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77–174 2002

ENCOURAGING THE GROWTH OF MINORITY-OWNED SMALL BUSINESSES

AND MINORITY ENTREPRENEURSHIP

FIELD HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

ALBUQUERQUE, NM, AUGUST 27, 2001

Serial No. 107–26

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVE CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

JOHN R. THUNE, South Dakota

MICHAEL PENCE, Indiana

MIKE FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

FELIX J. GRUCCI, JR., New York

TODD W. AKIN, Missouri

SHELLEY MOORE CAPITO, West Virginia

BILL SHUSTER, Pennsylvania

NYDIA M. VELA ́ ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

BILL PASCRELL, JR., New Jersey

DONNA M. CHRISTENSEN, Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

JAMES R. LANGEVIN, Rhode Island

MIKE ROSS, Arkansas

BRAD CARSON, Oklahoma

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico

DOUG THOMAS, Staff Director

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on August 27, 2001 ........................................................................... 1

WITNESSES

Cordova, Tina, President, Queston Construction, Inc .......................................... 8

Muller, Anna, President, NEDA Business Consultants, Inc ................................ 10

Bonano, Evaristo, President, Beta Corporation International ............................. 12

Schlueter, Joan, President/CEO, On Site Hiring Consultants ............................. 14

Powdrell, Joe, Owner, Mr. Powdrells Barbeque of NM ........................................ 17

Furtivo, Don, Commercial Loans, SBA Division ................................................... 19

Canfield, Michael, President/CEO, Valliant Enterprises, Inc .............................. 21

Rios, Miguel, CEO, ORION International Technologies, Inc ............................... 23

APPENDIX

Opening statements:

Manzullo, Hon. Donald .................................................................................... 37

Prepared statements:

Cordova, Tina .................................................................................................... 39

Muller, Anna ..................................................................................................... 55

Bonano, Evaristo .............................................................................................. 60

Schlueter, Joan ................................................................................................. 67

Powdrell, Joe ..................................................................................................... 73

Furtivo, Don ...................................................................................................... 74

Canfield, Michael .............................................................................................. 79

Rios, Miguel ...................................................................................................... 83

(1)

ENCOURAGING THE GROWTH OF MINORITYOWNED SMALL BUSINESSES AND MINORITY

ENTREPRENEURSHIP

MONDAY, AUGUST 27, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Committee met, pursuant to call, at 2:00 p.m., at the TVI

Workforce Training Center, 5600 Eagle Rock Road, NE, Albuquerque, New Mexico, Hon. Donald A. Manzullo [chair of the Committee] presiding.

Chairman MANZULLO. The House of Representatives Small Business Committee will come to order. We welcome you to our hearing.

Are we missing somebody down there at the end? Miguel Rios.

He’ll get here.

Annually, the federal government spends about $200 billion in

services purchased from the private sector. It’s a large marketplace, one in which our committee is committed to ensure the small

business community is treated fairly and the federal agencies obey

the law. In the past, small businesses have had major problems

with the way the federal government does business with small

businesses. I see some smiles and some frowns. You should have

been with us in Santa Fe. We had quite a hearing, didn’t we, Mr.

Udall?

Mr. UDALL. We sure did. We also introduced you to green chile.

Chairman MANZULLO. I know some people have corn in the west,

but chiles are a little bit different.

The problems with the federal government include failure to

meet procurement goals. Bundling of contracts will diminish the

number of contracts going to small businesses. These are key

issues for the small business community.

The first session of this Congress, the committee is focused on

making procurement practices in the Pentagon more small business friendly because of the large dollar volume of purchasing the

Pentagon does annually. The Pentagon buys over $26 billion each

year in goods and services from small businesses.

One of our hearings involved the purchase of black berets for the

US Army from foreign manufacturers and not from US small businesses. In fact, the Small Business Committee was the only committee in the entire Congress to have a hearing on the whole issue

of procurement of black berets. It was our committee that stopped

American men and women from wearing black berets made in

China and elsewhere. The hearing focused on the decision of the

2

Defense Supply Agency to purchase black berets for the US Army

from foreign sources.

This committee has both legislative and oversight jurisdiction to

ensure that small businesses are not bypassed in the federal procurement process. The hearing uncovered gross disregard for the

procurement rules, severely impacting textile manufacturers, apparel and shoe manufacturers in this country. The paramount issue

of this hearing was why couldn’t these black berets be manufactured in the United States.

The result of the hearing was the Pentagon canceled the contracts with most foreign manufacturers and no US soldier will have

to wear a black beret made in China.

There was a further result of this hearing. The Defense Logistics

Agency has announced the following on beret procurement, which

is going to be over $50 million, that is will be set aside solely for

small businesses. You can be sure, as chairman of this committee,

I’ll use subpoena powers to bring federal officials before the committee to answer why they have failed to follow the law or to treat

small businesses fairly. Thank you.

We’re all excited, and we haven’t even started the hearing yet.

I represent the 16th district of Illinois, which runs from the Mississippi River on the west, all the way across the top of the state,

to within one county of Lake Michigan. I don’t know anything

about cactus, but I do know something about corn, and we have a

huge industrial area. We have the two fastest growing counties in

the state. We have an area that has a tremendous number of farmers, and it’s a very, very interesting congressional district.

I got to know your congresswoman the first day that she was

sworn in as a member of Congress, and she was acting very lost.

That happens, especially when you come in midterm, as Heather

did, and the very first day she was a member of Congress, I had

the opportunity or the honor to have dinner with her. I’ll tell you

that this is a tremendous member of Congress that you have representing you. You can applaud. She’s done a great job.

We’re joined here, also, by another great congressman from this

tremendous state of yours, Tom Udall. He and I spent last night

together, and then we had quite a hearing this morning in Santa

Fe, and Tom is also doing a tremendous job for the people of the

enchanted state of New Mexico.

Mrs. WILSON. Thank you.

Chairman MANZULLO. Congressman Roscoe Bartlett and I came

in in the same class of the 100th Congress back in January of

1993, and Roscoe has a Ph.D. in science. He’s the vice-chairman of

the Small Business Committee. He’s also chairman of the energy

subcommittee. He’s on the Science Committee, and he really is

going to lend a tremendous amount of expertise, especially when

we talk about the labs.

So that’s the only opening statement I’ve got. Let me give it to

you, Heather.

Mrs. WILSON. Thank you, Mr. Chairman. I appreciate very much

your willingness to come here, and I think one of the great

strengths of the Small Business Committee is, it gets out into

America’s mainstream and finds out what’s really going on with

America’s small businesses, and I very much appreciate you coming

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here to New Mexico, because we have such a vibrant small business community here, many of whose members you’re going to hear

very shortly.

I also wanted to introduce Nancy Renner and Ron Johnson, who

are kind of the owners—not really the owners, but they run the

workforce development center here, which is brand new, and they

run it in a way that’s responsive to business, and it’s not yet another government-supported endeavor. They actually are self-supporting here, so they are very connected to the business community

and very responsive, and I wanted to thank them for letting us

come here.

I know Senator Kent Cravens is here. I wanted to thank him for

coming. He’s a state senator. And I think I saw Aggie, from the

commissioner’s staff is here. Thank you.

And I want to thank you very much for coming down and doing

your service on the Small Business Committee. Small business is

important in New Mexico, and it’s good we have a New Mexican,

besides you’ve got to keep Don in line.

Mr. UDALL. Yes.

Mrs. WILSON. And I particularly wanted to thank Roscoe for coming, Roscoe Bartlett, who I’ve worked with, as well, on the Armed

Services Committee, but the real reason I’m glad he’s here is because we expect to see him back frequently, since his son was just

hired to do supercomputer modeling at Sandia Labs, so we’ll take

him as kind of an honorary constituent.

I wanted to thank all of you for coming today, as well as those

of you who came to listen about how the government does business

with small businesses. What are the programs that work in the

Small Business Administration, what are the subcontracting problems that we have in New Mexico? It’s a huge government contractor. We’re talking about $200 billion, nationally, being contracted by the federal government. Well, when you take into account we have three military bases and two national labs here, and

less than 1 percent of the country’s population, the federal government has a disproportionate impact on the state of New Mexico,

and also has a disproportionate impact on small and minorityowned businesses.

We have a disproportionate number of small minority businesses

here in New Mexico, and some of the most successful ones in the

country are here in New Mexico, and some of the leaders of those

companies, we will have an opportunity to hear from. 99.7 percent

of the employers in this country are small businesses, and they employ half of the employees in this country.

For women-owned businesses, 15 million Americans are employed by women-owned companies, and minority-owned business

and women-owned businesses are growing much faster than large

businesses. This is where the jobs are coming from, this is where

the innovation is coming from, and as a state and a country, we

need to pay attention to small businesses. If the economy falters

a little, as it has for the last 13 months, it’s small business that’s

going to bring us back. We surely need to pay attention to that. I’ll

be very interested to hear the discussion—and I have reviewed the

written testimony—I’m very interested in the discussion, give and

take, on some important issues, like funding, like how to make the

4

8(a) program work, like how to expand creative management programs, other things that are important and just the hassle, sometimes, of doing business with the government.

I know about that hassle, because, before I knew I was going to

be laboring away in state government, I started and ran a small

business here and did work for both of our national laboratories,

as well as large other government contractors, and it certainly

keeps you awake at night not knowing whether they are going to

cut that check for the 60, 90, 120 days accounts receivable that

you’re carrying on your back, and you’re wondering whether you’re

going to be able to meet payroll this month without taking another

covering loan, because somebody in accounts payable hasn’t got the

paperwork done, and that’s not the burden you should be putting

on a small business.

So I want to thank all of you for coming. Particularly, I want to

thank the chairman and members of the committee for joining us

here today, and look forward to a lively and interesting discussion.

And thank all of you.

Mr. UDALL. Thank you very much.

Chairman Manzullo, let me say it’s a pleasure to be here and

have the Small Business Committee be here, and Heather, the first

congresswoman in that district, I know that, from her hard work,

she cares very much about small business, she cares about the job

growth, and she wants to make sure that small businessmen and

women are not lost in the shuffle when it comes to government programs and all the other things that are going on out there.

So it’s a pleasure, Heather, to be here with you. My colleagues

and I on the Small Business Committee have long recognized the

barriers that have affected minority small business entrepreneurs.

The last session of Congress, our Small Business Committee

passed 27 bills, 20 of which were signed by the President, making

our committee one of the more productive, Mr. Chairman, in the

106th Congress. We were able to accomplish that by working with

the bipartisan Congress members, checking our ideologies at the

door, and keeping in mind one simple goal: How do we help small

businesses? And at this time, we call on all members of Congress

to join us.

Much of what we accomplished last Congress will significantly

benefit minority businesses in all aspects. We were successful in

lowering the cost of loans to startup businesses, most of whom are

minorities. This will enable thousands of business owners across

New Mexico, who cannot access affordable capital, to do so, and

grow their businesses.

We also created the first ever venture capital technical assistance

program. In terms of opening the federal marketplace to small

businesses, our committee continues to work to ensure contracts

are of manageable size so that small businesses can compete for

contracts.

Mr. Chairman, you know, as we covered in Santa Fe, we’ve created a new women’s contracting program that will allow womenowned businesses in historically underrepresented industries, like

technology or construction, to have a level playing field and compete for contracts. But probably our most critical victory was saving the 8(a) program, which has been systematically under attack

5

during the last few years. We were successful in stopping moves,

by some in Congress, who failed to recognize, even in this day and

age, racial bias still exists. We’ve been successful in maintaining

the 8(a) program, allowing them to continue as a viable vehicle for

minority business opportunities.

