U.S. GOVERNMENT PRINTING OFFICE

60–797 WASHINGTON : 2000

CONTRACT BUNDLING AND FEDERAL PROCUREMENT PROBLEMS FACING SMALL BUSINESSES

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

WASHINGTON, DC

AUGUST 4, 1999

Serial No. 106–27

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

JAMES M. TALENT, Missouri, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

DONALD A. MANZULLO, Illinois

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

DAVID M. MCINTOSH, Indiana

RICK HILL, Montana

JOSEPH R. PITTS, Pennsylvania

JOHN E. SWEENEY, New York

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

EDWARD PEASE, Indiana

JOHN THUNE, South Dakota

MARY BONO, California

NYDIA M. VELA ́ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

CAROLYN MCCARTHY, New York

BILL PASCRELL, New Jersey

RUBE ́N HINOJOSA, Texas

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

DENNIS MOORE, Kansas

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

SHELLEY BERKLEY, Nevada

HARRY KATRICHIS, Chief Counsel

MICHAEL DAY, Minority Staff Director

(III)

CONTENTS

Page

Hearing held on August 4, 1999 ............................................................................. 1

WITNESSES

Lee, Deidre A., Administrator, Office of Federal Procurement Policy ................ 4

Hayes, Richard L., Associate Deputy Administrator, U.S. Small Business

Administration ..................................................................................................... 6

Neal, Robert L., Director, Office of Small and Disadvantaged Business Utilization Office of the Under Secretary of Defense for Acquisition and Technology .................................................................................................................... 8

Head, Terry, President, Household Goods Forwarders Association of America,

Inc .......................................................................................................................... 39

Smith, James, President, United Janitorial Services ........................................... 42

Slater, Phyllis Hill, President, Hill Slater, Inc ..................................................... 43

Ritter, Cathy S., Vice President, American Consulting Engineers Council ........ 45

Moore, Dan, President, Moore’s Cafeteria Services, Inc ....................................... 47

APPENDIX

Opening statements:

Talent, Hon. Jim ............................................................................................... 65

Vela ́zquez, Hon. Nydia ..................................................................................... 67

Davis, Hon. Danny K ....................................................................................... 69

Abercrombie, Hon. Neil .................................................................................... 73

Filner, Hon. Bob ............................................................................................... 75

Prepared statements:

Lee, Deidre A .................................................................................................... 78

Hayes, Richard L .............................................................................................. 85

Neal, Robert L .................................................................................................. 99

Head, Terry ....................................................................................................... 110

Smith, James .................................................................................................... 118

Slater, Phyllis Hill ............................................................................................ 122

Ritter, Cathy ..................................................................................................... 126

Moore, Dan ........................................................................................................ 133

Additional material:

Prelimary Bundled Contract Statistics, Eagle Eye Publishers, Inc ............. 147

Letter to Chairman Talent from Shane C. Downey, Associated Builders

and Contractors, Inc ..................................................................................... 148

Letter to Chairman Talent from Maurice J. Allain, Phoenix Scientific

Corporation .................................................................................................... 151

Testimony of Ms. Bernadette Paik-Apau, Anonui Builders, Inc ................... 157

Letter to Chairman Talent and Hon. Nydia Vela ́zquez from Kevin

Kelleher, Cendant Mobility .......................................................................... 160

Proposed Bundling Regulations ...................................................................... 162

Frequently Asked Questions ............................................................................ 166

Federal Register, Vol. 64, No. 8, January 13, 1999 ....................................... 171

Citation from Small Business Reauthorization Act of 1997 ......................... 176

Rule submitted by SBA to OFPP .................................................................... 180

(1)

CONTRACT BUNDLING AND FEDERAL

PROCUREMENT PROBLEMS FACING SMALL

BUSINESSES

WEDNESDAY, AUGUST 4, 1999

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

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

2360, Rayburn House Office Building, Hon. Jim Talent [Chairman

of the Committee] presiding.

Chairman TALENT. Good morning, ladies and gentlemen. Welcome. Thank you for joining me this morning to examine the impact of contract bundling on small businesses. I am hopeful that

through today’s hearing we can begin working together towards a

solution to the contract bundling issue that best utilizes limited

Federal dollars but also safeguards the ability of small businesses

to compete for those dollars.

Let me just say that I certainly will concede that there are instances where bundling can be done responsibly. I don’t believe in

most instances that there is a conflict between small business participation and the wise use of limited Federal dollars. The assumption that there is basically the assumption that competition does

not reduce costs. That is not an idea that is accepted in any other

context, yet it is one of the premises behind contract bundling.

But at any rate, whatever you think of the concept, unless it is

undertaken responsibly, the cost cutting elements are penny wise

and pound foolish. Simple economics dictate that if small businesses are locked out of competition, the remaining competitors

will face escalating demand and raise their prices accordingly. This

is a blueprint for a kind of monopolization that lowers quality and

raises cost to the government. That is why Congress took legislative action on this issue in 1997.

On December 2, 1997, the Small Business Reauthorization Act of

1997 was enacted. In this act, Congress specifically addressed the

problem of unrestricted contract consolidation. Troubled by the fact

that many contracting agencies favored consolidated requirements

based solely on administrative settings, Congress sought to design

a system of review aimed at identifying these requirements

through market research and providing a mechanism for appeal on

behalf of small business. Yet as of today the provisions of PL 105–

135 that I just referred to, remain enforceable.

The SBA has not completed promulgating regulations even

though the law specifically required a final rule within 270 days

2

within enactment. This past January SBA finally printed a proposed regulation in the Federal Register to solicit comments. In the

introduction to the proposed rules it states ‘‘It is also clear from the

statutory language requiring contracting officers to demonstrate

measurable substantial benefits of bundling. And from the joint explanatory statement, that Congress intends that meaningful controls should be in place that are capable of enforcement to preclude

unnecessary and unjustified bundling.’’

If SBA understands that, why don’t the proposed regulations include actual measures, those concrete numbers indicating what a

measurable substantial benefit is? As it stands now, these regulations define as measurably substantial benefit: cost savings and or

price reduction; quality improvements that will save time or improve or enhance performance efficiency, reduction in acquisition

cycle times; better terms and conditions; or any other quantifiably

substantial benefits.

In my judgment, this test is far too loose. How are these measurable? One contracting officer could very easily say that some marginal savings or changes in acquisition times were a measurable

substantial benefit, whereas another contracting officer might challenge the same contract in a different part of the country. What

contracting officer is going to want to buck the force of the Federal

procurement system to say that the benefits aren’t substantial

enough when he only has such vague criteria to go on?

I am glad that Dee Lee from OFPP and Richard Hayes from SBA

are here today. I would like them to explain why these measurably

substantial benefits aren’t more measurable. I want to know when

we can expect to see a strong final rule. Let me just add on this

ad hoc here that it has become very clear to me that within the

Congress, if this Committee and the measures that we pass don’t

stand up for the rights of small business people to participate in

procurement, both on their behalf and on behalf of the taxpayers,

it is not going to happen.

You three at this table are counterparts in that sense in the executive branch. I hope that you take this very seriously. Really,

this concept that contract bundling generally saves money and produces higher quality for the government I just believe is a chimera.

So we are not getting anything for small business and I think that

we are hurting the taxpayers as well. I also would like our witnesses to address what they see as the current problems with small

business participation in Federal procurement programs and how

they would suggest remedying those problems.

I am particularly interested in hearing about problems small

businesses face as subcontractors. I am hoping Mr. Neal from

DOD’s office of Small and Disadvantaged Business Utilization will

be able to give us some insights into ways those problems could be

addressed. I also hope our first panel will comment on the problems small businesses encounter with alternative contracting mechanisms, particularly ID/IQs.

I have a statement paragraph in here indicating that I was going

to welcome my friend, Congressman Abercrombie, who was going

to sit in on the Committee today, but he is not here. When he

comes in I will welcome him here. I want to welcome our other witVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 E:\HEARINGS\60797 pfrm08 PsN: 60797
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nesses who I will introduce later in the hearing. Now, I will yield

to Ms. Vela ́zquez for any opening remarks she would care to make.

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

Ms. VELA ́ZQUEZ. Thank you, Mr. Chairman, and good morning to

everyone, all of the witnesses. Thank you for being here. Mr. Chairman, I want to thank you for today’s hearing on contract bundling

practice used by the Federal Government and its effect on small

businesses. Our Nation is currently experiencing one of the largest

economic booms of the century. Just in the first two quarters of

1999 the GDP increased over $125 billion over last year. I am convinced that this incredible growth has small business at its base.

