our particular case, we are a HUBZone certified firm. We are also 8(a) certified. The opportunities that exist 

in the 8(a) market are significantly larger and more plentiful. 

There are more Federal acquisitions for 8(a) than any of the other 

avenues out there. But I don’t believe it is effective. I know we bid 

on a contract for asbestos removal I believe in—forgive me—I think 

it was Scott Air Force Base in Illinois? Forgive me, I am not as familiar, but we specialize in asbestos and we can do this anywhere 

in the country—set-aside for HUBZone. And there was one contractor that specialized in asbestos and across the river he had another sister company that was his counterpart. I actually submitted 

the fraud incident to the SBA on that under an anonymous name. 

I don’t want to be the trouble maker, but again literally on the Web 

site you could tell that they are the same company. That was the 

incumbent contractor for the contractor. It set it up for the 

HUBZone so that the specific contractor got it. It wasn’t a matter 

of opening competition. They wanted that contractor. There was no 

longer 8(a) and they liked him and so they created a requirement 

to do it and they picked somebody that was in a HUBZone across 

the river that met the criteria and it happened to be the same firm. 

I think to fix the HUBZone program you need full enforcement. 

The SBA is totally underfunded to do it. I talked with my business 

opportunities specialists and they are overworked, they don’t have 

the funds, they don’t have the ability capital wise to actually go to 

every location, they have to go to every location. And if it meant 

for me to make sure that the competition was equal and fair and 

38

they weren’t fraudulent and I had to pay $1,000 to have a private, 

third party from the Federal Government go out and investigate 

each firm, so be it. I mean, I am the one that benefits. If there is 

a HUBZone opportunity, I am the one who is damaged when there 

is a fraud out there because they are taking advantage of the program. If it means $1,000 to fund the SBA from us the contractors 

that benefit to create that third party like they do for the top security clearances in the United States, so be it. I mean, it is a minor 

price to pay for equality in the workplace. 

Mr.CHABOT. Thank you. I don’t mean to cut you off. Do I have 

time—

ChairwomanVELA ́ ZQUEZ. I would like to ask you to yield for a 

minute. 

Mr.CHABOT. I would be happy to yield. 

ChairwomanVELA ́ ZQUEZ. Mr. Newlan, listening to Mr. Goel’s recommendation here, for the good name of the HUBZone program 

would you support on-site reviews? 

Mr.NEWLAN. We don’t have any problem with on-site review. 

ChairwomanVELA ́ ZQUEZ. Good. 

Mr.NEWLAN. But I am not sure I want to support the thousand 

dollars that he just said that HUBZone firms might have to pay. 

If Congress authorized the SBA the money and they have the time 

and energy to come out, we would fully support aggressive enforcement of all aspects of a HUBZone. 

ChairwomanVELA ́ ZQUEZ. You will support on-site review for all 

participants of the program? 

Mr.NEWLAN. Federal funded, yes. 

Mr.CHABOT. Reclaim my time. 

ChairwomanVELA ́ ZQUEZ. Thank you, sir. 

Mr.CHABOT. Thank you. 

What recommendations, if any, would you have for any low cost 

mechanisms that could be implemented for HUBZones that would 

ensure that only eligible firms receive government contracts? I 

think you mentioned in your testimony, for example, many rely 

upon somebody else to tell on them basically because they are competing and that sort of thing, but are there any recommendations 

you would make in that area? 

Mr.NEWLAN. I think all small business programs rely on self-policing, and your competition is watching closely, just like Mr. Goel 

saw this action going on and he reported it. So I think that is first 

and foremost. The other is let’s put some teeth into what happens 

if you get caught. If you break the law, if your commit fraud or 

whatever the exact legal term is, you should be dealt with and you 

should be punished. There is nothing wrong with that. You know 

the rules, you sign up for the rules, and if you break the rules, I 

am sure the Congress can come up with that or maybe it is already 

in the law, but let’s enforce it and, as Mr. Alford said, once the 

word gets out less people with break the law. 

Mr.CHABOT. Thank you. 

Mr.NEWLAN. There is nothing wrong with that. 