For my part as the ranking Democratic member for the rural enterprises, agriculture and technology subcommittee, I recently

worked with Chairman Manzullo to pass my Native Entrepreneurial Development Act. This legislation will help develop one of

our most underutilized sectors of the local economy, the tribal businesses, by extending the successful network of small business development centers to create a new business center whose sole focus

will be to work with local tribal businesses to increase startup and

expand existing firms.

These are just a few steps, and I believe our committee should

continue to work in helping minority businesses to grow, and I

know the entire New Mexico delegation will join me in this endeavor.

With that, let me thank all the panelists for being here. I look

forward to hearing from the panelists and from others that the

chairman might recognize.

Thank you.

Chairman MANZULLO. Roscoe.

Mr. BARTLETT. Thank you very much. I’m very pleased to be

here, and I’m very very pleased to be a constituent of Heather. She

agrees with me on about as many issues as my wife.

I’ve served with Heather both on the Small Business and on the

Armed Services Committee, and you are represented by a very

thoughtful, hard working representative, and you’re lucky. I hope

you continue to be lucky, to have her represent you.

In a former life, I worked on both sides of the issues that we’re

going to be talking about today. I worked for government and was

involved in letting contracts. Then I was a small business person,

one of maybe 35 in the Congress, belonged to NFIB, sought government contracts, poring over the Business Commerce Weekly, daily.

I guess it came out to that.

Small business is the engine that drives our economy. Heather

mentioned that women-owned small businesses are growing at

twice the rate of male-owned small businesses, and bankers need

to listen up, because although the women-owned small businesses

have difficulty in attracting capital, there is a lower bankruptcy,

failure rate for women-owned small businesses than there is for

male-owned small businesses.

Also, women-owned small businesses have better employee relations. That doesn’t surprise me. Women are different than men.

Our military is having some trouble figuring that out, by the way,

but they are different. Women are more compassionate, more empathetic, able to pay more attention to detail, make better employers, their companies are better corporate citizens. For the same

reasons they are better employers, those same qualities make them

better corporate citizens, and they are more involved in the community.

I’m pleased to be here at this hearing. Most of the new innovations in our country, most of the patents—and I was lucky enough

6

to be awarded 20 patents, and I know the kind of environment it

takes for a person to be creative, and that environment is not produced in government, and it’s not produced in large businesses.

Most of the new innovations that push the envelope, really, is what

happens in small business, and when we come out of a recession,

most of the jobs we’ve created are created by small business, so we

need to do whatever we can to make sure that the government benefits, not just in small business, although that’s certainly—you

know, my interest is also in spending the taxpayers’ dollars in the

most productive way, and the most productive way to spend those

dollars is to involve small business more, rather than less.

So I’m pleased to be at this hearing today.

Chairman MANZULLO. Thank you very much.

Nelson, could you put this mike in the middle. The four of us can

share these mikes.

Okay, before Congressman Wilson introduces the panel, let me

give you just a couple of basic rules. The little light in front of you,

we try to limit your testimony to five minutes, and if I go like this,

you know you’re coming up on the five minutes. If I get more energetic, you know, it’s time to wind it up, because I want to leave

plenty of time for interaction among the panel with questions of

the members of Congress.

All statements of the members of Congress and the witnesses

will be part of the record, and if anybody here in the audience

wishes to submit written testimony, you can do so within 28 days

of this hearing. I would suggest that you get all of your written

statements—can you give them your office address here, Heather?

Mrs. WILSON. If you send it to our office in Albuquerque—there’s

an address for the office.

Chairman MANZULLO. If you’ll get those in within 28 days.

Congresswoman Wilson, do you want to introduce the panel?

Mrs. WILSON. I’d be honored to do so.

Tina Cordova is the founder and president of Queston Construction Company. She started, in 1990, a company that does general

construction, as well as roofing. One of the neat things about her

business, which nobody in the business can imagine women working on construction, including her. She’s one of the top 25 womenowned businesses in New Mexico, and in the year 2000, she was

small business person of the year for New Mexico, honored by the

Small Business Administration for that, and she currently serves

on the board of directors of the United States Hispanic Chamber

of Commerce.

Anna Muller is the president of NEDA Business Consultants, Incorporated. She’s been working with small minority business for 30

years now—— Ms. MULLER. 31.

Mrs. WILSON. 31, and she is very well known to the business

community here as a determined advocate for small and minority

business, and a great representative of her clients. She has been

very active in the community, including the New Mexico 8(a) & Minority Business Association, Latin American Management Association Board of Directors, and has worked very closely with Sandia

National Laboratory on the Supplier Community Advisory Council

to improve small business and minority business contracting.

7

She’s also one of those who constantly shares her knowledge with

me, and I wanted to thank her for that, for her help.

Dr. Evaristo Bonano is president and chief executive officer of

Beta Corporation. Beta Corporation is an environmental engineering and management firm that does work on risk assessment, risk

management and decision analysis with respect to environmental

and waste management problems. He’s received numerous awards,

including the US Small Business Administration Small Business

Exporter of the Year, for New Mexico, in 1999, and also was Minority Exporter of the Year, Hispanic Engineer National Achievement

Award, and Entrepreneur of the Year for the year 2000. He’s currently serving as president of the New Mexico 8(a) & Minority

Business Association.

Joan Schlueter is the owner of On Site Hiring Consulting. I

worked with her in the past as an active member of the Association

of Women Business Owners, and she’s just completed a three-year

term on the board of the National Association of Women Business

Owners, and is the current chapter president of the National Association of Women Business Owners, here locally.

She’s also the founding partner of Women Impacting Public Policy, which I kind of like the sound of.

Joe Powdrell is the owner of Mr. Powdrell’s Barbeque House, and

he started his business in 1978. He’s gained a rather good reputation in this community as a wise and fair and good businessman,

good in the best sense of that term. He contributes to our community as the president of the African-American Business Council and

the Governor’s Business Advisory Group.

His great praise in our household comes from my in-laws, because whenever they come to town from Ohio, they have to stop by

Powdrell’s Barbeque on the way to the house, because they can’t

stay away. He makes a great barbeque recipe.

Don Furtivo, specialist of Matrix Capital Bank, and his role here,

since August of 2000, is to open a branch of a major bank here in

New Mexico and develop the New Mexico region for SBA guaranteed commercial loans. He retired from the US Small Business Administration in 1998 after 27 years of service. With the SBA, he

was responsible for the SBA commercial loan portfolio. He’s got a

great deal of knowledge and experience, and I look forward to

working with him in the community and hearing what he has to

say about how we can expand access to capital for small businesses

in New Mexico.

Michael Canfield is the president of Valliant Enterprises, Inc. He

became a small business owner in 1989, and later purchased the

company in 1993. Valliant Enterprises provides a variety of economic development and human resources development for Native

American tribes with an imaging division providing scanning and

archiving products and services, which has been the long-time

basis of the company that he bought.

Michael took a sabbatical from Valliant from 1996 to 1998 to

manage Laguna Industries, a tribally-owned manufacturing company, and he’s a member of the Laguna Indian Tribe. He’s also a

board member of the Albuquerque Chamber of Commerce and the

Indian Pueblo Cultural Center.

8

And last, but not least, Dr. Miguel Rios, who’s the founder and

chief executive officer of ORION International, was recently named

interim CEO of the National Center for Genome Resources, which

is up in Tom’s district, just south of Santa Fe.

He established ORION International Technologies in 1985, and

ORION Information Technologies in the year 2000. Over the past

16 years, the company has grown to over 200 employees,

headquartered here in Albuquerque, New Mexico, and is consistently in the list of top national and Hispanic-owned businesses.

The company provides engineering services and research and development support to the Department of Defense, Department of

Transportation, national laboratories and large federal prime contractors.

His companies that he owns, and he personally, have received

commendations and awards, including the year 2000 Department

of Energy Minority Business Summit Excellence Award, listed in

1999 and 2000 among the 100 most influential Hispanics in America, and the 1999 Small Business Administration National Prime

Contractor of the Year Award.

I don’t think there’s anybody who comes from Illinois or Maryland who can say that New Mexico isn’t very well represented with

national leaders in small business and minority-owned businesses.

We have some great companies here, and I want to thank all of you

for your participation and insights and sharing your wisdom and

knowledge with us today.

Chairman MANZULLO. Thank you. The first witness will be Tina

Cordova.

Tina, do you want to put the mike down there.

STATEMENT OF TINA M. CORDOVA, PRESIDENT, QUESTON

CONSTRUCTION, INC.

Ms. CORDOVA. Congressman Manzullo, Congressman Udall, Congressman Bartlett, Congresswoman Wilson, I am honored and

proud to have this opportunity to testify before you today as a representative of the small business community of New Mexico, and

the United States.

My name is Tina Cordova, and I’m the founder and president of

Queston Construction, Inc. I am a general commercial construction

contractor—— Chairman MANZULLO. Hang on a second. It shows red on there.

It should be green.

[Discussion held off the record.]

Chairman MANZULLO. We’ll start the clock all over again and

just continue.

Ms. CORDOVA. Thank you.

Chairman MANZULLO. One of the rules, you can’t get nervous in

testifying. Nobody is on the ropes. You know, this is not the type

of hearing that gets real wild, like we have in Washington. We’re

here to listen to you all and get information.

Ms. CORDOVA. If I get nervous, just give me a signal.

Chairman MANZULLO. If I go like this, that means five minutes

are up, please.

Ms. CORDOVA. I’m a general construction contractor, with a division of my company devoted to roofing. I’ve been in business for 11

9

years, and my company is a small, woman-owned, minority-owned

business. We work all over the state of New Mexico, and have had

contracts with most of the government agencies that work in New

Mexico. I’m currently working on my 8(a) application. We’ve always

met the criteria for becoming 8(a) certified, but I wanted to feel

comfortable that my company was ready. That’s why I have waited,

and we are indeed ready.

Aside from my work, I also serve on the board of directors of the

United States Hispanic Chamber of Commerce, where I’m the legislative chairperson.

Locally, I’m on the executive board, as well as the board in general, of the Albuquerque Hispano Chamber of Commerce, and also

serve on the advisory board to the TVI Small Business Development Center that is located in this building.

I believe I’m very much in touch with the business community

at large and most specifically the minority business community, as

I spend most of my spare time in an advocacy role for the same.

I am passionately devoted to exploring the issue of procurement

opportunities for small, women- and minority-owned businesses. It

is the lifeblood of our existence and, yet, there remains much to be

done to reach parity.

In March of this year, the US Department of Commerce Census

Bureau released data that placed New Mexico as the per capita

leader in the nation when it comes to the number of Hispanicowned businesses. 22 percent of the businesses in New Mexico are

owned by Hispanics. This is not surprising, when you take a look

at the fact that the year 2000 census figures place Hispanics at 42

percent of the total population of New Mexico.

However, the same census bureau data indicates that the 22 percent of businesses owned by Hispanics in New Mexico only account

for 5 percent of the state’s business receipts. These numbers speak

to the disparity that remains today in the year 2001, across this

great country of ours, when it comes to opportunities for Hispanic

business owners.

When you examine where the growth has been in the overall

numbers of small businesses in the last ten years, the data indicates that the number of Hispanic-owned businesses has grown 232

percent. Much of this growth can be attributed to the increase in

Hispanic women-owned businesses. There are well over two million

Hispanic-owned businesses in the US today. From an economic

standpoint, it only makes sense that we should protect the success

of these businesses. We should reduce barriers and shore up programs that assist minority businesses in their quest for opportunities.