According to the Small Business Administration Office of Advocacy, over 50 percent of all private sector output is attributed to

small businesses. Small businesses are creating the majority of the

jobs in our Nation with new and dynamic technologies coming from

every corner of this country. When a difficult problem arises in corporate America, it is often a small business that they turn to. Entrepreneurs are the innovators and the risk takers that keep this

country in the lead. They are in demand everywhere but in the

Federal Government.

Just as with corporate America, our Federal Government should

be utilizing the skills and expertise of our nation’s small businesses. But instead the agencies are looking for ways to cut costs.

While this is a very important goal, it seems the only thing they

are cutting is quality and service and access to government for our

nation’s small businesses. In 1997, we recognized the challenges

small businesses were facing and made changes in the SBA reauthorization act. These changes strengthened the tools that the SBA

had to monitor and review Federal agency bundling.

Today, we need to discuss if those changes are working. But even

if they are effective, those changes are not enough. For example,

the recent language in the Senate DOD authorization further attacks small businesses. This legislation actually makes it easier to

bundle contracts and grants DOD the ability to award contracts

without competition. These will likely lead to more awards to large

businesses and less awards to small businesses. This is a backward

step on the path to fairness for small businesses.

The story is even worse for minority small businesses, even

though they represent some of the fastest growing sectors of the

business community. The SBA Office of Advocacy estimates there

were 3.25 million minority-owned businesses in 1997 generating

$495 billion in revenues and employing 4 million workers. Their

numbers have been growing, 168 percent over the last decade; and

their growth in revenues have been even more impressive, 343 percent over the past decade.

With this kind of growth, it should seem logical that united businesses would be an integral part of the failure of contracting, but

that is just not the case. With a lot more responsibility now given

to the contracting officers to determine who wins the contract, minority businesses who do not have the relationship with those officers are routinely shut out of the process. For example, DOD’s goal

for women-owned businesses was to award them 5 percent of contract dollars. A reasonable goal based on past performance.

4

However, so far this year only 1.7 percent of the work has been

contracted to these businesses. This is well under our expectations.

DOD is about 15 percent below its goal for small business procurement. If this trend continues, it will result in $4 billion less to

small businesses this year. With these types of numbers it is hard

to tell if we are looking at a genuine effort.

To address some of the problems with DOD, I introduced legislation to help close that gap. The ACE bill will restore vital minority

contracting rules which were stripped away last year. This bill will

make changes to recognize the reality of discrimination and its direct impact on minority businesses. Since then my concern over minority business contracting has grown because this is not just happening within DOD. This is a problem throughout the agencies.

I have initiated a review of contracting practices within the Federal Government. We are going to hold agencies accountable by

scoring their contract awards. When we are through, we will have

a complete picture of how agencies are contracting and in what

ways they need to be improved. Ensuring that small businesses are

a part of the solution for our Federal Government’s problems is a

priority for all of us here today. With that equation, everybody

wins. And taxpayers get more value for their money with vastly superior services. Small business are able to sell their services while

creating jobs for communities throughout our country. I look forward to hearing from our witnesses today, Mr. Chairman. Thank

you again for holding this hearing.

Chairman T4Talent. I thank the gentlelady as always for her

strong and incisive comments. We will go to the witnesses now. I

do want to recognize the presence of Mr. Abercrombie. He is not

a member of the Committee but is a very powerful advocate for this

issue. And I thank the gentleman for coming.

Mr. ABERCROMBIE. Mr. Chairman, will I be allowed to put in a

statement?

Chairman TALENT. Without objection. It is the practice in the

Committee just because we want to get to the witnesses and ask

questions that normally only I and the ranking member actually

make opening statements. We are happy to put anything in the

record. The gentleman will have the opportunity to ask questions,

too, when the Committee members have a chance. Without objection, your written statement will be entered into the record

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

Chairman TALENT. We will go right to the first panel of witnesses. As these government witnesses can see, we are all very interested in every aspect of this issue. We welcome them here and

their partnership in trying to achieve these goals.

The first witness is the Honorable Deidre Lee, who is the Administrator of the Office of Federal Procurement Policy.

STATEMENT OF HONORABLE DEIDRE A. LEE, ADMINISTRATOR, OFFICE OF FEDERAL PROCUREMENT POLICY, EXECUTIVE OFFICE OF THE PRESIDENT

Ms. LEE. Good morning. Chairman Talent, Congresswoman

Vela ́zquez, and members of the Committee. I appreciate appearing

at this hearing today to focus on the impact of Federal procurement

policy on small business competitiveness including contract bunVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 E:\HEARINGS\60797 pfrm08 PsN: 60797
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dling. First and foremost, I would like to emphasize the administration’s ongoing commitment to and support of small business.

Over the past several years, much has changed in the government

with the critical focus of delivering results for the taxpayer and

achieving discipline with a balanced budget. A strategic underpinning of this results-based performance has been acquisition reform;

or quite simply, how can we best buy the goods and services the

taxpayer needs to deliver great results.

Chairman TALENT. Could you move your mike a little closer?

That is much better.

Ms. LEE. Broad inclusion of the small business community in

government business is a measure of great results. So what has

been done to deliver for the taxpayer including more opportunity

for small business? Let me cite just a few examples. The vast array

of potential for simplified acquisition, which means that acquisitions under $100,000 versus the old threshold of $25,000 are set

aside for small business. We are buying more commercial products

and services versus Government-unique specifications. This opens

opportunities for small businesses that may not have had the expertise and Government uniqueness but now can participate.

We are focusing on best-value procurement, looking at the whole

picture and selecting the best results. Small businesses are particularly adept at offering unique solutions. We have shortened the

time frame for acquisitions, tried to lessen the bureaucratic proposal process, and opened up communications. Small businesses

are responding. They want to participate in procurements that do

not take years and endless resources just to propose, where

through an hour long presentation, the government can really

evaluate their capability and solutions.

Multiple award, task, and delivery order contracts have become

vehicles of choice for interagency acquisitions of information technology. They make current technology available in a timely way.

And small businesses are there. In the Transportation Department’s Information Technology Omnibus Procurement, ITOP—we

need an acronym for everything—40 percent of the more than 750

million in total prime contract dollars were awarded to small business firms.

The Department of Commerce recently awarded the Commerce

Information Technology Solution, another acronym, COMMITS,

contract, a $1.5 billion five-year multiple award contract for IT

services set aside exclusively for small businesses. The 29 contract

holders include SDBs, 8(a) businesses, and women-owned small

businesses. With the SBA we put in place last fall the Small Business Service Contractor Streamlining pilot project. Under this pilot

project, agencies waive the CBD and use PRO-Net to competitively

solicit only small businesses.

In conjunction with these more global changes, we have emphasized several specific small business initiatives including the Very

Small Business pilot programs, Mentor Protege, Hub Zone, Small

Businesses Demonstration program, Small Business Disadvantaged

Reform program, and Goals. Goaling is critical to delivering on

these expectations the Congress has established. Together with the

SBA and the agencies, small business goals are working.

6

With acquisition reform, the goal for small business was raised

from 20 to 23 percent. The SBD goal is 5 percent. The womenowned goal is 5 percent and we monitor 8(a) awards. Although

much has been improved, we are not finished and much is left to

be done. You specifically identified contract bundling as a topic of

discussion. The administration’s challenge in implementing the

bundling provisions of the Small Business Reauthorization Act of

1997 is to provide guidance that ensures agencies provide opportunities to small business and also maintains discretion to effectively

and efficiently meet their mission needs, including consolidations

where appropriate.

Since the enactment of the legislation, we have been working

closely with the SBA and the procuring agencies to develop an effective rule. A proposed rule was published in January 1999. SBA

received and analyzed public comments and OMB received—SBA’s

draft final rule at the beginning of this week. As the statute recognizes, there can be a variety of reasons that singularly or jointly

form the basis for necessary and justified bundling, such as cost

savings, quality improvement, reduction of cycle times, better

terms and conditions, et cetera.

The statute further speaks to agencies demonstrating that the

benefits of bundling be measurably substantial as a foundation for

necessary and justified bundling. We are working with SBA and

the procuring agencies to determine how best to implement these

requirements. Through deliberations we want to develop a rule

that achieves strong business participation consistent with the

most efficient implementation of agency missions. We hope to complete this rule shortly. In the meantime, agencies are working cooperatively with SBA in discussing potential contract bundlings and

considering alternative strategies that promote small business participation.

Mr. Chairman and members of the committee, let me reiterate

that the great results delivered to the taxpayer include small business and we will continue to focus on these goals. I would be

pleased to answer any questions.