Mr.CHABOT. And finally, Dr. Brown, let me just note that obviously being from Ohio State University, my home State, our colleague who unfortunately passed away a couple of weeks ago, Paul 

Gilmore, who many of us attended his funeral in Columbus just 

39

last week, he was one of the biggest Ohio State Buckeye’s fans that 

I have ever known. He was always at every Saturday home games 

and many of the away games as well. It was one of the great pleasures that he had in life, and so we are all going to miss him tremendously. 

Mr.BROWN. Your sentiments are shared by the Buckeye family 

and the State of Ohio. The people in my department were very saddened. 

Mr.CHABOT. Thank you and quit losing to Florida, okay? That is 

not the question. 

If past performance plays such a crucial role, how should Congress enact policies that balance the need for experienced government contractors with the goal of helping new entrants? 

Mr.BROWN. Well, I think one of the most important things that 

relates to this particular issue, as you heard here a theme throughout, is acquiring sufficient numbers of government procurement 

personnel. That is clearly a pressure that will exist, but acquiring 

those with sufficient skills and knowledge of how the system works 

and not only how the system works, but how the market works. 

Again, one of the themes I am trying to get across with my comments is acquisition personnel historically have been back office 

functions that were largely follow the rules, but with the incredible 

volume of dollars that government is engaged in outsourcing they 

have elevated in prominence. These are people who are at the strategic center of most agencies and you need to ensure to the degree 

that you can, whether it is through funding or through the requirements that are set out there for procurement personnel, that they 

have adequate training and adequate experience in the rules, but 

also in the way that markets work. It isn’t simply rewarding the 

same companies over and over again, but it is trying to go out and 

stimulate new market development. Businesses are one avenue for 

that. 

I have spoken with one government personnel individual in procurement personnel in the Department of Homeland Security. They 

facing a tremendous crush of a need for new acquisition personnel, 

and they describe it as squeezing the balloon. We take them from 

someplace else and somebody else needs them. DOD has tremendous needs so this is a challenge that faces the government’s system as a whole. 

Mr.CHABOT. Thank you. I yield back, Madam Chair. 

ChairwomanVELA ́ ZQUEZ. Ms. Clarke. 

Ms.CLARKE. Thank you very much, Madam Chair. 

Mr. Goel, it is clear that when it comes to expressing your concerns about the HUBZone program you had some difficulty getting 

the SBA to take some action. As a result of your experience with 

the HUBZone and 8(a) programs, you expressed a litany of suggestions during your testimony. It was quite intriguing. 

For instance, you state that the HUBZone program should apply 

only to contracts for the construction of Federal projects within a 

150-mile radius of the HUBZone contractor’s principal place the 

business. Only those projects can offer employment to a significant 

number of HUBZone residents and only those projects can promise 

to make a lasting change in their economic circumstance. 

40

Are there any other reasons why the program should be limited 

to construction projects in or near a HUBZone that you can identify? 

Mr.GOEL. Well, I will use an example in D.C., and obviously it 

is the largest area where the Federal Government spends money. 

There is no HUBZones in the County of Montgomery or all of 

Northern Virginia so and yet there are how many tech firms that 

are in the HUBZone? I mean, I have a hard time fulfilling 

HUBZone requirements here in the Washington, D.C. Area and I 

do demolition with unskilled labor, okay? I mean, to try to find 

workers that reside, that actually do live in a HUBZone, this being 

the largest area where the Federal Government spends its money, 

I mean I don’t know of any tech firm that could qualify in the 

Washington region. 

Ms.CLARKE. Thank you, that is a very, very important point and 

the example you have given, perhaps we need to visit HUD about 

that. But thank you for sharing that with us. 

Do you believe that Congress should require the SBA to revise 

the self-certification process by requiring HUBZone companies to 

file annual reports certifying their annual sales and affiliation, including partnerships with large firms performing subcontract work 

for the HUBZone businesses, and why? And I would like to actually 

put that out for the rest of the panel to answer as well. 

Mr.GOEL. Well, my personal opinion is there should be a yearly 

audit and it should be funded by the beneficiaries so that the taxpayers of the United States don’t to pay. It would enforce equality. 