In that regard, and as the chair of the legislative committee of

the United States Hispanic Chamber of Commerce, I present to

you, and have attached a copy of, our legislative plan for the year

2001. It is a comprehensive plan assembled by the USHCC every

two years. We poll our constituency, and from the input we receive,

we address the areas of utmost concern. Many of you have seen the

plan, as the USHCC made every effort to distribute it widely in

Congress. This is a great opportunity for me to more formally

present it to you, and I ask that it be made part of the record.

Please review it at your leisure.

10

This year, the priorities of the plan focus on four main areas: Access to capital, procurement, e-commerce, and finally, business education and training.

I want to focus on one area today, and that is procurement. The

8(a) program, as most of you know, has assisted many small Hispanic-owned businesses in competing for federal contract dollars.

This program is essential, and I believe it should be protected as

a vehicle to achieving the parity that I spoke of earlier. Attempts

to circumvent or dilute the 8(a) program should be avoided. I believe the HUB zone program is an example of a plan that circumvents the 8(a) program.

There are problems within the 8(a) program. One problem is that

Hispanic firms have been significantly underrepresented in the 8(a)

portfolio. This problem has existed since the inception of the program. Hispanic-owned businesses account for well over 40 percent

of the total minority population in this country, yet we only account

for 24 percent of the firms in the 8(a) portfolio and 21 percent of

the total value of the 8(a) contracts. We must be equitably represented to achieve parity. To resolve this problem, a thorough review of the 8(a) portfolio must be undertaken and a recruiting effort made to reach out to Hispanic woman-owned businesses.

Finally, I would be remiss if I didn’t address the issue of contract

bundling and the negative effect it has on all small business owners. Contract bundling takes away from small business, period. The

statistics are clear on this. As small business owners, we have very

little opportunity to participate in these bundled contracts. Contract bundling goes against all the efforts made to bring parity in

the federal contracting arena. Make no mistake, it doesn’t save

money, and it’s wrong. The USHCC publishes a newsletter, quarterly, called ‘‘Networking.’’ The spring 2001 issue had an article I

wrote on contract bundling. I have attached that article for your review and to be made part of the record.

I thank you for the opportunity to testify here today. I applaud

your attention and interest in the small business community, and

most specifically, the small Hispanic business community. I ask

you to continue to work hard on behalf of small business issues like

those presented here today, and I personally look forward to future

opportunities to provide this committee with input.

Thank you.

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

Chairman MANZULLO. Thank you very much.

Our next witness is Anna—is it Muller?

Anna, if you want to, speak into the microphone there.

Mrs. WILSON. Someone else came in that I just wanted to acknowledge she’s here. Ramsay Gorham, who represents the North

Valley, is also here and I want to thank her very much for coming.

Chairman MANZULLO. Ms. Muller.

STATEMENT OF ANNA MULLER, PRESIDENT, NEDA BUSINESS

CONSULTANTS, INC.

Ms. MULLER. Honorable Congressman Bartlett, Honorable

Heather Wilson, congresswoman, and Congressman Manzullo—am

I pronouncing it right?

11

Chairman MANZULLO. You probably wondered whether there

should be a tilde on the end. Italian names don’t have tildes.

Ms. MULLER. No? And, of course, in northern New Mexico, where

I’m from, Congressman Udall, thank you for describing what I do

to earn my daily tortillas.

I’ve been a consultant to the minority business community for 31

years. I’m into decades these days, and I’m into three decades. I

also participate nationally on the Latin American Management Association Board of Directors, and I’m the only one out of the beltway that is serving as vice president of the National Alliance of Minority Business Associations.

I’m going to really confine my remarks to the decline of 8(a) procurement centers, because they have absolutely been—it’s not an

exaggeration to say they are precipitous, and one of the reasons is,

obviously, contract bundling, which my esteemed colleague, Tito

Bonano, will be addressing more thoroughly. But you all have seen

the latest report from the Federal Procurement Data Center, which

clearly demonstrates the federal departments and agencies have

produced mediocre results, and Congresswoman Velazquez’ report

cards will be coming out soon, and I’m sure most of those agencies

will be getting Ds and Fs, at the very best, and it’s no secret that

those numbers have declined, as I said, precipitously.

I have provided you all with the New Mexico numbers, and

there’s a graph in here that shows that from 1995 to the year 2000,

8(a) sales have gone from, in 1995, 220 million to 51 million. I

mean, if that isn’t precipitous, I don’t know what is. And this, by

the way, New Mexico activity is just a microcosm of what’s happening all over the United States.

Now, there’s a whole litany of reasons for this, you know, contract bundling, acquisition contracts, utilization of GSA schedules,

government-wide acquisition contracts, GWACS, impact cards, the

addition of different categories, you know, HUB zones and veterans

programs. The pie isn’t getting any bigger, so the pie is getting

split up with all these additional categories.

We had always been able to sell the fact that the 8(a) program

is the most—the fastest contracting mechanism for procurement officials.

Well, we can no longer claim that, because 8(a) contracting is not

faster than any other contracting method. A contracting officer can

use that GSA schedule, ‘‘boom,’’ there you are. It is absolutely a

much lighter-on-its-feet contracting mechanism.

So with that and the GWACS, which is also a very onerous vehicle that is impacting how much business is going to small minority

and women-owned companies, GWACS can now allow agencies to

buy off of each other’s contract schedules. The FAR regulations are

giving it an order of precedence, and this type of contract is above

all commercial contracts. And this means that an agency must

order from a GWACS prior to ordering any other way. And due to

the ease of all of these new contracting programs, the 8(a) program

now is seen as a slow-moving program, and it’s in competition with

all of these other contracting mechanisms.

So it’s no wonder that we are now finding ourselves behind the

8 ball, in terms of being able to sell that 8(a) is the fastest and

easiest contracting vehicle.

12

Now, I have some recommendations that I’d like to make; and by

the way, I really want to thank Congresswoman Velazquez’ office— Michael, please thank the congresswoman for me—your staff

helped me pull my thoughts together on these recommendations.

We need to track the dollars that are going to GWACS to determine whether small business opportunities are being lost and by

how much. That’s going to take some quantitative analysis.

I’d like to make some comments about the net worth of 8(a) firms

having to stay at $750,000. That’s ludicrous. I mean, we should be

building wealth in this country. You’re not wealthy at $750,000.

Firms are having to cap their assets in their businesses, because

the net worth cannot exceed $750,000. You’re encouraged to get

into a double taxation situation. And, by the way, the house and

senate passage of House Bill 1234, the Small Business Contract

Equity Act of 2000, and thank you, Congressman Udall, for cosponsoring that with Congresswoman Velazquez, this will not only add

an important quality evaluation to contract bundling, but it will

put teeth into small business goals by disallowing that bundling for

those agencies that don’t meet their small business goals. And I’m

going to let Tito talk about contract bundling, but another area

that I’d like to see changed, we need to increase those small business size categories. In most of the industries, they are still too

small, and we need to raise that competitive 8(a) threshold. $3 million is just too small a number.

And with that, I’d like to thank you.

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

Chairman MANZULLO. Thank you very much.

Mr. Bonano.

Mr. BONANO. You can call me Tito.

Chairman MANZULLO. Tito.

Mr. BONANO. Tito Bonano.

Chairman MANZULLO. Okay, Tito, I had your testimony and I

read it on the plane. I don’t have it now. Do you have copies of it?

Tito, we look forward to your testimony.

Mr. BONANO. Chairman Manzullo, Vice-Chairman Bartlett, Representative Wilson, Representative Udall, I thank you.

Chairman MANZULLO. Hang on a second. Do we have more copies

of it? That’s Michael Canfield’s.

Can you imagine a government committee lacking paperwork?

Tito, please go ahead.

STATEMENT OF EVARISTO J. BONANO, PHD., PRESIDENT OF

BETA CORPORATION INTERNATIONAL

Mr. BONANO. Thank you.

Chairman Manzullo, Vice-Chairman Bartlett, Representative

Wilson, Representative Udall, I thank you for the opportunity to

testify before this committee.

My remarks this afternoon reflect my views and concerns both as

the owner of a small minority business and as president of the New

Mexico 8(a) & Minority Business Association. There are numerous

obstacles that small businesses, in general, and minority businesses, in particular, need to overcome daily just to survive. Some

of those have already been mentioned here by both Ms. Cordova

and Ms. Muller. Each day these obstacles seem to become more forVerDate 11-MAY-2000 01:28 Feb 22, 2002 Jkt 077174 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 E:\HR\OC\A174.XXX pfrm01 PsN: A174
13

midable, and therefore, they are becoming a major threat to our

country’s economic well-being. In the interest of time, I’ll address

only one of those obstacles: Contract bundling.

Notwithstanding the regulation enacted in December of 1999 restricting contract bundling, contract bundling seems to be on the

increase in federal procurement. In fact, the increase in contract

bundling was the clear message sent by representatives of NASA,

the Health and Human Services Department, and the Veterans Affairs Department, to small businesses attending the Jet Propulsion

Laboratory’s conference, a small business conference, earlier this

year.

Contract bundling it not restricted to the federal government.

State and local governments are also embracing the practice. The

ongoing procurement for concession packages at the Albuquerque

International Sunport is an example of a local government using

contract bundling to the detriment of small businesses.

The argument is that it’s a more efficient way of doing business,

that eventually will result in significant savings to the government.

However, there seems to be little evidence indicating that significant cost savings have been realized, so far, from bundled contracts. Moreover, there may be some costs that are not being accounted for in estimating the cost of bundled contracts.

In the meantime, contract bundling is considered a key factor for

the decline in the number of contracts awarded by the federal government to small and minority-owned businesses, according to a

July 2000 report issued by Representative Velazquez, the ranking

Democrat on this committee.

In practice, contract bundling can be considered a set-aside procurement program for large businesses, because it effectively

hinders competition. Our businesses are generally precluded from

being prime contractors for large bundled contracts because we

cannot meet an often mandatory criterion contained in such contracts: Demonstrated past experience in contracts of similar size

and complexity.

In some cases, government agencies are bundling smaller existing prime contracts, held by small businesses, into considerably

larger contracts. Consequently, small businesses are being forced to

step down from prime contractors into subcontractors, just to be

able to participate in the procurement and retain at least some

fraction of the business.

When small businesses are forced into a subcontractor role, they

are at the mercy of the prime contractor. Few large businesses

truly help their small business subcontractors grow in capacity and

experience by assigning them meaningful tasks.

Finally, contract bundling increases the demand on small businesses to secure more working capital. It is a well-known fact that

securing the needed working capital is becoming increasingly difficult for small businesses. In order to raise the necessary working

capital to perform the contracts, many small business owners have

been left with no recourse but to sell equity in and relinquish some

of their control of their companies to their partners. Choosing the

right partner must be done very carefully, because the consequences of making the wrong choice can be disastrous.

14

Let me conclude by stating that I, personally, and the New Mexico 8(a) & Minority Business Association strongly oppose contract

bundling. It is a clear and present threat to all small businesses.

The detrimental impacts from contract bundling on small businesses, and hence, on our nation’s economic well-being are too

great to ignore.

I’m also a realist and accept the fact that some contract bundling

is inevitable and, perhaps, even necessary. However, there needs to

be assurances that contract bundling should be the exception, not

the rule.