Chairman TALENT. Thank you, Ms. Lee.

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

Chairman TALENT. The next witness is Mr. Robert Neal, the director of the Office of Small and Disadvantaged—wait a minute. I

didn’t go in order here. We will go in the order you are sitting

there.

Dr. Richard Hayes, associate deputy administrator, the Office of

Government Contracting, Minority Business Development of the

Small Business Administration.

STATEMENT OF DR. RICHARD HAYES, ASSOCIATE DEPUTY ADMINISTRATOR, OFFICE OF GOVERNMENT CONTRACTING

AND MINORITY BUSINESS DEVELOPMENT, SMALL BUSINESS

ADMINISTRATION

Dr. HAYES. Good morning, Mr. Chairman, and members of the

Committee. It is a pleasure to testify before the Committee this

morning. We are pleased by your willingness to give consideration

to an issue of great importance to this administration, namely contract bundling and its impact on America’s small business contracVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 E:\HEARINGS\60797 pfrm08 PsN: 60797
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tors. At the outset, I believe that we can successfully achieve significant and meaningful opportunities for small businesses in procurement as we continue to streamline and reform the government’s acquisition processes.

In fiscal year 1998, Federal agencies reported total purchases of $181.8 billion. $42.5 billion or 23.39 percent were awarded to small

business firms above the Government award goal of 23 percent. We

find this achievement very encouraging. The key is balance between obtaining quality goods and services at fair and reasonable

prices while assuring the small businesses who are excluded from

participating in the Federal acquisition process because contracts

are unnecessarily large, complex, or geographically dispersed. In today’s procurement environment, agencies use streamlined procedures such as the schedules and Government-wide Acquisition Contracts to purchase goods and services in an efficient and cost efficient manner.

Agencies are also using commercial purchase cards to streamline

the procurement and payment functions. We applaud the use of the

card, but want to assure that small businesses are not adversely

impacted. In many cases, agencies are consolidating their supply

requirements to take advantage of volume discounts and better

terms and conditions. We understand their need for doing so, but

our concern is when they combine different or geographically dispersed service requirements into one contract, often too large for effective small business participation.

To offset such actions, SBA works with Federal agencies to develop alternative strategies that will maximize small business participation at both the prime and subcontracting levels. As an example, the DOT proposal, or GWACs, furnished technology services

structured so that small businesses and 8(a) firms were among the

winners. Recently the Department of Commerce awarded its multiple award GWACs as a total small business set-aside to enable

agencies to reach small, small disadvantaged, 8(a) and womenowned small businesses. We actively support these innovative

strategies and encourage other agencies to use them as models. In

addition to these efforts, we require our procurement center representatives to keep detailed records of instances of contract bundling. The public advises the SBA of contract bundling cases by

using our bundling hot line on the Internet at www.sba.gov/gc.

In fiscal year 1998, our PCRs investigated 60 cases of contract

bundling valued at more than $5 billion and were successful at

changing the procurement strategy to be more inclusive of small

businesses in almost 90 percent of the cases. Two sets of success

stories involve the Air Force in which through our actions we were

able to ensure that $86.9 million requirement for Patrick Air Force

Base in Florida and that a $90 million acquisition for an aeronautical system center in Wright Patterson Air Force Base in Ohio,

were retained as small business set-asides.

The SBA Reauthorization Act of 1997 established guidelines to

assist agencies in evaluating planned bundle acquisitions. This act

provides the consolidation of contracts is permissible only when the

agency proves there are measurably substantial benefits associated

with bundling the contract. The major provisions of the statute include a definition of contract bundling, a requirement that agencies

8

show that bundling procurement is necessary and justified, a provision for small business teaming arrangements, and an evaluation

credit to large business bidders with the strongest subcontracting

requirements.

SBA published its proposed rule on January 13, 1999, in which

we asked for suggestions on defining two key terms found in statutory language, ‘‘substantial bundling’’ and ‘‘measurably substantial

benefits.’’ these terms are important in determining when a bundling of contracts may be necessary and justified and in citing the

levels of documentation required by an agency. Unfortunately, none

of the commenters provided a clear direction on how to develop the

methodology for measuring the benefits of contract bundling.

Some at Commerce suggested that we measure potential benefits

in terms of cost of savings. Other comments wanted SBA not to attempt to define an overall benefit one-size standard. We have forwarded a draft rule to OMB for clearance. We will strive to resolve

any of the remaining issues or conflicts as quickly as possible so

that we may publish the final rule in the near future. Once published, the regulatory guidance will be added to the Federal Acquisition Regulation. In addition, SBA will work vigorously with OFPP

to educate the Federal acquisition workforce about the procedures

required in the new rule and ensure that these procedures are in

enforced.

In conclusion, SBA pledges to ensure that each of the contract

bundling activities is fully justified and reported to the Federal

Procurement Data System. Through these efforts we will be able to

both further procurement reform and also ensure the small businesses are a significant player in Federal acquisitions. Thank you

for inviting me to discuss contract bundling this morning. I would

be glad to answer any questions that you might have.

Chairman TALENT. Thank you.

[Dr. Hayes’ statement may be found in the appendix.]

Chairman TALENT. Then our final witness on this panel, Mr.

Robert Neal, the director of the Office of Small and Disadvantaged

Business Utilization, the office of the Deputy Undersecretary of Defense.

STATEMENT OF MR. ROBERT NEAL, DIRECTOR, OFFICE OF

SMALL AND DISADVANTAGED BUSINESS UTILIZATION, OFFICE OF THE UNDER SECRETARY OF DEFENSE, ACQUISITION AND TECHNOLOGY

Mr. NEAL. Good morning, Mr. Chairman, and distinguished

members of the Small Business Committee. It is a pleasure to appear before the committee and discuss the importance of small

business to the Department of Defense and to outline some small

business initiatives. It is timely that you, the Congress, and we, the

executive departments of the Federal Government, turn our collective attention to the important issue of contract bundling. We have

a shared concern that the practice of contract bundling may have

to some extent limited the ability of small businesses to participate

as prime contractors in the defense marketplace.

In order for us to address this issue, we need to understand the

magnitude of contract bundling, collect and analyze data, and develop policies that balance the needs of the small business commuVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HEARINGS\60797 pfrm08 PsN: 60797
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nity with the objectives of acquisition reform. Congress under the

Small Business Reauthorization Act of 1997 modified the Small

Business Act to reflect your concern in this area. According to S.

412 of the Small Business Reauthorization Act, the term ‘‘bundled

contract’’ means a contract that is entered into to meet the requirements that are consolidated in a bundling of contract requirements.

It is important to recognize that contract bundling has been occurring in procurement for some time. This reality is driven in part

by the substantial downsizing that has occurred in the Federal acquisition workforce and the need to improve efficiencies within our

procurement system. These conditions do not appear to be diminishing. Therefore, we must recognize the need to develop balanced

policies that foster acquisition reform objectives and opportunities

for small business.

The question before us is this: What is the impact of bundling

on prime and subcontracting opportunities for small business?

With respect to prime contracts, two major initiatives have been

undertaken by the Department: one, a strong bundling policy; and,

two, testing of the concept through the Air Force on teaming of

small businesses. The Department of Defense recognized early on

that the practice of contract bundling may negatively impact the

ability of small businesses to participate in the DOD marketplace.

Accordingly, we issued a policy memorandum, entitled ‘‘Consolidation of Contract Requirements,’’ which predates the Small Business Reauthorization Act of 1997. That policy memorandum signed

by the Deputy Secretary of Defense is still in effect. It is noted that

a significant amount of the language, tone, and intent present on

sections 411 through 417 of the Public Law 105–135, is also

present in the DOD policy memorandum. I have included a copy of

this memorandum for the record.

In addition, the Air Force is currently testing a concept that is

authorized by section 413 of the Small Business Reauthorization

Act which encourages the joint venturing and teaming of interested

small business concerns for the performance of a bundled or otherwise large contract requirement. While the forgoing policies address prime contracting opportunities, the current environment has

resulted in increased subcontracting opportunities for small business concerns. In response, the Department has implemented several initiatives to address subcontracting opportunities.

First, the Department developed an outreach initiative through

its contact with the top 120 DOD prime contractors. We solicited

top-level management support for the small business subcontracting program, and we asked each chief executive officer to reemphasize their responsibility to carry out the intent of Congress

to provide maximum practical opportunities for small business participation in subcontracting.