As I stated earlier, personal opinion, not that of AGC, is there are 

so many programs that it is not simple for contracting officers to 

actually make sense of these programs. 

And the one thing that I didn’t get to discuss is, for example, we 

do demolition and I am going to use this building as an example, 

the Rayburn Building. This is being modernized, everybody in 

Washington sees the Clark signs, let’s say Clark was renovating 

this. And underneath them if you were going to modernize this 

building, let’s say 35 percent of this building would be the mechanical systems, so that might be a John J. Kirlin or major mechanical, $100 million to renovate this building, $35 million for the mechanical installation package. The Federal Government in their accounting structures only gets to account for prime and first tier. So 

after first tier and we do mechanical insulation, John J. Kirlin 

doesn’t have a requirement to meet a subcontracting goal for their 

mechanical insulation or the people that put in their ductwork or 

all of the rest. 

The majority of us small businesses we exist on a third tier, that 

is where we are at. There is no accounting for it. 

Ms.CLARKE. I would like to ask Mr. Alford and others to give 

their opinion as well. 

Mr.ALFORD. Yes, ma’am. I believe self-certification is an invitation to abuse, big abuse, it is just human nature. You must have 

site visits. And I think the HUBZone program is so similar to section 3 of the HUD Act, that probably if you look at section 3 of the 

HUD Act, where of all the housing authorities in the United States 

maybe 10 are actually using section 3, which is hiring residents of 

public housing, or those living under the poverty level to become 

41

a section 3 company, it is so similar. And if we were to enforce section 3, viola, you probably would have a lot of HUBZone companies 

being developed. 

But we filed a complaint against the City of Jacksonville, it is 

a test case, and after 15 years, Secretary Jackson gives them until 

September 30th to come up with the program or else he is going 

to come in and establish it for them. And this is a first case after 

15 years, but if we can implement that and we have got promises 

to do it in New Orleans, where 40 percent of that workforce in New 

Orleans will be coming from public housing residents who have for 

the first time a chance to learn the skills of construction and we 

are very excited about that, but they are so similar. 

Mr.CHAMRIN. There is some real data out there with the VIP 

page operated the Center of Veterans Enterprise, and Scott 

Dennison is the director and he can probably give you the numbers, 

but approximately the numbers went up from 12 to 13,000 supposedly certified veteran-owned businesses to 9,000 since VIP has 

implemented their new program of how to certify and they are 

much more proactive. As I said before, if we can refer everyone, all 

the governmental agencies, to use the VIP, you are guaranteed a 

veteran and service disabled veteran-owned business. 

ChairwomanVELA ́ ZQUEZ. Go ahead. 

Ms.DORFMAN. I just want to from the women’s standpoint and 

women’s Federal procurement program, we would find that a bit 

challenging. As self-certification works right now, it is on, we would 

be able to police it from the outside and hopefully if there was a 

charge that fraud was found that we could actually hold the accountability and go through that process. 

The issue right now that stands before us, if we go into the whole 

certification issue, that the question is how long will it take it to 

happen because then that will extend the implementation of the 

law that we are waiting to be implemented today. 

In the first draft of the regulations that came out from the SBA, 

they said that yes, they wanted to do their own certification and 

maybe they would do 2,000 certifications a year for women-owned 

firms. There are 76,000 women-owned firms registered in CCR 

right now, and that means it would take another 38 years to implement our program, and I find that very challenging and I would 

hope that would not be a requirement. 

Thank you. 

ChairwomanVELA ́ ZQUEZ. Time has expired. 

Mr. Bartlett. 

Mr.BARTLETT. Thank you very much. 

Mr. Newlan, you had some excellent recommendations for our 

Committee in your testimony and I would like to give you an opportunity to go through those, if you would. 

Mr.NEWLAN. Thank you, Congressman. 