I urge this committee to take immediate action to halt the detrimental effect that contract bundling is having on small, disadvantaged businesses, and to ensure that the antibundling regulation of

December 1999 has the intended impact. A moratorium on contract

bundling is needed now until a process can be established to, one,

decide whether a proposed bundled contract has been properly justified, and the interests of small and small disadvantaged businesses have been adequately protected; and two, SBA and the other

federal agencies have the necessary resources available to ensure

enforcement of the antibundling regulation.

I have taken the liberty, in my written testimony, to suggest

some specific criteria that could be implemented for achieving these

goals. The New Mexico 8(a) & Minority Business Association

stands ready to work with this committee and address the contract

bundling issue, as well as others affecting our businesses.

Once again, I thank you for the opportunity to offer this testimony.

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

Chairman MANZULLO. Thank you very much, Tito. We were interested, in the hearing we had in Santa Fe, regarding Los Alamos,

which is, well, into big-time contract bundling. I was displeased

with what’s going on there, and the complete lack of accountability

on the part of the University of California and others that are engaged in running the laboratory. And I appreciate your testimony.

Joan Schlueter. Do you have some Schlueters, who are relatives

in Chicago, Illinois?

Ms. SCHLUETER. Well, my father-in-law was one of 18 children,

so I probably do.

Chairman MANZULLO. These things happen.

Ms. SCHLUETER. I’m from Illinois, originally.

Chairman MANZULLO. Where?

Ms. SCHLUETER. Northwest suburbs, Park Ridge.

Chairman MANZULLO. Okay. That’s outside the district I represent, but it’s in the right state.

Ms. SCHLUETER. It’s now New Mexico. I chose to move to New

Mexico.

Chairman MANZULLO. I’m looking forward to your testimony

here. I’ve got it. Does everybody have her testimony?

STATEMENT OF MS. JOAN E. SCHLUETER, PRESIDENT AND

CEO, ONSITE HIRING CONSULTANTS

Ms. SCHLUETER. Good afternoon, Chairman Manzullo, ViceChairman Bartlett, Representative Wilson and Representative

15

Udall. The women business owners of New Mexico welcome you,

and I appreciate this opportunity to talk to all of you.

I’m Joan Schlueter, owner of On Site Hiring Consultants of Albuquerque. As a founding partner of Women Impacting Public Policy,

WIPP, a national organization representing women business owners, and having just completed three years on the national board

of the National Association of Women Business Owners, I have contact with women business owners across America. In the last 18

months, I have visited 30 NAWBO chapters. My numerous awards

include the 1999 SBA Women in Business Advocate for New Mexico and Region VI.

There are 9.1 million women business owners in the U.S. that

generate $3.6 trillion and employ 27.5 million. New Mexico, a state

with only a million-and-a-half population, has over 60,000 women

business owners, which employ over 120,000 and generate over a

$11 billion.

My experiences put me face to face with many of the problems.

I’d like to share some.

One of WIPP’s members, Deb Naybor, owner of Naybor Land and

Surveys in New York, who, after working on government contracts

for 13 years, recently made the choice of getting out of government

programs because of time, effort and low profitability. Her allowable overhead on government projects is 25 percent lower than on

private clients, her allowable fixed fee is 10 percent to 20 percent

lower, and it takes an average of 120 days to get paid, whereas,

her private clients pay within 40 days, leaving her with no choice.

Another WIPP member, Lori DeVito, owner of AET Environmental, in Colorado, has been running in circles since 1995, trying

to solicit business from the Rocky Flats site in Golden, operated by

Kaiser Hill. And after several failed attempts, she gave up. When

people at the DOE Marketing Conference in Denver, in 2000, encouraged her to try again, she did, only to be told by the Kaiser

project manager that they only deal with large companies.

Another example is Mary Kay Bruns, owner of Contractor Quality Management, who did construction contracting with the US

Navy and Army in New Jersey. The trend to pull together some

contracts that had already been put out to bid and award them in

a bundle put her out of business in 2000.

Finally, there is Kathleen Diamond, who recently testified before

you. As owner of a full-service language company in D.C., she’s

been getting training contracts for over 20 years with the Pentagon

and other DoD agencies. She was not successful when competing

for a translation contract because she was compelled to team with

a ‘‘wired’’ engineering company that would be the prime contractor,

even though the scope of the work was primarily language service.

I decided early in my business that I would not work with the

labs here because of the time needed to do paperwork and the low

profitability.

Having presented you with some women business owners’ experiences with government contracts, on behalf of WIPP, I offer you

some solutions.

The interest of government and women business owners would

be better served if procurement officials and contract officers were

held accountable to current legislation already in place, such as the

16

5 percent goal established by the Federal Acquisitions Streamlining

Act of 1994.

What you did, Chairman Manzullo, on the black beret procurement issue, that was brought to the committee’s attention, I have

that testimony from the Women Business Owners Association in

Arizona, and your comments, and was brought to the attention of

your committee in May, is what should happen for all women seeking government contracts.

The Women in Contracting Act was passed by Congress last December. The SBA should have the rules ready in three to six

months. I urge you to push Congress to implement this act.

The time frame for requests for proposals must be shortened to

90 days for approval of proposals, with ramp-up of 30 days after

the submission deadline for fulfillment of contracts.

The Prompt Pay Act must include all contracts, including costplus contracts.

The approval process must be streamlined.

Access to capital is another huge problem.

USA Today, August 14th, 2001, focused on this issue, commenting that a woman’s work is rarely funded. It continues,

‘‘Women received only 4.4 percent of the most important source of

investor dollars last year. That percentage has been flat or down

since 97, while VC funding has soared, says major research group

VentureOne.’’.

The article quotes Patricia Greene, a University of Missouri professor, who studies women and financing, ‘‘. . . Jump-starting

women’s entrepreneurship is critical. There’s a lot of glowing embers here, we just need to fan those flames.’’.

The SBA should be urged to work closely with more local banks

to help women like NAWBO member Elissa Breitbard of Betty’s

Bath & Day Spa in Albuquerque, who, even after getting

preapproved by the SBA, was rejected by six banks before finally

getting her loan.

Thank you, Chairman, for your advocacy of association health

plans. It’s very important to us. We hope this ends up as final legislation.

And thank you, Chairman Manzullo and Congressmen Udall and

Bartlett for your time today. And a special thank you to Congresswoman Wilson, who, as a former business owner, understands and

supports many of our issues, and for putting forth my name to

speak to all of you today.

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

Chairman MANZULLO. Thank you, Joan. I would like you to get

a hold of Lori DeVito. If she’ll get us a letter, on her letterhead,

explaining to the DOE—the DOE has got to get a minus in the

manner in which they treat not only minority, women-owned small

businesses, but all small businesses across the board.

Ms. SCHLUETER. I have about three or four pages of details of

what she’s done.

Chairman MANZULLO. If you could get me the letter—if you could

get it to Nelson Crowther, Nelson is the attorney on our behalf, Michael Day is the staff director for the minority side of our committee—if you could get the letter to them, we’ll forward the letter

17

on to DOE, and we’ll ask them for a response, and if they don’t respond to it, then we’ll subpoena them.

Ms. SCHLUETER. You’re wonderful.

Chairman MANZULLO. I’ve had it with those clowns. What we

heard about three hours ago, it was a disgrace. I’ve never seen a

federal agency act as carelessly and recklessly and totally without

any form of organization in trying to, essentially, pander the small

business community by bringing up figures that absolutely do not

make sense. So we’re here to do some things for the small business

people.

And when Tom, of course, mentioned to me, then Heather mentioned to me, later on, about what was happening with the small

business community and the national labs—not the one here;

Sandia is a little different, they don’t have prime contracts, but

with Los Alamos, I could not believe that I actually listened to the

weakest testimony this morning. It was remarkable.

Ms. SCHLUETER. I could give you four hours of that.

Chairman MANZULLO. Don’t need that.

The next witness is Joe Powdrell.

Mrs. WILSON. Before Joe begins, I also noticed that Loretta

Armenta, president of the Hispano Chamber of Commerce here in

Albuquerque, is also here in the room.

Chairman MANZULLO. Have her stand up. There she is.

Did you bring some samples of your barbeque sauce?

Mr. POWDRELL. You know, I was hoping you wouldn’t say that,

but that can be arranged.

STATEMENT OF JOE A. POWDRELL, MR. POWDRELL’S

BARBEQUE HOUSE

Mr. POWDRELL. My testimony—I didn’t pass it out.

First of all, let me say that it is more than an honor and a privilege to be able to serve in this capacity, Chairman Manzullo, ViceChairman Bartlett, and Mr. Udall, and the beauty among the

beasts, Ms. Wilson. This is indeed an honor, and salutations come

from my parents, Mr. And Mrs. Powdrell, who are founders of a

company that’s been in business in Albuquerque just about 41

years, and we represent a community that is a minority. We make

up about 2 percent——

Chairman MANZULLO. Joe, could you put the mike in front of

you.

Mr. POWDRELL. Sorry. We represent a state whose population is

around 50- to 60,000 African-American. Statewide, there are about

325 African-American businesses, ranging from hairdressers, all

the way to government programs. It is difficult to be Afro-American

lineage in the state of New Mexico. I don’t want to come here to

cry, that’s not a story that my family likes to tell. I’ve learned a

lot the last ten years, having formed the African-American Development—African-American Business Council, on how we exist in

New Mexico and what kind of struggles that we’re having.

A lot of the problems that people at this table are having, we

don’t have those problems, because we haven’t positioned ourselves—we haven’t been positioned to have them. Most of the 8(a)

applicants, of African-Americans, find it too difficult to be certified.

18

We lose people as a result of that. They find it too difficult to do

business in New Mexico.

Another gentleman, who should have been here today, left here,

is going to Houston to find another job.

There are a number of things that I’m supposed to say in representation of this particular portion of the community. We’re having a difficult time accessing capital. I have checked with a number

of people to see how many other African-Americans do I know that

have received an SBA loan, and in ten years, I’ve met not one. And

I’m not sure what that says. There’s a lot of things that can be

read into that, but that should not be the case.

I talked to a major car dealer yesterday, in an effort—in preparation for this meeting today. He said to me that when African-Americans ask for money on the other side of a half-million dollars, you

become categorized as a very high risk, and that suggests that that

might be the sentiment that X number of people are feeling.

We wish good business to the other portions of the minority community, hoping that, as they progress, they will look back and try

to pick up those who are of a lesser representation.

It is significant that Hispanics, male, female, tall, short, do well,

because we have strength there; we have possibilities there. We’re

losing lots of our young people to a climate that does not receive

them well. Most of these young people coming out of school, educated well, are leaving New Mexico to go to other states.

There are some suggestions I’d like to see:

We need to watch the banking industry. It’s changing so fast.

One of the reasons Powdrell’s Barbeque has had success is because

we have such a strong relationship with this community. Now, that

doesn’t mean that we can’t be turned down, but it’s difficult to turn

your back on a company who is so notorious. But we have been

turned down. My mother says that accessing capital is too high,

and we have had people, and Ms. Schlueter can tell you, who have

worked with us real well, kept us from getting frustrated. We almost gave up on them, and that was 20 years ago.

I really want to emphasize there are some critical things we need

to think about. There needs to be some incentive given to other financial institutions, other than banks. We need to probably think

about legislating where private investors are given some kind of incentive to assist the creation and the development of small businesses. I don’t know if it needs to be a tax incentive or what, but

we need to look for some other funding sources to assist the development of minority businesses, particularly the Afro-Americans in

this state.