These letters were signed by the Under Secretary of Defense for

Acquisition and Technology and addressed each of the corporate

CEOs soliciting their personal commitment to reenergize the small

business subcontracting program. The letter also asked the CEOs

to assess their small business program and to identify initiatives,

best practices, and performance-based metrics that have improved

their subcontracting performance. As a follow-up to the Under Secretary’s letter, I have received many response letters and conducted

10

personal visits to many corporate headquarters. I plan to continue

my extensive personal visitations with the prime contractors to

convey the Department’s message and to get their commitment for

increased involvement in this meaningful activity.

Second, DOD is reviewing our oversight and compliance of major

prime contractor’s participation in our comprehensive subcontracting test program. Based on this review, the Department may

revise the oversight and compliance guidelines to improve program

efficiencies. The third item that I would like to bring to your attention is that the Department has made subcontracting with small,

small disadvantaged, and women-owned small business an important element of past performance.

As you know, past performance is a critical element of acquisition reform and is one that we think affirmatively fosters the inclusion of small businesses as active participants in contracts. Past

performance is now a key criterion in proposal evaluation. The Department will continue to explore creative approaches to increase

both prime and subcontracting opportunities for small business

concerns within the current environment. In this vein, we continue

to meet regularly with representatives from large business concerns, various trade associations, and small business concerns in

order to gather input and gauge response to these initiatives.

In conclusion, Mr. Chairman, the Department of Defense is committed to providing to the maximum extent practical small business prime and subcontracting opportunities. The Department

shares your belief that the small business community is the cornerstone of this Nation’s economic success and technological innovation.

Thank you for this opportunity to discuss the Department of Defense’s views on the importance of small business programs and

our efforts that are underway to mitigate the impact of contract

bundling on small businesses, small disadvantaged businesses, and

women-owned small businesses. I would be happy to answer any

question that you would ask.

Chairman TALENT. Thank you, Mr. Neal.

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

Chairman TALENT. Also the committee also wants to welcome

Mr. Albert Wynn of Maryland, who is sitting in with us this morning and is very welcome and has a longstanding interest and record

of advocacy on these issues.

Well, let’s get right to the questions. I want to lay out for the

members where my concerns are here. I am not going to take too

much time because this is a well-attended meeting and many of

you have questions that you want to ask these witnesses. In the

Small Business Reauthorization Act of 1997, we were able to get

inserted into the law some measures which really don’t prevent unjustified contract bundling but at least got us on the road to being

able to track it and to protest a little more effectively where it was

occurring.

I want to emphasize these are not what I would consider very

powerful measures, unfortunately. We were able to get them into

the law. But such as they are, they do permit the SBA to be more

involved and to protest more effectively any contract bundling

which they think violates the regulations that they are supposed

11

to enact pursuant to that law. In addition, it allows to at least keep

track of how much contract bundling is going on by having a uniform definition of it. Of course, it assumes that we get the regulations to implement that law.

So let me just ask, first, and I guess this would be—let me ask

you, Dr. Hayes, my understanding is that the agency was supposed

to have these regulations completed within 270 days, which would

have been August of last year. We still don’t have them done.

Could you tell me what you would attribute the delay to and why

we can’t get these regulations into law?

Dr. HAYES. I also want to say even though the regulations are

not in place, SBA is very diligently pursuing contract bundling instances and is, in fact, being aggressive about investigating those

cases. At the same time, we have been working very hard to get

the regulations out. These are very complicated issues. The statute

did not precisely define two very key issues, substantial bundling

and substantial measurable results. We have been trying to figure

out a way to do this in a way that would produce an effective regulation. A proposed rule asked the public for comments on how it

would, in fact, define those in a way that you could make it quantifiable. Unfortunately, we did not get any answers that were very

clear from the public as to how best to do that. So we have been

working very hard and we apologize for not having the regulation

in place. We are still in discussions about how best to, in fact, implement those aspects of the statute so that it would, in effect, be

effective.

Chairman TALENT. I understand that. No, these are not easy to

define. The statute does not define it precisely. That is what we

wanted you to do. We felt that you had the expertise to do it. I do

think that the SBA has been an advocate and at times, I believe,

the sole advocate for small business. That is why it is all the more

crucial that you get this done. In particular because, yes, I know

you are advocating now, but we don’t know how much is going on.

Until we get these regulations in place, we can’t even track this.

Then what happens is, as we try within the Congress to pass or

to exert some additional pressure on this, we can’t get a handle on

how much is out there. We are told things by these agencies, and

we are not in a position to know whether or not that is true. I want

to emphasize to you that I see this slipping in the wrong direction

statutorily. We need to organize our resources and get in this

game. We really need these regulations to do it.

Now, I want to bring up another thing to the members. The law

allows bundling under certain circumstances, one of which is when

by bundling the agency would enjoy measurably substantial benefits for the government. Now, measurably substantial benefits, we

are all legislators here and we know that is the kind of word you

put in when you want it to be—you want to have a bar and you

want it to be fairly high but you can’t agree on exactly what. So

I would agree with you that this is vague.

For precisely that reason, it seems that your regulations have to

quantify what constitutes measurably substantial benefits. I understand in an earlier draft you did that. Let me read for the members. This is what the agency was proposing in an earlier draft,

that measurably substantial benefits would be one of the following:

12

cost savings of more than 20 percent; quality improvements that

would save time, improve or enhance performance efficiency by

more than 10 percent; reduction of acquisition cycle times of at

least 30 percent; better terms and conditions by at least 10 percent;

or any other benefits of at least 50 percent.

Now, whatever you think of those particular levels, maybe it

shouldn’t be 30 percent off acquisition cycle times, maybe it should

be 25—but if you have some concrete quantity in there, then you

have a bar that you can use to judge whether or not the bundle

actually meets that. But the proposed final draft you have published doesn’t have that. It is extremely vague.

It is the same criteria but without the numbers. So cost savings,

quality improvements, reduction of acquisitions, and cycle times. So

I guess what I would like you to explain to me is how the contract

officers are supposed to know whether the bundle satisfies that or

whether the proposed bundling satisfies that. There isn’t any quantities in there. Aren’t we going to get inconsistency from the process if we don’t have some kind of actual quantified numbers?

Dr. HAYES. Yes, Mr. Chairman. I think you are referring to the

July 1998 internal proposed regulation that was never actually put

forth. We did propose some initial sort of quantifiable measures.

But they were just really the first step out of the gate. The bundling issues are justified in some cases. Again, a very complicated

issue. We are trying in the context of the entire administration to

put together a rule that would be quantifiable, that would, in effect, be effective. These are the discussions that we are engaged in

now with OMB. We feel strongly that we will be able to come to

agreement in the very near future with a very good rule, with a

rule that would be effective, that would be implemented in the very

near future.

Chairman TALENT. Well, let me ask you a question. So it is your

agency’s opinion now that you don’t need these specific numbers in

it?

Dr. HAYES. No. Again, we feel very strongly that in order for us

to effectively do this, there needs to be some quantifiable measures.

The question may be what is the proper level. We are, as I said,

engaged in discussions with OMB and others as to how best to go

about doing it. We think that it is important for the agencies to

meet their procurement objectives, but as you know we are concerned and want to make sure that small businesses are integral

players in that process.

But do you take one-size-fits-all? Some of the commenters said

don’t give us the precise standard, let the agencies look at it in the

context of a particular procurement because it may be circumstances that justify one thing versus the other. Other commenters said be very precise in your estimates. And the other comments that we received, there was no clear sort of recommendations in one area or the other.

Chairman TALENT. I want to urge to you have the standards in

there because at least it gets you in the door. It doesn’t mean they

can’t do it. It just means that you have to explain it. And you have

some increased role in a possible protest or comments. So at least

they get you in the door. I am concerned that otherwise they will

use vague standards as an excuse for saying that nothing is ever

13

being bundled. All of the impetus of the system would be against

that. If they say that it is not a bundle that qualifies or a contract

that qualifies under the law, then they don’t have to explain all of

this to you, Congress doesn’t know they are doing it, they don’t

have to report it as a contract bundling. So I would hope—did I

just hear you tell me that you would anticipate that when this

whole regulatory process is done you are going to have quantifiable

standards in there?

Dr. HAYES. There should be quantifiable standards, but it is a

negotiated process that this rule is going to be effective, that it is

going to work.

Chairman TALENT. Who are you primarily negotiating this with?

Is this Ms. Lee that we have here? I am going to ask her next. I

want to help you in the negotiations. Seriously, let me go to you,

Ms. Lee. What do you feel about this? Would you be agreeable to

quantify the numbers in here as a measurement of measurably

substantial benefits?