You know, we have got to get the attention of the senior officials 

at all the agencies that HUBZone rule 2 and for that matter all the 

rules that apply to the programs here at the table are there for a 

reason and they have got to be followed. We need to reemphasize 

that the HUBZone program has priority of the small business setaside program and that the regulations mean what the statutes 

say. The SBA headquarters HUBZone program needs to regain its 

42

line item status, and I would ask the Congress to appropriate no 

less than $15 million annually for this hardworking SBA headquarters staff department that oversees the HUBZone program 

today. There has been a lot of dialogue here about oversight of the 

HUBZone program and if the Congress wants to increase oversight 

over the HUBZone program, put the money into the program and 

it can be done appropriately. 

An earlier question of Ranking Member Chabot was if you were 

in the SBA and you could change something, what would you do, 

and I was hoping they might ask me that question. But I try to 

come up with some carrot and stick for the other departments, for 

the DOD and the HUD and Department of Labor, and all these 

agencies that don’t hit their HUBZone and other goals. How can 

we convince and motivate? 

Again, the earlier dialogue was with UPS. UPS wouldn’t put up 

with that I am sure, never having worked there, but we have got 

to figure out how to get the attention of those agencies that fail to 

meet the red in the scorecards. 

And I would add if we are going to increase any small business 

program goals to 8 percent, you have got to take the HUBZone goal 

and the service disabled veteran goal with you. If not, you are 

going to just take the business right away from the HUBZone firms 

today and give it to the SDBs and the women-owned firms. 

Mr.BARTLETT. Thank you very much. 

I would just like to give personal testimony for HUBZones. The 

first one in the Nation was in my district in Garrett County. Garrett County had 14 percent unemployment when I came here to 

Washington and we have several HUBZone contractors there now 

and one of them just is bringing 70 jobs there, and he will be paying his people three to four times the mean average salary in Garrett County. HUBZones really help areas. These others programs 

help individuals and businesses but the HUBZone program really 

uplifts an area. So I am a huge fan of HUBZones. 

Our staff prepared for us a little memorandum for this Committee and lead me read here. It says, nearly 84 percent of all 8(a) 

dollars in fiscal year 2005 were modifications to contracts awarded 

to companies that graduated from the program prior to that year. 

Can somebody on the panel tell me what that means? I hope it 

doesn’t mean what I think it means. Let me tell you what I think 

it means and you tell me if I am wrong. What I think it means is 

that companies who have been 8(a) contractors, noncompetitive; 

just because you are who you are you get the contract. And they 

have been on that for what, 9 years; is that right? And then you 

graduate from the program. But 84 percent of all the money in 

2005 went to companies that had graduated but they still couldn’t 

compete in the private sector so they were now still—I don’t want 

to be uncharitable in what they are doing, but they are kind of still 

feeding at the public trough after 9 years. What do we need to do? 

It shouldn’t take 9 years to learn how to run a business. What do 

we need to do to fix that? 

Mr.GOEL. If I may, I would guess, since I don’t have any firsthand knowledge of why that would occur, a lot of the contracts to 

come out are multiyear contracts. So for example, we have a demolition contract for the Norfolk region of the Navy businesses. It is 

43

a base year plus 4 years. So if an 8(a) contractor came in on its 

8th year, won a multiyear contract and it was for 5 more years, 

then the funding would be for 4 more years above and beyond its 

8(a). The 8(a) would only last on the date of—

Mr.BARTLETT. I understand. I would just like to ask our chairwoman if she could have the staff find out how many of the 84 percent of the dollars were going to follow-on contracts to 8(a) companies and how many of them were new dollars that were going to 

the company that should have graduated. 

I would just like to say, Madam Chairman, that all of the 8(a) 

programs, as I understand it, are sole source and noncompetitive, 

essentially all of them. Am I not correct that all of the HUBZone 

contracts are competitive contracts? By the way, they are going to 

help people in the same kind of areas, poor people who don’t have 

jobs and who have low income, because that is the only place a 

HUBZone can be located. 

ChairwomanVELA ́ ZQUEZ. Does the gentleman yield? 

Mr.NEWLAN. There virtually is no HUBZone sole source. 

Mr.BARTLETT. That is my understanding. 

ChairwomanVELA ́ ZQUEZ. It does have a sole source component. 

Mr.NEWLAN. Yeah, but you have to be the only certified 

HUBZone firm in America that can do the job. 