Lastly, I think the 8(a) program has been too difficult for us to

get into, and we’ve suffered because of that. There are a number

of things I really want to say, but I’m overpowered by the presence

of these people, it’s kind of tough, but I’m honored to be a part of

this state. I’m concerned about the future. It’s tough to live in New

Mexico. Again, we represent 2 percent of the state, but we represent 25 percent of the inmate population, and I really want you

to take note of that.

The business community is the most aggressive portion of the

Afro-American community, and it’s important we have successes

19

here, because we are, to a large degree, part of the motivating force

of progress in our community.

Again, I want to thank, particularly, Ms. Wilson for the opportunity to come here. I hope the contributions and thoughts that

might have made are taken in a positive nature rather than negative. But these federal programs are in a position to have—by the

time it trickles down through the rest of the community in New

Mexico, we don’t see it.

Thank you very much.

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

Chairman MANZULLO. Joe, thank you. I was raised in the restaurant business. My parents went into the food business when I

was four years old, and the family business continues today. My

brother runs a restaurant that has 13 tables and 13 bar stools, and

he works, like you, too many hours a week. He’s exchanged his security for something called entrepreneurship.

Don Furtivo is with—is it Matrix Bank?

Mr. FURTIVO. It’s Matrix Capital Bank.

Chairman MANZULLO. Matrix Capital Bank.

I’m also a member of the Financial Services Committee. I served

on the banking subcommittee, and I noted your background in the

8(a) program of the Small Business Administration. I believe your

testimony will be very appropriate.

Mr. FURTIVO. Thank you, sir.

STATEMENT OF DON FURTIVO, MATRIX CAPITAL BANK,

COMMERCIAL LOANS, SBA DIVISION

Mr. FURTIVO. Good afternoon, Mr. Chairman, Mr. Vice-Chairman, Honorable Congresswoman Wilson, and Honorable Congressman Udall. Thank you for the opportunity to speak to you this

afternoon regarding these important hearings here in New Mexico.

The small business community and its lenders rely on the Small

Business Administration guarantee program. Without this program, many lenders would not be able to make loans to the small

businesses that they presently participate in and submit to the

SBA. The SBA guarantee program is an enhancement that makes

it possible for lenders to assist the small businesses that they otherwise could not assist. As Senate Small Business Committee

Chairman Christopher Bond (phonetic) wrote in his letter of March

16th, 2001, the small business community is dependent on the

SBA’s programs to obtain long-term financing at a competitive interest rate.

Each year, 40,000 or more small business concerns, who cannot

obtain credit elsewhere, turn to the 7(a) programs for critical financing. This is especially true here in New Mexico, where approximately 29 out of the 33 counties are deemed rural communities, and a lot of the community banks just do not participate in

the SBA programs for any number of reasons, reasons such as fees

are too high, the paperwork is too extreme, and they don’t have a

commercial lender within their organization that can meet the requirements of the SBA application process, and loan volume is

dropping in this state.

Three years ago, lenders in this state made 308 7(a) loans. Last

year, they made 278 7(a) loans, and as of the third quarter ending

20

September 2001, only 146 loans. So that would seem to tie into

many of these things that you would like to address.

As Mr. Powdrell pointed out, a lot of Afro-Americans, a lot of minorities, other minorities, are unable to obtain the capital here, because the banks just do not want to take the risk of making a highrisk loan, because they’re afraid of the SBA program, and afraid if

they don’t cross the right ‘‘t’s’’ or dot the appropriate ‘‘i’s’’ that the

SBA is going to pull the guarantee out from under them, and we

know that that cannot happen, and we should not let that happen.

With this in mind, the fee increases to borrowers and lenders for

fiscal 2003 are simply not justified. The present fee structure right

now is too high, and based on recent information that was submitted by the General Accounting Office, fees paid by 7(a) program

participants on loans from 1992 to 2001 will likely increase from

1.8 billion to $2 billion. The OMB office used a default estimate for

loans, fiscal year 2001 loans, saying that estimated default loans

were 13.8 percent, but based on statistical data, the General Accounting Office rebuts this, saying that the average defaults are 8.8

percent. So there’s a 5 percent differential in there. So it’s time to

consider reducing the fees on the SBA loans.

The SBA loan program should not be run at a profit to the federal government, but it should be run at a subsidy rate that would

be more acceptable, and I believe that the three agencies, SBA,

OMB and GAO need to get together and settle on a mutual formula

to arrive at a reasonable default rate and a subsidy rate, rather

than each agency just going its own way, which eventually ends up

penalizing the use of the program.

We also ask for your support in fees—I’m sorry, we also ask for

your support to stop the cuts in the small business development

centers. It’s estimated to cut that program by, I think, $10 million.

Many New Mexico small businesses, especially those in the rural

areas, need this resource. They need it to educate themselves on

planning and preparing to be small business entrepreneurs. To cut

this program of its funding would sever the evolution of small business entrepreneurship and set us back into ambiguity, which is not

what I think Congress or the administration wants to do.

And I would like to add that we also need the assistance from

other resources that are available through the state, with the small

business development centers and the micro lenders and other organizations that assist small business; that lenders who participate

in the 7(a) program, the SBDC centers and these other organizations need to work more closely together so that we can provide the

needed capital that these small businesses need in this state.

And with that, I thank you for this opportunity.

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

Chairman MANZULLO. Thank you very much. You might be interested to know that we met in Washington, just before the break,

with the new people from OMB, trying to get a true subsidy rate

picture. I have more hope now than I did before, that we’ll find a

subsidy rate, and that the default rate is a lot lower than you think

it is.

Mr. FURTIVO. When I was working in Denver—if I might just

add, when I was still working for the agency in Denver, we calculated our own default rate on some loans that were made over

21

a three-year period, and the loans made to small businesses in the

state of Colorado, at that time, our default rate was less than 1

percent over three years, and yet the commercial banking rates

were 1-and-a-half percent. So small business loans, while people

would say that they are risky, they can be less risky if you know

how to work with them, and you work with your small business entrepreneurs.

Chairman MANZULLO. I appreciate that.

The next witness is Michael Canfield, and Michael, I also had an

opportunity to read your testimony on the plane, but for some reason, I can’t find it in front of me.

Mr. CANFIELD. Mr. Chairman, I think I do have some extra copies. If you would like, I’d be happy to provide you with that.

Chairman MANZULLO. You like that paperwork, don’t you, Mike.

Mr. CANFIELD. I love paperwork, yes.

Chairman MANZULLO. We welcome your testimony.

STATEMENT OF MICHAEL CANFIELD, PRESIDENT/CEO,

VALLIANT ENTERPRISES, INC.

Mr. CANFIELD. Thank you, Mr. Chairman, Mr. Vice-Chairman,

and honorable committee members. Thank you for inviting me here

today. I also want to thank you for coming to me instead of me

having to go to you. I really appreciate you visiting our community.

I would also like to welcome you on behalf of the business community, and the Native American business community, as well, welcomes you here today.

I’m really here today to talk to you as a Native American small

business owner. My testimony will cover two, maybe three areas,

depending on the time.

First, I would like to talk about some of the programs that have

impacted myself and my business. I think it’s important to check

out things that are working, as well as things that are not working,

but the second part of my discussion today will also be on some of

the challenges small business owners have. And then, thirdly, I

would like to talk about some of the programs.

As for the first part of my testimony, I have to go way back to

post high school days, which, as I have to go in decades now, instead of years, but when I got out of high school, I don’t think I

had the option—I didn’t think I had the option, at the time, to go

to college. And at the time, there was an option for me here, and

that was here in Albuquerque.

There’s a federally funded and operated school called Southwest

Indian Polytechnical Institute. It, at the time, was a technical

school for Native Americans. I was able to attend that school for

basically no cost, and with the basic education that I received

there, I was able to land a job at Xerox Corporation. I was able to

stay with Xerox for 14 years, and, of course, I learned a lot about

business and leadership from that corporation.

In 1989, I decided to become a small business owner; and by the

way, the jury is still out on that decision. They’ll have to think

about that one. I can say, since 1989, I have not seen one dull moment in my life, so that’s something to be said for small business

ownership.

22

But in 1993, we purchased a struggling printing company here

in town and worked very hard to turn it around. As we did, along

the way, we came across the opportunity to purchase the building

we are in, and not a lot of business owners have that opportunity,

but we could not qualify for a loan. We did not have the financial

strength to do that. The local SBA office was able to help us, and

help us with a guaranteed loan program, and we would not have

been able to qualify without their help. So we appreciate the local

office here and what they did for us.

We have a fantastic loan, if that’s not an oxymoron. Maybe it is.

I’m not sure. We had a good loan with good terms. It will be a lot

better when it’s paid off, and we’re very pleased to be working with

local people here and the help they’ve given us.

The other program that has been mentioned, the 8(a) program,

we are a certified 8(a) company at this time. When we became an

8(a) company, I called on a small business person in Washington,

D.C., and found out the Government Printing Office doesn’t recommend 8(a)s; they don’t really recognize the minority program.

So, essentially, that didn’t do us any good in my printing area business. And recently, we started archiving, and I’m happy to say we

received our first 8(a) contract last year, with one of the government agencies here in town.

I would also state that, you know, I really recognize the impact

that those programs have had on my company and myself. It’s hard

to say where I would be without some of those things, but there

are still many hurdles that we need to overcome as small business

owners. And, Mr. Chairman, in your letter, you recognized that

small businesses are a significant contributor to our economy. You

also mentioned in the letter that small businesses have been job

creators and have helped the economy out of hard times. I certainly

agree with you on these points.

I would also contend small businesses are responsible for providing a significant amount of training that shapes our future work

force. Small business owners like myself also donate a significant

amount of their time and expertise to the nonprofit organizations

to improve our community, and this list, Mr. Chairman, could go

on and on, of contributions of the small business owners.

I would tell you I feel the burden of these contributions every

day, and I feel the burden of paying taxes; I feel the burden of rising healthcare costs; I feel the burden of crime; and I feel the burden of an ill prepared work force. I think it’s time for our government to look for ways to ease that burden.

I’ve got an example I’d like to share with you, and that is that

I’m the vice-chairman of the state’s workforce development board

here, and as part of that board, I’ve come to find out we have approximately $295 million of federal money that comes to this state,

in one way or another, to improve our workforce. It’s usually set

aside for targeted populations, and I understand that that’s important, but it’s really not set aside. There’s really none, that I know

of, that’s set aside to help and assist small business owners who

do the majority of the training of our workforce. I know we hear

of in-plant training dollars; we hear of those programs that are

usually set aside for the Intels of the world, and the Gateways. I

appreciate that, too. That’s important for economic development in

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our state, but maybe we should look for ways to recognize what the

contribution of the small business is when it comes to training the

workforce.

There are two other recommendations I would like to make before I close, and then I’d really like to suggest the committee spend

a lot of your time and our money looking into ways to reduce the

government bureaucratic regulations on procurement that so many

of my colleagues have talked about today.

For example, printing regulations. The printing market has

changed significantly over the years, and our procurement has not.

The Government Printing Office, I will submit to you, that’s not

the best way for the government to procure printing anymore.

Maybe, at one time, it was, but—so please look at those.

Finally, I’d like to just mention and leave you with my feelings

regarding minority assistance programs. I do believe that the day

will come that the business playing field will be level. As Congressman Udall mentioned, I believe the power of diversity will be fully

realized and business opportunities will be available for all Americans, but unfortunately, that day has not arrived. Until that day,

I urge you to continue to support the assistance programs out

there. We need programs that continue to assist the development

of our minority entrepreneurs, as well as programs that groom minorities for leadership in private and government organizations.