Ms. LEE. I am going to echo what Dr. Hayes has just said. What

we are trying to do is make sure that we have full inclusion of

small business, but that we do not get a one-size-fits-all solution

because in some agencies a 25 percent differential is not significant. In other small agencies, that could have a significant impact

for them from a more programmatic standpoint. What we are trying to do is to include small businesses but tailor it so that we

don’t end up with a cookie cutter that doesn’t meet the overall

needs.

Chairman TALENT. I would say the same things with regard to

measuring the cost savings. The draft regulations said in determining whether a cost savings of at least 20 percent would be

achieved through bundling, the procuring activity in the SBA must

compare the price that has been charged by small businesses for

the work that they performed and where available the price that

could be charged by small businesses for work not previously performed. They had a 20 percent level in there.

I think, again, some numbers in here to put some teeth in this,

which is not that strong a measure anyway, are absolutely essential. We are going to hear on the second panel what is going on out

there in the real world when they are bundling contracts which

they claim save money and improve quality. Let me just read you

one here that the staff gave me. We are going to have testimony

about this. Perhaps, Mr. Neal, you might want to comment on this.

It says that the Marine Corps is proposing bundling food services

into two regions, the East and West Coast and to reengineer food

service by converting to a cook-and-chill method of food preparation.

So the members understand, cook-and-chill is what you get on

the airplane. That, in my judgment, is not an increase in quality.

Right there we have quality going down.

There are currently five Marine Corps food service regions and

many of the contracts are held by small businesses, naturally. If

the proposed consolidation takes effect, only three very large corporations have been identified as having the ability to handle the

work. The Marines propose to save $20 million annually with cookand-chill regionalization. However, past cook-and-chill attempts

14

have failed. West Point currently has an inoperational cook-andchill facility and a cook-and-chill facility in Japan is only producing

salads after being operational for two months. Even if a cook-andchill facility can function, the quality of the food will suffer.

These are the stories that we are hearing over and over again.

I am having people come up to me because I am the Chairman of

this Committee and telling me this is happening. These are credible people. So we have to have these regulations in place so that

we can watch this and do something about this. If you are not

doing this, it is not being done.

Do you want to comment, Mr. Neal, on what I just said? I don’t

want to throw that out there without giving you a chance to comment on it if you want to.

Mr. NEAL. In terms of the details of that particular activity, we

would be more than willing to provide you with the Department’s

take on what is going on with respect to the cook-and-chill initiative in the Marine Corps. But with respect to the quantitative

measures—we have made these comments to both SBA and

OFPP—we need flexibility. When you look at a bundled contract in

the Department of Defense, a 25 percent yardstick is fairly significant. For some of our larger contracts where bundling has occurred,

when you look at the dollars involved, it may be more appropriate

to look at a yardstick on the magnitude of 10 percent, which would

be fairly significant. We would like the flexibility of being able to

look at the application of a yardstick on a case-by-case basis. While

some guidelines would be very useful, we recognize that depending

upon the size of the bundled contract, the savings could be very significant when you look at how much we contract out as a Department.

Chairman TALENT. Again, I am going to recognize the ranking

member, and I appreciate the Committee’s indulgence. If something fails on these regulations, that doesn’t mean that you can’t

do it. It just means that there is the kind of increased scrutiny that

Congress intended to make sure that the taxpayer is protected and

small businesses still have the opportunity to compete. It has a lot

of implications, not just the small business community in general,

but of course minority contractors and ones that are particularly on

the bundle and a lot of interest that we are very interested in.

Let me say also, Mr. Neal, I know that this—that you operate

above this level. But whoever on your staff was responsible for getting your statement in got it to us after 9:00 a.m. This morning,

which is less than an hour before the hearing started. The Committee rules require 48 hours. People on the Committee know—I

am not a stickler for rules, but we have to have it in enough time

so people can read and ask questions. We may have further hearings on this. If you do testify before the Committee, I want you to

get the statement in at least a day in advance.

I would be happy to recognize the gentlelady from New York.

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

Hayes, when do you think that you would have the final rule? You

said in your testimony that it would be ready in the not-too-distant

future. Next year? Two years from now?

Dr. HAYES. I strongly believe that we will have it done shortly.

My staff is ready to start working on it. Like I said, the rule is over

15

at OMB. We are ready to begin discussions on crafting the final

rule today. We were hoping to get this out very quickly. It is an

added tool that we can use. It is very important to us, and we want

to get it done.

Ms. VELA ́ZQUEZ. So now you are expecting a reaction from OMB?

Ms. Lee, you are telling us today that you are going to be working

in collaboration with SBA and make sure that we reach a final proposal rule?

Ms. LEE. Absolutely. We take the proposed rule that came in and

through our review process we do give the agencies an opportunity

to comment on it. And we get the agencies’ comments, and then we

work them through and finalize the rule.

Ms. VELA ́

ZQUEZ. I hope if you look at the members’ attendance

here today—this is an important issue, and an important issue for

this side of the aisle. We will do everything within our power to

make sure that this rule is finalized and that we deal with this

issue. This issue is not going away. I promise you, it will not go

away.

Dr. Hayes, you mentioned in your testimony that you met this

small business goal for 1998. How are we doing in 1999?

Dr. HAYES. We recently issued a 6-month report card, which I

think is a first, to all of the agencies with respect to their 1999 goal

achievements. Overall with respect to the various goals, agencies

are meeting those goals. Overall procurement is down with respect

to previous years, but the agencies are meeting or at least addressing the various goals for small businesses and SDBs. Womenowned businesses, as you know, tends to be a problem, but we are

working very hard to close that gap.

Ms. VELA ́ZQUEZ. Dr. Hayes, we saw the report card. It is dismal.

Dr. HAYES. I guess I would take a different take on it. The Government, the administration is committed to meeting both the

small business goals, the SDB goals, and the women-owned small

business goals.

Ms. VELA ́

ZQUEZ. We need to see numbers here. One thing is to

be committed and the other thing is to have the numbers.

Dr. HAYES. Yes. But I think if you go back to the tables and if

you look at and compare the same data points, the 6-month data

point of last year with this year, the agencies are in effect on target

to meet their goals. There seems to be a lot of things that have occurred in the last quarter of the fiscal year. So we are not there

yet. But in terms of the expenditure of dollars of the various agencies, we are very close to where we have been historically.

Ms. VELA ́ZQUEZ. Isn’t it true that for 1998 you counted all contracts, as the law says. If you counted contracts to be performed

overseas and military sales, you would be well below your 25 percent in 1998?

Dr. HAYES. I think that you are addressing the issue about how

SBA and OFPP and others carry out the goaling process. There are

certain contracts which are not currently in the base of how we

count goal accomplishments because in our view those contracts

aren’t available to small businesses. There are a couple of other exceptions about how we count what is in the base versus in the overall numbers. But again——

16

Ms. VELA ́ZQUEZ. Aren’t you supposed to count all contracts, Mr.

Hayes?

Dr. HAYES. The statute says to count all contracts. We can discuss how the Committee wants us to go about doing it, but in looking at the dollars that are available to small businesses, there are

certain procurements. Those businesses in the formula, they are

not really available to small business to bid on. So we believe that

it is erroneous and gives no one a full picture to, in fact, include

those in the overall base.

Ms. VELA ́ZQUEZ. Mr. Chairman, I will continue. We should go

and vote; and when we come back, I will continue my questions.

Chairman TALENT. We have a vote on the patent bill on suspension. I am going to go ahead and recess the committee and we will

come back promptly and reconvene with questions.

[Recess.]

Chairman TALENT. Let me reconvene the hearing. If we could

have the regular order.

I am going to go ahead and ask a couple of questions I had. Ms.

Vela ́zquez was in the middle of her questioning, but I am informed

by her staff that she is at a press conference and wants to pick up

her questioning when she returns. So what I will do is ask some

questions I had and then if she is not back at the time I am finished, then we will go ahead and recognize one of the other members. She was right in the middle of some good questions, and I

want to give her a chance to continue as soon as she gets back.

So let me turn to a couple of issues that are not directly involved

in the issue of the new regulations but nevertheless are problems

that small businesses face with regard to procurement, and I want

the panel to comment on them.

Let me go first to these ID/IQ contracts, or indefinite delivery indefinite quantity contracts, which permit a contracting officer to

award contracts without specifying the project or the actual size of

the contract.