ChairwomanVELA ́ ZQUEZ. But it does have a component of sole 

source. 

Mr.NEWLAN. Yeah, but virtually there never is only one 

HUBZone certified firm, there is only two or more. 

ChairwomanVELA ́ ZQUEZ. The answer to the question of the gentleman is it does have the component of sole source. 

Mr.BARTLETT. It is rarely used. 

ChairwomanVELA ́ ZQUEZ. Well, maybe we need to do an investigation and we cannot rely on the information and the data provided 

by SBA on any of the agencies. 

Mr.GOEL. On the 8(a) side. 

ChairwomanVELA ́ ZQUEZ. Time is expired. I would like to ask a 

question to Mr. Alford. 

Currently for SBA contracting programs, 8(a), HUBZone, women 

contracting and service disabled veterans, they are all fighting each 

other for supremacy in the declining small business segments of 

the Federal market. How best do we refocus these programs to target the nearly 80 percent of Federal contracts that are being performed by large businesses? 

Mr.ALFORD. Yeah, well, I think first we need to identify how 

many SDBs are minority, how many women are veteran business 

owners also, and how many are disabled veteran business directors. I am looking at my board of directors who are entrepreneurs; 

75 percent of them are veterans and may have a disability but 

don’t claim it. So we need to find out what the capacity out there 

actually is on these and you have got to be specific. 

Mr.ALFORD. And if we want to go by the Supreme Court and the 

Adarand decision, you have got to be specific and tailor these 

things to specific groups. You cannot lump them all in as one, because they are not the same, and they are coming from different 

backgrounds and for different reasons. So an African American feVerDate 0ct 09 2002 16:21 Dec 14, 2007 Jkt 033615 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38203.TXT LEANN
44

male who is disabled as a veteran, does she hit all four? Does she 

hit all the categories or is that different? 

Mr.CHAMRIN. Madam Chair, could I just add one thing to that? 

May I? 

To quote one of our small business task force members, it is not 

just a slice of the pie, but it is the layers of the cake, and there 

are so many opportunities out there for all of these business owners to achieve these contracts. What they need to do is to lower the 

threshold of some of these contracts. 

Why are they making the requirements A, B, C, and D where 

one small business cannot achieve all of these? Why can’t they just 

have a $20,000, $30,000, $50,000 contract of just requirement A 

and just make the layers of the cake much, much more dense and 

with many more layers? 

Mr.ALFORD. I would agree with that. 

ChairwomanVELA ́ ZQUEZ. I know that Ms. Clarke asked this question to the deputy administrator, regarding the concentration of 

contracts in the data program that is so severe. In 1999, the top 

10 companies received 15 percent of the dollars. In 2005, the top 

10 companies received more than 40 percent. In 2005, 93 percent 

of the 8A contracts did not get any money. So what does that tell 

us? 

Mr.ALFORD. That tells us there are a favored few, and most of 

them probably are A and C companies or others who have some 

very close relationships with a Lockheed or a Boeing or what have 

you; and they serve as the ones who go out into the vineyards and 

bring back the grapes for big daddy. 

Mr.CHAMRIN. The super primes. They just call it the ′′super 

primes.′′ Like he said, they are just so integrated with all of these 

other small businesses that they get all of the big contracts. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

I want to thank all of the witnesses, if the ranking member does 

not have any other questions. 

Mr.CHABOT. No, Madam Chair, but I would just like to comment. 

I thought all of the witnesses were very, very good, very effective 

in conveying their points of view and answered the questions, I 

thought, very well; and I want to thank them for contributing to 

this hearing. 

Thank you very much. 

ChairwomanVELA ́ ZQUEZ. Again, I want to thank the witnesses 

for staying here and participating in this panel and for sharing 

your experiences with us. As we can see, there is much work to do 

to get these programs so that they comply with the intended mission that they were set up for. 

So, with that, I ask unanimous consent that all members have 

5 legislative days to submit material. 

With that, the hearing is adjourned. Thank you. 

[Whereupon, at 1:13 p.m., the committee was adjourned.]

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