I thank you, Mr. Chairman and committee members, for having

me here today. I’d also like to invite you to the Indian Pueblo Cultural Center, which is down on 12th Street, before you leave. I understand you had some green chile earlier, but we have——

Chairman MANZULLO. I think we’re supposed to have ribs tonight, so——

Mr. CANFIELD. I would not suggest that you pass up the

Powdrells’ ribs, but I invite you to stop by the cultural center.

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

Mrs. WILSON. I also wanted to thank John Garcia, who’s the

state secretary of economic development here. I always have trouble, because he has a twin brother who works—runs the El Pinto

Restaurant down in my neighborhood, so I always have to be careful. I’ve made that mistake, more than once in my life, introducing

one as the other.

Chairman MANZULLO. Our next witness is Miguel Rios, Jr., chief

executive officer of ORION International Technologies, Incorporated.

Miguel.

STATEMENT OF MIGUEL RIOS, JR., PHD., CEO, ORION

INTERNATIONAL TECHNOLOGIES, INC.

Mr. RIOS. Thank you, Mr. Chairman, and thank you distinguished members of the committee for the opportunity to share

some thoughts and experiences and opinions on the status of small

business in this country. As Congresswoman Wilson pointed out,

I’m the founder and CEO of ORION International Technologies, a

firm that has been in business over 16 years, and the summary she

gave was a very gracious summary of my business background. I

would like to add, however, a little bit about my background.

24

By training, I’m a physicist, postdoctoral work in physics. I spent

about four years in academia, I spent ten years at Sandia National

Labs before leaving to start ORION an engineering services &

R&D company that supports our federal government exclusively. I

have been running ORION for 16 years, and have also done a spinoff company to do work in the commercial sector. As Congresswoman Wilson pointed out, I’m currently on assignment from the

board of directors of the National Center for Genome Resources as

interim president and CEO of the Center in Santa Fe, and I expect

to do that for perhaps another five months.

So, my experience ranges from fundamental research, academia,

the national labs, industries supporting the federal government,

and some limited experience in private industry and in the commercial sector, and now nonprofit. So my perspective is predominately from the point of view of high technology engineering services, but certainly I hope some of my comments are relevant to the

issues across the board.

ORION International Technologies is now an exclusive federal

contractor. About 90 percent of our business is Department of Defense, including support to Sandia National Labs. So we are heavily a defense-oriented contractor. About 10 percent of our business

is with agencies such as the Federal Aviation Administration. I’m

obliged to say that I’m here today as a successful small business

entrepreneur because of the 8(a) program, although I must parenthetically add that I constantly tell our folks that success in

small business is not permanent. It’s not necessarily that I

wouldn’t be here if it weren’t for the program, but the fact of the

matter is the 8(a) program afforded me the opportunity to enter the

mainstream of American capitalism, and I think I represent one of

the success stories of the 8(a) program.

ORION was certified in 1985 as an 8(a) contractor, shortly after

I left Sandia National Labs and we completed our 8(a) tenure in

June of 1994. So we have now been out of the 8(a) program for

some seven years.

During the period from 1985 through 1992, ORION prospered

steadily, growing in annual revenues, basically from zero to about

$14 million a year in revenues in 1993. And we leveled off at about

14 million per year in 1995, and then we declined precipitously in

1996 and 97 to about $8 million per year in revenues.

I’m happy to report to you today that ORION is growing at a

compound annual growth rate of 20 percent since 1998, and we

completed fiscal year 2000, last September, with revenues of 12

million and acceptable profits. An entrepreneur is never happy

with profits, but I have to admit, by the standards of the industry,

it’s very acceptable.

Further, in October of last year, we did a divisive reorganization

of ORION under the IRS rules that allowed us to spin off our nonfederal information technologies work as a tax-free transaction. We

expect to complete the fiscal year with between 15 and 16 million

dollars in total revenues for both companies and project, quite reliably, for next year, between 18 and 20 million.

With the end of the cold war in 1989, it was certainly clear by

1990 that business would change dramatically for defense contractors. The subsequent budget reductions led to facilities closures,

25

elimination of contract requirements, consolidation of contract requirements into large omnibus contracts and GSA schedules. Thus,

the end of the cold war, in conjunction with concomitant

globalization fueled by the explosion of the internet, and, I do believe, the collapse of the Soviet Union, clearly made the thrust of

the globalization we see today, which has resulted in mega mergers, such that services and products are more and more dominated

by very few large companies. This, in my opinion, has caused a

deep erosion of the small business legacy that historically has been

the key element in the robustness and innovation in both the federal and commercial market sectors.

Based on my experience and observations over the past ten

years—and I straddle this, as I said in my comments, between the

federal and the private sector—these are some of the key points

that I respectfully offer:

Small business suppliers to the federal government are under

great duress to prosper and, in all too many cases, to survive.

Second, the 8(a) program is ineffective to help disadvantaged entrepreneurs enter the mainstream of American capitalism.

The size of what constitutes a small business is now much larger

than it was before the end of the cold war, and the precipitous

globalization that is occurring, the problem is, how do we get big

enough to prosper and survive?

Further, the federal market is not a hotbed of entrepreneurship

and innovation, although the SBIR program has preserved a small

vestige of innovation.

Chairman MANZULLO. I’d like to take that and put it in neon letters five feet high and just flash that over the skies of Washington.

Mr. RIOS. I can help supply you with the neon, and we’ll give you

a discount, Mr. Chairman.

Further, tech transfer and partnership programs at the national

labs are working much better than they were five years ago, certainly at Sandia they are, but probably, across the board, not nearly as well as they could and should.

In addition, conducting commercial work in a company that does

federal work is very, very difficult, if not impossible, particularly if

the company is focused on cost-reimbursable, high-technology services with DOD and DOE. That’s the reason that we did the reorganization, and that’s a very good section of the IRS code, by the way.

Finally, the tax structure on small businesses appears to me to

be very disadvantageous compared to large companies.

In summary, Mr. Chairman and members of the committee, I believe you should view the erosion of small business vitality in the

federal sector with great concern; not because the government

should be primarily responsible for developing small business, minority or otherwise, although I do feel that we have an obligation

there, but I don’t think that’s the main reason that we should be

alarmed. I think we should be alarmed because I believe our government and perhaps the private sector are losing the key benefits

of a robust community of small businesses that provides the best

quality, cost effectiveness, innovativeness, responsiveness, and

flexibility to quickly adopt to changing user requirements.

It is these characteristics in our small business sector that have

been essential to making our country the economic and technoVerDate 11-MAY-2000 01:28 Feb 22, 2002 Jkt 077174 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 E:\HR\OC\A174.XXX pfrm01 PsN: A174
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logical leader in the world. The globalization process is fostering

emerging economies that have nascent entrepreneurial classes that

will certainly challenge our economic and technological leadership

in the future. We can count on it.

I respectfully submit, Mr. Chairman and members of the committee, that the health and vitality of American business is so important to our long-term world leadership that the Congress should

look into the matter very broadly and in sufficient depth to make

bold and comprehensive changes that will help ensure our leadership for a long time.

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

Chairman MANZULLO. Thank you very much.

Before I turn this over to Congresswoman Wilson for questions,

let me just explain to you some of the resources that are available

to you, in terms of the Small Business Administration, and actually

through our committee. We have in our committee, I think about

six or seven attorneys that serve as members of the professional

staff. Michael Day is an attorney, Nelson Crowther is an attorney,

and in regards to our staff, in working in conjunction with the

Small Business Administration Office of Advocacy, we have gone to

bat for small business people that otherwise would not be able to

afford an attorney.

Let me give you an example. You’ll like this, Michael. During the

course of a hearing, it was discovered that the Department of Air

Force wanted 107,000 baseball hats made up as part of their official uniform, and they put out no less than six RFPs. The person

in charge of procurement did not know what she was doing. There’s

not much—I mean, a hat is a hat, you know, with the letters you

want on there, and the colors and braids and whatever it is.

Finally, after the seventh letter from our office, they stated that

she had withdrawn it. Michelle Goodman, who runs a small business in Phoenix, Arizona, was discussing this with a colleague who

said, ‘‘Don’t you know what happened? The Department of Air

Force got a contract with the Government Printing Office to make

the baseball hats.’’.

Now, hats are manufactured, they are not printed. And GPO let

out a contract, through their web site, and none of the people who

make baseball hats domestically knew about it. By the time we got

involved, they had—GPO had let out the contract to a company in

the United States, and guess where those hats were going to be

manufactured. China. We stopped the contract; we stopped it cold.

Mr. Day, working with our counsel and with the Office of Advocacy fired a letter off, and we stopped that garbage from taking

place.

So, if you feel, as a small business person, that you’ve really been

beat up by any government agency, get ahold of your member of

Congress, and she can work with our staff and with the SBA.

Sometimes the small business—do you have an ombudsman. Do

you have an ombudsman in New Mexico?

Mrs. WILSON. The SBA.

Mr. FURTIVO. I believe there’s one, through the regional center,

that’s available.

Chairman MANZULLO. You can call Don; he probably still knows

a lot of those people, but the resources are there. There’s about 40

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people that work in the Office of Advocacy, and they do a terrific

job of going after different agencies. There’s no politics involved in

it at all. It’s republicans chasing republicans, democrats chasing

democrats. That’s to make sure small business people aren’t

roughed up. Don’t hesitate to use us.

Mrs. WILSON. Thank you. Listening to the testimony, there are

some very good ideas, and good real world experiences and things

of that nature, but there were some things that I wanted to ask

a couple of you to expand on, if you could.

Michael, you mentioned how the printing regulations and the

RFPs, and so forth, have not kept pace with technology. Can you

give an example, from your experience, of what you mean when

you say that. What’s happening to you? What do you see that just

doesn’t make any sense from a 21st century point of view?

Mr. CANFIELD. Well, Mr. Chairman, Congresswoman Wilson, I

think, originally—this goes back too many decades for me, but I

think the GPO originally started off saying ‘‘We should be doing

most of the printing.’’ You’re doing a lot of printing for the government, and obviously, there’s a lot of printing, and that makes

sense, but now they hardly do any of the printing, they just sub

it out. So it seems to me like there’s an extra column there that

says they’re going through these contracting—they are the contracting folks, so we deal with them, and our customer may be

right next door to them, yet we have to go to either Denver or

Washington to talk to people about the contract. It hampers the relationships, as well, because we are not dealing with our customer

like we should. So, my opinion is that GPO should be taken out of

the loop, and we could save a ton of money in dealing direct

with—— Mrs. WILSON. If you get a customer at the Department of Energy,

have you actually had—where you’ve had a potential customer that

you knew he needed some printing work, but you had to go to talk

to somebody in advocacy to get the job?

Mr. CANFIELD. They are primarily long-term contracts that GPO

lets out, so they can let it out to whoever they feel like, whether

it’s on a national or local basis, they can let it out wherever. So you

could have people doing printing all over the nation for businesses

here, for the federal government here, okay.

Mrs. WILSON. Don, you’ve seen this, now, or seen it from both

sides of the SBA loan program, and the numbers you gave were

really shocking for how New Mexico is really not taking advantage

of, particularly, the 7(a) program. I think that the numbers you

gave in the decline of 7(a) loans, we are 45th out of 51 for these

loans, and that just doesn’t make sense to me.

What are the one or two things that we could do, as a community, to turn this around so that more small businesses would have

access to that capital? What would you do to double that in a year

or triple that in a year, as far as the number of loans?

Mr. FURTIVO. I think perhaps one of the best things to do might

be to get the lenders together that participate in the program. Obviously, you have your larger finance banks, like the Wells Fargos

and Bank of Americas, et cetera, that are producing the majority

of the small business loans in the state, but there’s also the smaller

banks that have to compete with those larger banks.