Now as originally conceived, this is not an objectionable mechanism, particularly with regard to supply contracts or contracts for

goods; smaller type contracts where they were not sure how much

they wanted to procure but they wanted to make sure they had a

regular supply and it makes sense in that context. But what is

happening, what we are hearing is happening, is that it is being

used with regard to service contracts and what is happening is

they are bidding out rather large service or consulting contracts

and the problem for small businesspeople is that they have to obligate themselves and hold the resources to be able to perform large

service contracts, and then they may or may not get any business.

This is very difficult for small businesses. For larger businesses,

they can say, okay, we can hold the ability to do up to a couple of

million dollars and if we get the business, great, and if we don’t

get the business it isn’t that big a deal for us. But for a small business to put in the time and the effort to have that capacity and

then not get the business really puts them at a disadvantage.

So as a practical matter when they get these ID/IQ contracts,

particularly for services or consulting type businesses, IT or other

types of consulting businesses, they just don’t bid because they are

damned if they don’t get the contract, but they may be worse off

17

if they do because they are committing a lot of their resources to

something that may not be profitable for them.

Let me just ask the panel whether you are sensitive to that,

whether you think that is a problem, and what you are trying to

do either within the system as a whole—this would be for Dr.

Hayes and Ms. Lee, or Mr. Neal, within the DOD—and give us

your comments on that, and then we will see if the ranking member has returned and if not, I will recognize somebody else.

Ms. LEE. Mr. Talent, the panel says I may begin on this one. On

the multiple award contracts, GWACS MACs—like I said we have

to have an acronym for everything, that is what we call them—we

are focussing on more effective implementation. And we have some

additional rules coming out shortly to guide the contracting officer.

The concept is that these are large contracts at the award, but then

every task underneath them is fair competition among the holders

of the vehicle.

So we tried to at that point clearly describe what the task is for

that and then give everyone an opportunity to bid on that task.

So the small business can bid on the task or perhaps if they have

got their resources employed somewhere else, may pass from time

to time on a specific task bid. But we want to continue to give them

that opportunity as the work evolves.

Chairman TALENT. Well, see, they have the opportunity in theory. The problem is in practice, without—first of all, they get very

big, these contracts. Second of all, if they have no assurance that

they are going to get a regular line of the business, you can see

why it is much tougher for them.

I will give an example, and I don’t expect you to comment on this

specifically because I am just confronting you with this, but what

I am trying to get across to you all is that we are hearing these

things. We are representatives. We go home and have town hall

meetings, and we meet with our constituents; and they come and

tell us, and I am personally hearing too many of these things to

believe that this is isolated instances. I think we have a problem,

and we count you all to be able to quantify this and tell us whether, in your judgment, there is a systematic problem and what we

can do.

Now, browsing the GSA web site—and staff did this; I am not

up to browsing a lot of web sites—for region 7, which happens to

be our region, my district, ID/IQ contracts, and some of them were

working as intended. But we came across five contracts for modular

buildings which had been awarded to small businesses. In one case

the company was in the second year of a $2.5 million contract but

had only received $239 worth of business. The other four contracts

were for the same size and were also in the second year but had

received no business at all.

Now, I mean, you tell me, Ms. Lee, if this is becoming systematic

in the government, don’t you think that it puts small businesses at

a disadvantage for the reasons I indicated?

Ms. LEE. We are working to try and focus that ordering. I don’t

want to say it is totally at a disadvantage to small business, because I certainly do not see it to the extent you do, but we all three

try to get out and meet with the small businesses and see what is

happening, what is going on, and how is this working. And from

18

some segments of the community you also hear favorable things,

that they like to have the opportunity to fairly compete, and what

we are trying to get the procurement community to do—and we are

not there yet—is to put these in more results-oriented packages so

we don’t try to buy a long-term solution but rather have a task that

is doable in one bite: We think that gives small businesses more

opportunity to participate. There is still work to be done on these.

Chairman TALENT. Dr. Hayes, would you care to comment?

Dr. HAYES. As you indicated, the ID/IQ and other such vehicles

are very popular these days. Our approach has been when agencies

want to use these procurements that we figure out ways that small

businesses and others can be part of the process. I think the ITOP

contract, the COMMITS contract are successful examples of how

that might, in fact, work.

There also was a very large contract recently awarded by the IRS

over a number of years, and the goals for small businesses are very

aggressive and we fully expect them to, in fact, meet those overall

goals. So while there are problems, I think we can still do better;

and we are going to keep doing better to make sure that small

businesses actually get awards when they, in fact, win these various procurements.

Chairman TALENT. Mr. Neal, you want to comment on behalf of

the DOD?

Mr. NEAL. Mr. Chairman, one of the things that, with respect to

GWACS, we find them to be very, very beneficial to the Department. We—in my travels around and talking to small businesses,

the thing they have asked us to do is to be sensitive to the types

of industries that they operate in. For example, in information

technology, GWACS seem to be working very well because there is

not a substantial commitment of resources; but in some of the

other industries, we are still learning, and as Ms. Lee has said earlier, we are trying to work out a lot of bugs; but we do see that

there are substantial benefits to using GWACS, and it is just a

matter for time of us working through some of the bugs and getting

the information like that you have been receiving, so that we may

find that there may be industry-specific problems that we need to

deal with in terms of the guidance we give our contracting officers

for setting up GWACS.

Chairman TALENT. All right. Ms. Vela ́zquez has not returned,

and I know Mrs. McCarthy you are next but I know that you wanted to yield to Mr. Abercrombie, so let me go ahead and go with

Mrs. Kelly for any questions she may have and then Mrs. McCarthy.

Mrs. KELLY. Thank you very much, Mr. Chairman. I do have

some questions. I want to go back to the testimony of Ms. Lee. In

reading your testimony, you spoke of the cost savings that could be

realized as being one of the factors, the decrease in supply times

and improved quality as being one of the factors that you would

like to look at in making determinations for small business participation. And I am interested in whether or not you are doing any

outreach to other agencies to enhance their ability to reach small

businesses through their procurement contracts.

My reason for asking this is that I have asked agency procurement officers about, for instance, the women-owned business part,

19

and they did not know. They do not know that they should at least

try to achieve the 5 percent number for women-owned businesses.

It is something that they are a procurement officer for an agency

but they have not been told. It seems to me that either you told

them and they did not know that, or they are new in the job. There

must be some rationale.

I want to know what your outreach efforts are in that regard,

and I want to know how you are going about it. And I want to

know, since obviously it is not getting through, what you have in

mind to enhance your education efforts.

Ms. LEE. That concerns me greatly. I have a procurement executive council meeting tomorrow. This has just moved up to item

number one on the agenda. It concerns me that the procurement

executives are not aware of that. Just last month, Dr. Hayes and

I in our collective effort pulled the midterm data. We sent a letter

to every major procurement exec on where they were midterm. We

then took those letters to the President’s Management Council,

which is attended by the second in command or chief operating officer for the agencies, and gave a presentation at that committee

meeting. This assured that the agency heads or their number two

person were aware of where their agency was midterm performing

against their goals.

So I am very concerned if procurement execs are telling you that

we have not been there and are not out there advocating these

issues. From the women’s business issues——

Mrs. KELLY. Excuse me, they didn’t tell me that you were not

there. They told me that they simply were unaware of it, nobody

told them that. It seems that the education job is not getting done.

If we are going to get the women to have some procurement at 5

percent, somebody is going to have to tell them.

Ms. LEE. I would be happy to work with those individuals. I will

make the visits and the calls myself, but they should be aware.

Mrs. KELLY. I look at where you are for your indications for the

first 6 months of fiscal year 1999, and the agency awards 1.8 percent to women. If you double that for the next 6 months they still

are not at the 5 percent.

Ms. LEE. That is correct. There are some unique challenges with

women-owned businesses and, although we have a goal, we do not

have a set-aside or special provision, and therefore we cannot make

a women-owned business set-aside. Women win competitively. We

are working with many of the women’s councils——

Mrs. KELLY. Women do win and can win, and there are good

businesswomen out there. The same with minorities. It is important that we address this issue.

And that takes me to you, Mr. Hayes. I know that you say that

you are working hard to close the gap for women-owned businesses,

so why is this 5 percent number so difficult?

Dr. HAYES. It is a complicated issue. I want to make a point that

while we are at actually 2.1 percent for last year for women’s procurement, the rate at which we are reaching the 5 percent is actually quite precipitous. We have done a lot of things to address the

women’s issue. This is extremely high priority of my boss, Ms. Alvarez, and others in this administration.

20

Mrs. KELLY. That sounds nice, but I don’t see any concrete evidence.