28

So I think if we could get maybe a half dozen or so of the banks

together and discuss the opportunities there, that perhaps we can

help educate these banks that don’t participate in the program, at

all, or very little, because of the lack of knowledge that they—their

commercial lenders don’t have, and maybe do a little bit of sharing,

because there is enough small businesses, I believe, within this

state, that they all don’t have to go to the Wells Fargos or the B

of As, or they shouldn’t have to.

Mrs. WILSON. Miguel, when you look at where we are for small

businesses—I’m trying to get a baseline of what’s happening with

small business—how should the Congress go about getting a more

in-depth assessment of where we are with the small business programs, to get a better and clearer picture of the reality? Do you

have some ideas on that?

Mr. RIOS. Well, I’m of the firm opinion, Congresswoman Wilson,

that the issue is so vital to this country in the long-term, and is

so complex, I just mentioned some of the issues, everything from

taxes to all the departments of the federal government, innovativeness, et cetera, that—let me give you an example of how the Congress might make a more in depth assessment.

In 1987, the Congress chartered a task force to investigate the

status of women, minorities and the handicapped in science and

technology in this country, and I served on that task force, and it

was led by Mr. Jaime Oaxaca, a former vice president of Northrup,

and Dr. Ann Reynolds, who’s chancellor of the California state university system. We gave a report to the Congress that projected the

shortage of scientists and engineers, and I looked up the report on

that, because we submitted it in 1989. Sure enough, we see a tremendous shortage of people trained in certain areas.

So it’s my opinion that this country would do well to charter a

blue ribbon commission of perhaps 20 people or so, with some from

the federal government, perhaps a couple of people from the SBA,

some top-notch procurement people, and a strong component of

business people, just a diversity of people, but we must have—if

the Congress is to do this—we must have dynamic people, that can

think out of the box, to look at this issue comprehensively and

come back with a comprehensive approach, with recommendations

on changes, because I think that we’d appreciate it. And I respect

the staffs and the hearings. I’ve seen that—I’ve seen how hard the

staffs of the committees work and how good they are, but this is,

I think, a notch above doing it in a segmented way, for lack of a

better word.

So with all due respect, I think Congress should consider chartering a blue ribbon commission on this issue. We do that all the

time with the National Academy of Sciences, and it works extremely well, and it could be something very beneficial to this country. I think we need extensive revamping of federal procurement.

I don’t think we’ll ever see the days again that we saw, and perhaps we shouldn’t. I think if you do the right things, and I don’t

know what they are, that’s why we need some out-of-the-box thinkers to come back to a comprehensive approach.

Mrs. WILSON. Mr. Chairman, I’ll yield to my colleagues here.

Mr. UDALL. Thank you, Mr. Chairman. I want to ask a couple

of questions, but I want the other panelists, as she answers them—

29

I’m going to ask her about three—if you also are interested in commenting or adding anything. And as you well know, the 8(a) program was designed for both individual and entrepreneurship, the

SBA’s HUB zone program was designed as a community renewal

program. Clearly, these two programs have different purposes and,

yet, the solution is the same, federal contracts.

Recently, the SBA reversed itself and now proposes that the 8(a)

program no longer have precedence over the HUB zone program,

or rather that the two programs have parity, meaning that a contracting officer could choose which program to use. How do you believe that this will affect the 8(a) program?

Ms. MULLER. First of all, Congressman, as you well know, there

was a legal interpretation by the legal staff of the Small Business

Administration, and I think your committee needs to look at that

decision and see if we can get it reversed; because, as you well

know, the HUB zone is place-based, it is not risk-based, so it is absolutely in competition with the 8(a) program. Many of the 8(a)

companies cannot become HUB zone certified, because they can’t

reach that employment criteria.

For example, if you look at HUB zones, they’re really designed

for construction firms, companies such as janitorial companies and

firms that have employees who live in HUB zones. So because this

is place-based and because you well know it was originally designed to replace the 8(a) program, let’s not forget that in our deliberations. I mean, that’s where that—that’s why that program was

enacted five years ago. So it’s what I said earlier, there are all

these new categories that are coming up, and they’re all in competition, because they all have goals, and the 8(a) goal has got to

become statutory. That’s part of my presentation.

Mr. UDALL. Well, you and I both know there’s no statutory goal

for the 8(a) program, so do you believe that the fact that there isn’t

a statutory goal makes the 8(a) program less likely to be used by

contracting officers?

Ms. MULLER. Well, that’s just one of the reasons why it’s not

being used as extensively as it was, but it was that whole litany

of issues that I went into great detail on.

Mr. UDALL. The 8(a) program is the primary program to increase

minority businesses in the federal government. This program has

successfully created over 15,000 businesses. It seems to me that

one of the reasons for the decline in 8(a) program dollars might be

the fear of the Adarand case, although Adarand did not deem 8(a)

to be unconstitutional. Do you have any thoughts on that?

Ms. MULLER. No. I think the Adarand case has been used as an

excuse, and, as you’ve said, it was not deemed—the 8(a) program

was not deemed unconstitutional, and we’ve got to stop trying to

find out—find who to lay that excuse on. Sales are down, it’s that

simple, and we’ve got to make sure that procurement sales get increased in the 8(a) program, whatever method that takes.

Mr. UDALL. Do any of the other panelists have any thoughts on

any of these three questions, the HUB zone issue, the Adarand

case, or the statutory goal issue?

Ms. CORDOVA. I have some, Congressman Udall.

As I presented in my testimony, and as was referenced by Congresswoman Wilson, New Mexico is very dependent on federal govVerDate 11-MAY-2000 01:28 Feb 22, 2002 Jkt 077174 PO 00000 Frm 00033 Fmt 6633 Sfmt 6602 E:\HR\OC\A174.XXX pfrm01 PsN: A174
30

ernment dollars, and the census bureau shows that even though we

own 22 percent of the businesses here, we’re only receiving 5 percent of the revenues. That speaks to this in a big way. The HUB

zone program, I believe—my estimation of the HUB zone program

is that it’s just a way of circumventing; it’s a way of taking away

from 8(a), and we need to shore up these programs—we would like

to see some parity in what’s going on with federal contract dollars.

We can not remove from the 8(a) program. We have to shore that

program up.

I also believe we have a program in place where they assess

what their plans were for the coming few years, as far as federal

contracting dollars; and the focus was very much on the HUB zone

program, and it was very obvious the focuses weren’t on doing business with the 8(a) program, and I think it’s significantly impacting

the growth of Hispanic businesses in New Mexico.

Mr. BONANO. Chairman Manzullo, let me add my comments to

what both Ms. Muller and Ms. Cordova have shared with you.

I’m the owner of a high tech engineering company here in New

Mexico, an 8(a) certified company, and frankly, the nature of the

business our company does for the national laboratories, some private sector clients, and some other government agencies would not

allow us to be HUB zone certified, based upon the mere fact that

we have to be located in Albuquerque just to be able to serve our

current client base. That is a detriment to our company. I think the

same concerns are shared by a number of other companies.

I think, in New Mexico, we are blessed, in the sense that many

of our 8(a) minority-owned businesses are also high tech companies; however, the HUB zone being on a comparative level with the

8(a) program is a disgrace, and I think Congress should take action

on that.

Mr. UDALL. Thank you. One more question for Don. Earlier this

year, as part of President Bush’s budget, he proposed to increase

the fees on the 7(a) loan program to both the borrower and the

lender, resulting in an additional cost of thousands of dollars per

loan. How will this increase affect your ability to use the 7(a) program, and what type of effect would it have on the availability of

loans to small businesses?

Mr. FURTIVO. Any increase is certainly going to impact it dramatically. The previous increase was done, well, maybe about five

years ago. If you go back and look at the numbers of loans that

were produced in the mid 1990s, versus those loans that were produced in the latter 1990s, and into the year 2000, you will see that

almost every district office in the United States have had their

numbers decline, and there has been a decline in numbers—some

of the states or cities, major cities like perhaps Dallas, New York,

San Francisco, Los Angeles, of course, are going to keep their numbers pretty much the same, with a very small percentage of decline,

but other cities like Albuquerque, Denver, Chicago, et cetera, their

numbers are going to drop, because number one, the lenders don’t

want to pay the fee that they are being required to pay.

For example, when they sell a loan on the secondary market, yes,

they get some fee income for doing that, but then they have to turn

around and pay 50 basis points per loan back to the SBA, which

is an additional fee, which means they have got to hire somebody

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in their institution in order to track those, fill out those loan reports, and then have to balance with the secondary market financial companies out of New York, and that costs money to the

banks. So the fees that the banks generate by selling loans on the

secondary market are eaten up by other costs of operation.

The impact on our ability to make loans—it’s going to be difficult, because we cannot—we generally pass these fees on to the

borrower, and most small business borrowers can’t afford it, especially here in this state. Although the SBA allows a lender to add

these fees to the loan, sometimes adding these fees to the loan disqualifies the applicant from obtaining their loan because of the additional burden.

Mr. UDALL. Thank you.

Mr. Chairman.

Chairman MANZULLO. I would add, those fee increases for the

7(a) loan program are not going into effect. OMB needs to come up

with a new subsidy rate on the subject. I am not aware that OMB

has come up with a new subsidy rate. If you increase these fees,

you make the 7(a) loan program more expensive and less affordable

for small businesses.

Roscoe, did you have any questions you wanted to ask?

Mr. BARTLETT. Thank you.

I noted that two of you mentioned contract bundling, Ms. Cordova and Evaristo Bonano.

Mr. BONANO. That’s very good.

Mr. BARTLETT. I took a couple of years of Spanish about 60 years

ago. Just a note.

Some of this bundling is a sign of the times. Two of our large

government agencies had decided that if they didn’t do this, they

really couldn’t be current. One of those was the Marine Corps and

the Navy. They found that if they were buying high tech communications equipment, that they never were state of the art, because

the procurement time was so long that when they had the equipment delivered, it was already obsolete. So what they decided to do

was to buy performance rather than equipment, and then the private sector person could buy the equipment overnight, where the

government would take so long to buy it that it’s literally obsolete

before it’s delivered. That’s a compelling argument, and I think

that because of the requirement to be current, they probably do

need to bundle in this case.

Another organization with even more compelling reason to do

that was NSA, and clearly they need to be current, and they

couldn’t be current. Nelson Crowthers and I met with both of those,

and they agreed to 35 percent—as a matter of fact, the Navy and

Marine Corps relet their RFP to ensure 35 percent small business

participation, and 10 percent of the money would be paid directly

to small businesses, although, they would be able to negotiate that

same thing with NSA.

The word obligatory, I think everybody understands. All we want

is a fair opportunity for small business, and we think the 35 percent, 10 percent direct pay is reflective of what’s now going on in

this procurement world, where there are procurement contracts.

There’s one part of this that bothers me, and you’ve had experience with this, and that’s a practice called bid shopping. Are you

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familiar with bid shopping? I see some heads nodding. This is

where the prime comes in with his response to the RFP, saying,

‘‘We’ll do a good job doing this, because I’m as good as there is, I

have all these subs who are going to support me, and, gee, they are

really good.’’ Then, when he gets the contract, he comes back to the subs and

says—you know, they have got a contract—that times are tough, ‘‘and you’ve really got to do better than you did with your pricing;

as a matter of fact, I’m going to shop around and see if I can’t get

somebody to do it cheaper than you.’’ We took some steps in Small Business to deny contractors of the

federal government the opportunity to do that, because, generally,

when a bid is accepted, it’s not just the prime we are looking at,

it’s the whole team we are looking at, and if you’re still having

trouble with bid shopping, we need to know that.

Have any of you had any personal experience with that?

Mr. BONANO. Chairman Manzullo and Vice Chairman Bartlett,

first of all, I do agree with you that, as I stated in my testimony,

there are some programmatic requirements in government agencies

that do clearly necessitate contract bundling. However, as so eloquently put forth, most of these contracts also have strict subcontract requirements. Let me use an example. My company has

suffered this, but let me use a company which is in your home

state, called Enercorp Federal Services, Incorporated. It’s a company owned by Mr. Steve Ruffin, an African American. The company has less than 15 employees.

About 18 months ago, or so, the US Nuclear Regulatory Commission bundled a contract which included as one of the important

technical areas criticality safety for facilities. Enercorp is second to

none in that area. One of the largest prime contractors in the federal government recruited Enercorp to be their subcontractor and

help them write a proposal to the NRC for that contract. The large

prime contractor was successful in getting the contract.

And then, talking about bid shopping, they decided that it was

cheaper to hire individuals, as employees of the prime contractor,

to do the criticality safety work than to award the subcontract to

Enercorp, that had worked so hard for and was entitled to.

As a result of that, Enercorp did not get any work on that contract.

Now, shame on the big prime contractor for doing that, but more

shame on the NRC for allowing the prime contractor to do that and

not enforcing the subcontracting goals as stated in the prime contract. Surely, the subcontracting goal is a performance issue. As a

result of that, they should have been dealing with some of the performance issues in that contract.

So, yes, we are very familiar with bid shopping. Like I said earlier in my testimony, I do think some contract bundling is perhaps

necessary. The programmatic requirements and necessities of a

contract needs to be, I think, clearly defined, and the subcontracting goals and requirements under the prime contract have to

be abided by and enforced by the client, the NRC in this case.

Mr. BARTLETT. Thank you. You mentioned the 8(a) program. Two

of you indicated—the last two witnesses indicated that the 8(a) program is very helpful to them, they wouldn’t have been here without

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the 8(a) program. Three others mentioned that the 8(a) program

was ‘‘too slow,’’ ‘‘too difficult,’’ were terms that were used. A couple

of you gave very specific recommendations as to how to improve the

8(a) program. I wonder if the different experiences relate to the different offices that they dealt with, or did they reflect the histories

of the companies that contended for the 8(a) loan. Few of you have

had very positive relationships with 8(a), and three of you had

somewhat negative relationships, I guess because you felt it was

too slow, and indicated how the program can be better, so we’d appreciate your specific recommendations.

Do you think that it was the companies’ background that came

for these loans, or do you think that it was the different departments that you dealt with, or the entity you dealt with?

Mr. RIOS. Thank you, Mr. Vice-Chairman, for giving me the opportunity to clarify my comments. I clearly indicated that the 8(a)

program was a great opportunity for ORION International, my

company, and we were very successful from 1985 through 1992, in

particular. The contract loan program, being a credit line guarantee, was a very small one for $45,000 on our very first contract.

Later, we got advance payments when we got a $4-and-a-half million contract at White Sands Missile Range, and we didn’t have the

capital to capitalize the contract. So clearly, the 8(a) program and

its programs were very good to me.

But towards the end, I also said that the 8(a) program is now ineffective for helping disadvantaged people enter the mainstream of

American capitalism. What I mean by that is, that the 8(a) program has become ineffective because of the dramatic changes that

have occurred in federal procurements. With the end of the cold

war, there are virtually no set-asides for small business. Even 200-

person companies are in danger of not surviving, because if we

loose one major contract, we have a major setback. There’s virtually very few 8(a) set-asides. I see companies struggling to get

small pieces of work, and so it is not working. It did work for me,

but it changed dramatically, as the market changed.

Mr. BARTLETT. We appreciate your comments, and if you have

additional observations on how the 8(a) program might be improved, we would appreciate getting those.

Just one last observation, Mr. Chairman. I noticed that two of

you mentioned the availability of venture capital, that it was too

limited. I’m not sure how to improve that. We don’t want the taxpayers’ money to be used on questionable loans, and yet, there are

a lot of entrepreneurs out there that have ideas that might produce

another Microsoft that—if they only had a chance to get started.

I was wondering what your thoughts would be about tax incentives—I’m not a big fan of big government, by the way. I was wondering what your thoughts would possibly be about tax incentives

that would permit the private sector to invest in venture capital

that would reward them more for high risk loans. You know, very

frequently, high risk and high reward go hand-in-hand, don’t they,

and if you are limiting your loans to low risk opportunities, you’re

likely to really miss some very big returns on that.

How do you feel about, rather than taking your money and

doling it out as we see fit, to permit the private sector to make inVerDate 11-MAY-2000 01:28 Feb 22, 2002 Jkt 077174 PO 00000 Frm 00037 Fmt 6633 Sfmt 6602 E:\HR\OC\A174.XXX pfrm01 PsN: A174
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vestments, with some appropriate incentives for additional rewards

if they are going to invest in high risk loans?

Ms. MULLER. Since, traditionally, most women business entrepreneurs do not have very much capital, I would be looking for

other ways for women to get loans out of the box. That’s relative

to the fact that women-owned small businesses have a lower bankruptcy or failure rate. We pay our loans back faster, and we have

a lower bankruptcy rate.

Mr. BARTLETT. I guess that the bankers don’t know that yet.

Ms. MULLER. I think it also leads to another point access for

some companies of a different nature. I think that there are people

who do have money, and they are not rewarded. There are three

ways you can get money, three places, right now. The banks are

one, and they are changing so fast at the local level, it’s not attractive to local people. By the time you get there—I mean, you have

one hell of a product, but it’s just the points in between. I think

venture capital, private investment is another point, but they need

to be motivated to invest, and I think taxes is one of the ways to

do that.

Mr. BARTLETT. Thank you, Mr. Chairman.

Chairman MANZULLO. Tina, did you have a comment?

Ms. CORDOVA. I wanted to respond to Vice-Chairman Bartlett’s

question on contract bundling.

In the construction industry, running that kind of business, bid

shopping is a very common practice. It happens all the time. That’s

unfortunate. The thing about contract bundling, though, is that as

a subcontractor, you’re always relegated to a position of building

the portfolio of a prime contractor, of building their financial

wealth, and sometimes at the expense of your own company, when

we take a look at contract bundling as a whole, because, to achieve

the ability to compete for a prime contract, you have to have the

ability to build your own portfolio, and also a lot of these prime

contracts have assignments to them that you have to have a certain level of experience on like contracts.

If you work as a subcontractor, you never actually get that experience, and so often with these bundled contracts, if you’re relegated to a subcontractor, that’s where you’ll remain, and sometimes, the other thing, too, I would like to point out is, you’re also

at the mercy of when and how they would like to pay you, and that

is very critical as a small business owner, because we would like

to receive that money as soon as possible. I have worked as a subcontractor and as a prime contractor on contracts at Los Alamos

Labs. I’ve had very good luck there, I’ll say that much, but it’s always been much more difficult when I’ve worked as a subcontractor

rather than as a prime contractor.

Mr. BARTLETT. Yes. I know prime contractors frequently try to

use subcontractors as their bank.

Ms. CORDOVA. It happens all the time.

Mr. BARTLETT. They just want to pay you very slowly. That’s the

same thing as borrowing money that’s interest free. That’s unethical. I think that bid shopping is particularly unethical, and I think

that for federal procurement, it ought to be united.

Ms. CORDOVA. Another thing I might add, as a subcontractor,

what leverage do you have? You want to continue to work with

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these prime contractors, so often, you can request to get paid, and

that would be what you would like to have happen, but you also

don’t want to upset the apple cart, if you’re working with them as

a subcontractor.

Mr. BARTLETT. I understand that, and that’s why we need to

build into our RFPs the requirement that they pay you promptly.

Chairman MANZULLO. I want to thank you for coming here. I

want to thank Heather for inviting the tremendous witnesses. You

know, we hear lots of testimony from people across the country.

There’s a saying that misery likes company. It helps out.

Capital is short for everybody across the nation, I don’t care

whether it’s for your own enterprise or not. We should have a hearing on the lack of availability for capital for any small business

person. And sitting on the Financial Services Committee, we’re

very much interested in why that is.

The other side of that is the fact that there has been a lack of

demand. Small companies have just been very reticent to try to

raise capital because of what they see out there. But what’s happening, I assume, with this panel and with the last panel, I think

the real focus here is contract bundling in prime contracts. They

are hammering everybody. Whether it’s a minority-owned business

or not a minority-owned business, all small businesses are coming

under the hammer of the prime contractors.

And as I said to the folks at Los Alamos—I think they know my

name now. I think their resorting to prime contractors is just laziness. They don’t want to go out and do procurement themselves.

They get ahold of the prime contractor, including the University of

California, to do their bidding for them and come up with these incentive programs, outreaching to the minorities. If I hear that once

more, I’m going to scream, because minority groups are out there,

already reaching out, wanting to know where the contract is, and

all we hear from the bureaucrats is, they are talking about reaching out to minorities. Reach out with a check, and that will take

care of it.

And so, we made that point very clear to the folks at Los Alamos.

I’m not going to tolerate, as chairman of the Small Business Committee, seeing small business people having to suffer while these

bureaucrats don’t want to do their job as procurement officers and

simply end up with a prime contractor.

We have the Defense Logistics Agency, DLA, that does the work

for DoD. They have 18,000 procurement officers, 18,000 of them.

On the Armed Services Committee, I asked them, I said, ‘‘Why are

you getting involved with prime contractors if you have all these

procurement officers?’’ And I heard some of the most incredible stories about things that have been going on. The problem is that very

few congressional committees are willing to dig in and find out exactly what’s going on. That’s what we’re doing with this Small

Business Committee, that has very little jurisdiction, except the

ability to raise lots of hell.

We got involved with those berets because no one else was willing to step up to the plate. Three congressional committees had requested information from the Defense Logistics Agency on those berets, and I soon learned that you don’t request anything from those

clowns. There are 17 members of Congress that have the powers

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of subpoena. I’m one of them. And Tom, you’re an attorney, you

know what that means. I said, ‘‘Fine.’’ They stonewalled three congressional committees, bringing documents in in five days, and— they must have worked all weekend putting together all these documents, backdated documents, legal opinions from people that

must have graduated from law schools that are still working under

the accreditation of 35 years ago.

I mean, I looked at this thing and I said, ‘‘What are these people

doing? Why isn’t anybody being held accountable?’’ That’s why

we’ve come to you. We’re asking you to do your part. When you see

these abuses occurring, get us a letter on the letterhead of that

company, because I’m convinced we are not going to change this all

at once. It’s got to be led head by head. You can pass all the procurement laws that you want, but if you can’t get sufficient quantity or quality for clothes or appliances—we are in the process of

drafting this and serving notice on Congress. And you wouldn’t believe the amount of federal procurement that’s going offshore. We

all pay taxes to the federal government. The federal government

turns right around and buys stuff offshore to the exclusion of you

that are paying taxes and making possible the jobs. I think I said

that right. We have to be very diligent and hold their feet to the

fire and don’t be afraid to go forward with it. So please work with

us on it. It helps. Let’s stick some necks out, step on some toes,

and we’ll have some more fun.

Thank you very much for coming. This meeting is adjourned.

[Whereupon, at 4:24 p.m., the committee was adjourned.]

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