Dr. HAYES. If I may, I will submit to you some examples of

things that we have done. We signed MOUs with the major procurement agencies. Those MOUs between my boss and, for example, Secretary Albright and others state they are basically committed to addressing the women’s issue. We also have advocates,

women’s advocates in the major buying agencies as well. Again

their sole job is to make sure that the women businesses are

bought before the procurement executives, but we can do more and

we will do more.

Mrs. KELLY. I am going to go back to that issue in one minute.

Actually, maybe I will just stay there.

I understand that Ms. Lee wanted some of the procurement executives—correct me if I am wrong—to use past performance as a

part of this, and that they were asked to sign—people were asked

to sign pledge cards on some of these things; is that correct? It

seems to me that women deserve at least the same support there.

Ms. LEE. The pledging is probably a different initiative. But

when we evaluate a contractor’s performance, we say what did you

say your involvement of small business was going to be? What did

you actually do? And we take that into consideration for future—

if they are competing for a future award, so we measure their

record of performance in small business inclusion.

Mrs. KELLY. That sounds pretty logical. So Mr. Hayes, how come

you cannot figure that standard out and sort of write it in?

Dr. HAYES. I think that is in the policy letter that OFPP is putting out and we address past performance. Past performance is included in other provisions of the FAR. This is a tool that the agencies can use to reward those contractors who, in fact, have good

records with respect to contracting with minorities and women and

others.

Mrs. KELLY. I want to move to another issue and that is the use

of commercial purchase cards. You indicated in your statement that

you do not think that—you think it might be good for the small

businesses of the Nation if there is an increase in the use of commercial purchase cards. I am not sure. I think I have tagged it.

Here it is on page 2: ‘‘agencies are also using commercial purchase

cards to streamline their procurement and payment functions. We

want to ensure small businesses are not adversely impacted since

the card is used for micro purchases, and so forth.’’.

I think that the commercial purchase cards are a good idea. They

certainly will streamline purchasing, and that is a good idea. However, what is to prevent somebody from walking over to Wal-Mart?

How can you assume that this is going to be good for small business if you are buying something? I don’t think this is a fair assumption to make, and I want to know if you have any proof that

it will.

Dr. HAYES. Again, we actually can’t say definitively that small

businesses are being affected. Last year the government spent $8.5

billion using the purchase cards. We do not currently have the data

that can really address this issue. We are currently now working

with MasterCard and Visa to get those numbers. One of the problems is that small businesses, a lot of them don’t take the governVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 E:\HEARINGS\60797 pfrm08 PsN: 60797
21

ment card purchase. We are working very aggressively with the

credit card purchasers to have small business to, in fact, accept

credit cards. Otherwise these are opportunities that basically are

not available to them.

Mrs. KELLY. As a small business owner, I can tell you, I know

very few people who did not take credit cards and certainly my

family’s small business, my children who are in small businesses

and my husband, we all take credit cards. I find that a peculiar remark that you would say they don’t take credit cards in small businesses.

Dr. HAYES. If I may, we have our PRO-Net system, which is a

database of 188,000 small businesses; and we asked the small businesses which purchase cards do you, in fact, accept. A large number of them do not indicate a positive reaction that they, in fact,

take the credit cards. Credit card purchases are an integral part

of this Government, and we want to get them registered on the exchanges so they can be beneficiaries of these micro-purchases.

Mrs. KELLY. Will there be an indication in your regulations that

if they are using these purchase cards that you will be monitoring?

Are you going to be able to enforce and monitor whether or not

they are going to small businesses or how these cards are going to

be used, whether they are going to be used for large—going to the

large discount houses? I just cannot figure out what this small

business—how small businesses are going to benefit by these purchase cards.

Chairman TALENT. The timer system has screwed up. Can we let

him answer this and then move on? I appreciate your questions.

We will try to get that fixed. The witness can answer.

Dr. HAYES. The regulation doesn’t specifically address the use or

nonuse of purchase cards. So we, in fact, are concerned about it.

We are monitoring it. But that particular aspect of it will not be

in the specific contract bundling regulation.

Chairman TALENT. Do you have a quick one to end with?

Mrs. KELLY. I just wanted to ask about the enforcement. I wanted to ask Dr. Hayes about how—about what is he going to do once

the regulations are final? What are you going to do when the agencies continue to bundle contracts? Will there be enforcement written in?

Dr. HAYES. Yes, there will be very vigorous enforcement. There

are a variety of steps that the agencies have to take prior to bundling a contract. They have to notify the Small Business Administration of their intent. We have appeal rights where we, in fact, can

insert ourselves into the process to see if we can negotiate a satisfactory strategy for small businesses and for the agencies.

We do not hesitate to use those appeals. We don’t like to do so,

but we will do so if it is necessary to get a fair shake for small

businesses. We have PCRs who are stationed at buying sites

around the United States. They look for the procurements. They

look at those that can be structured for small businesses, and we

also work aggressively with the agencies to make it necessary that

they are part of the process.

So we will aggressively, within our resources, do what we can to

enforce these regulations. We will also work with the agencies to,

in fact, help carry them out.

22

Mrs. KELLY. Thank you.

Chairman TALENT. Well, the gentlewoman from New York, Ms.

Vela ́zquez, needs a little time so I am going to go ahead, and I

thank the gentlewoman from New York; and I recognize another

gentlewoman from New York, Mrs. McCarthy.

Mrs. MCCARTHY. Thank you, Mr. Chairman. It is funny, I was

thinking when I first came down, this is one of the first subjects

that we talked about when I came in 1997, and we had a lot of concerns back then, and we still have a lot of concerns.

Anyway, I would like to give my time to my colleague, Mr. Abercrombie, because he needs the time; and I think he will be a little

more forceful than I am.

Mr. ABERCROMBIE. I don’t know about that, but thank you very

much.

This is very discouraging. I don’t understand at all why you are

going from 1997 and 1999 and not have this all finished. And then

to change the definitions or to leave definitions out, it does not

seem to me to accomplish anything at all.

Now, I don’t know if you have had an opportunity to go over the

testimony that has been submitted to the committee, but my good

friend, Ms. Bernadette Paik-Apau out in Honolulu, is a small businesswoman. She is a licensed architect. She is an owner of a construction business. We had hoped to have her up here to testify

today, but she could not swing it in terms of her business being

able to afford coming up here and taking time from her business.

She is a winner—I think Ms. Lee you brought up the question

of the Department of Transportation—she has won for her work

the Coast Guard’s Women-owned Small Business Enterprise of the

Year award, so she is in a good position to testify. So I am going

to quote a couple of things from her testimony to you, and ask you

whether these rules, whether these proposals that you have put

forward, are going to address it.

Now, one of the things that she points out is when you do this

bundling, that these bundled contracts, the people that get it, in effect, become brokers. Have you gone over this that they are just becoming brokers? That is all they are. I can cite in the movers, for

example, in freight forwarding in the Department of Defense, have

you looked into the fact that these people become just brokers and

then they subcontract out? Is that what is happening or isn’t it?

Are they doing the work? Mr. Neal can do it. Mr. Hayes, you are

supposed to be——

Dr. HAYES. Directing the question to myself?

Mr. ABERCROMBIE. They are not supposed to do it. They are supposed to be doing the majority of the work.

Dr. HAYES. In a case where there are bundled contracts, we work

very hard to make sure that there are very strong provisions for

subcontracting to small businesses. This is actually one key component of the regulation. We offer a preference for bidders who propose to use small businesses in performance of the contract.

Mr. ABERCROMBIE. How are you enforcing it?

Dr. HAYES. Again, these are part of the new regulations that are

going to be coming into effect.

Mr. ABERCROMBIE. So you are not enforcing it?

Dr. HAYES. If I may——

23

Mr. ABERCROMBIE. Excuse me, I have heard the ‘‘if I may’’ all the

way through this. Are you enforcing it or are you not at this time?

Dr. HAYES. Yes, sir.

Mr. ABERCROMBIE. How?

Dr. HAYES. We aggressively enforce contract bundling where we

can.

Mr. ABERCROMBIE. How?

Dr. HAYES. By negotiating with the agencies to set up alternative

procurement strategies, to negotiate for very strong provisions for

contracting with small business subcontractors if that may, in fact,

be the case.

Mr. ABERCROMBIE. How is it enforced? How? How are you doing

it?

Dr. HAYES. I have a series of procurement center representatives

who are stationed at buying sites where we have them.

Mr. ABERCROMBIE. How many do you have?

Dr. HAYES. I have 52 procurement center representatives (PCRs)

who cover some 240 sites out of 2,000 sites in the country.

Mr. ABERCROMBIE. So in other words your enforcement is sporadic at best?

Dr. HAYES. The enforcement is—in terms of the PCRs that we

have. We have other entities; we have other individuals who also

are involved besides the PCRs who help us identify these kinds of

issues. We have a bundling hotline.

Mr. ABERCROMBIE. There is an office in the State of Hawaii for

a procurement center representative that is not filled.

Dr. HAYES. That is correct.

Mr. ABERCROMBIE. Why?

Dr. HAYES. We do not have the resources to assign a full-time

PCR there. We have other SBA staff in Hawaii that help us in this

process.

Mr. ABERCROMBIE. How many cases have they handled?

Dr. HAYES. I can get that information for you. I don’t have it before me.

Mr. ABERCROMBIE. What is the average workload for a PCR?

Dr. HAYES. Again, if I can, I will submit that for the record.

Mr. ABERCROMBIE. How do they coordinate these PCRs with the

work you do in the Department of Defense, Mr. Neal?

Mr. NEAL. Within the Department, we have a network of small

business specialists that are assigned to most of the base, camps,

and stations. Those individuals report up through the secretaries

of the respective services and they are charged with looking at the

small business activities at their installations and facilitating the

work that is being done by the PCRs and coordinating their activities there.

So we have a little over 500 folks spread throughout the country

that assist the SBA and provide us with the intelligence that we

have in terms of the small business activities at each of these base,

camps, and stations.

Mr. ABERCROMBIE. Do you have any instances then in the Department of Defense where subcontractors are not paid in a time

period, say, within 120 days?

Mr. NEAL. We do receive individual complaints where subcontractors may not have been paid; and when we have those situVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00027 Fmt 6633 Sfmt 6602 E:\HEARINGS\60797 pfrm08 PsN: 60797
24

ations, we turn them back over to the prime contractors and we

ask them to address it.

Mr. ABERCROMBIE. In other words, you do not protect small businesses in the Department of Defense. You protect the prime contractor, and if the prime contractor doesn’t pay the subcontractor,

the subcontractor is left to fend for him or herself; is that right?

Mr. NEAL. No, sir. What we have is our contractual relationship

directly with the prime contractor. If we receive a complaint that

materially affects performance, we go to the prime contractor and

ask that it be addressed so we are not protecting the prime contractor.

Mr. ABERCROMBIE. How does it get addressed?

Mr. NEAL. It is addressed if the subcontractor is pulled off the

job or stops work, then we sit down with the prime contractor and

ask them to take corrective actions.

Mr. ABERCROMBIE. The corrective action is to pay the subcontractor.

Mr. NEAL. If that is one of the actions that is necessary——

Mr. ABERCROMBIE. If the prime contractor doesn’t pay the subcontractor, do you take that contract away from the prime contractor and not allow them to do business with the Department of

Defense again?

Mr. NEAL. There may have been situations where that has occurred. I do not have that information in front of me.

Mr. ABERCROMBIE. Has it ever happened that a prime

contractor——

Mr. NEAL. Not to my knowledge, but I can have us take a look

at information to see whether that has occurred.

Mr. ABERCROMBIE. It is very difficult because we are at the hearing today, and I find it strange that you would not have the information with you right now.

What rules exist in the Department of Defense now to protect

subcontractors from prime contractors who do not pay them on a

timely basis?

Mr. NEAL. To my knowledge, there are no specific rules.

Mr. ABERCROMBIE. Can you put that in the rules that you are

going to put forward? Can I get a commitment?

Dr. HAYES. We will be glad to look at it, sir.

Mr. ABERCROMBIE. No, no, no, no. I don’t want, you will be looking at everything. I don’t want you to look at it, because—look, one

of the things we do is we write legislation and you are supposed

to write the rules based on what the intention of the legislation is.

I am here to tell you that the intention of this legislation—you

have a 14-day quick pay for the prime contractors. Right?

Dr. HAYES. Yes.

Mr. ABERCROMBIE. Right. If the prime contractor can be paid in

14 days, why can’t the subcontractor be paid in 14 days? Why can’t

you institute where you get partial payment for work done? How

is the small business supposed to exist if they do not get paid, 30,

60, 90, 120 days?

Dr. HAYES. Sir, we will be glad to look at it.

Mr. ABERCROMBIE. I want a commitment as to whether or not in

the rules there is going to be a section that is going to directly address the question of payment to subcontractors upon painful retVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 E:\HEARINGS\60797 pfrm08 PsN: 60797
25

ribution to the prime contractor that does not pay on a timely basis

that these rules should put forward.

Dr. HAYES. Sir, with all due respect, going back to the original

statute, that issue was not specifically addressed in the statute. We

will be more than glad to look at it.

Mr. ABERCROMBIE. I will not argue with you about whether it is.

I think that it is.

Chairman TALENT. Will the gentleman yield, because my understanding is that there is another problem with the subcontracting

and saying that subcontracting makes up for the other problems

with small business; that the prime can list people as subcontractors and then say, well, because we are listing these small business

as subcontractors, that covers it. But they don’t actually have to

give any of the business to the subcontractors.

Mr. ABERCROMBIE. I was going to get to that too.

Chairman TALENT. Then I will yield back to the gentleman, and

we are all enjoying it. If you are going to get to that, I want you

to get to that.

Mr. ABERCROMBIE. I beg your pardon. But, Mr. Chairman, I do

believe that these rules—you know, these rules are out there now.

The proposal is out there, and it hasn’t been finalized; and one of

the things that you have to finalize is your rules and regulations.

They are dependent on you. You folks are the ones that have to do

this. I mean, Bernie Paik-Apau can’t do it. She has got to depend

on you folks and depend on a nonexistent procurement center representative, somebody on the West Coast that is 2 and 3 hours

away by time so that if you call at the wrong time, you cannot get

anybody.

I am just, parenthetically Mr. Chairman, I will be interested to

see what the West Coast ‘‘chill and feed’’ or whatever it is that they

have is going to work out in Hawaii 3 hours’ time difference.

But it seems if you do not have that, depending on what kind of

business—what rules will you have, then, to make sure that the

subcontracting actually takes place? I didn’t see that in the material that I received.

Dr. HAYES. There is a provision for those contractors, prime contractors that, in fact, have strong provisions for subcontracting to,

in fact, receive a benefit in their particular awards. There are other

procurements where we encourage the agencies to make a strong

commitment to their subcontractors, but we have no role or right

to basically dictate who they use or the conditions of those contracts.

But in other regulations that are put out by the FAR, we do, in

fact, encourage agencies to reward those contractors to make strong

contracts with the subcontractors and to notify the Federal Government when they, in fact, do make changes.

Mr. ABERCROMBIE. The State of Hawaii has a very strong—within the State, they limit how much the prime contractor can make

over the subcontractors. Are you going to have similar rules? What

kind of profit they can take away from the subcontractor?

Dr. HAYES. Sir, the regulations in no way address those kinds of

issues. I believe that was far beyond what was intended in the

original statute.

26

Mr. ABERCROMBIE. If there is a dispute—okay. I don’t think that

it does go beyond what is required by the 1997 Act.

Now, the Miller act ostensibly protects, does it not, the capacity

of the small businessperson to be able to engage a prime contractor

in any dispute over payment? Is that right?

Ms. LEE. In fact, Congresswoman Maloney is supporting H.R.

1219, which increases some of those bonding limits as a protection

for small business. We had a hearing on that last fall, and that bill

is moving along.

Chairman TALENT. Neal, finish one more line, and then we will

go on.

Mr. ABERCROMBIE. Well, I don’t see anything in here where

someone is going to act as an ombudsperson for the small

businessperson because the prime contractors, the way you are

bundling the contracts right now, you are going to have these

megacorporations be able to beat the living daylights out of the

subcontractors and if you don’t like it, you can take them on, provided you have got a lawyer that is willing to do it. And I don’t

see many John Travoltas walking around to go out and handle it

against these big corporations.

So I think that you have got to put in rules that will have the

SBA or someone in the Department of Defense or whoever it is be

responsible for carrying the load for the small businessperson

against the lawyers that will come out for the big corporations.

Thank you, Mr. Chairman.

Chairman TALENT. I thank the gentleman and the gentlewoman

from New York, and now I will recognize the ranking member so

she can continue her questions.

Ms. VELA ́ZQUEZ. Thank you, Mr. Chairman. Dr. Hayes, I am glad

that you are making it your business to monitor agencies’ performance and inform them of their deficiencies. I just want to know

what do you do to agencies who miss their goals, if there is a penalty? What do you do other than rely on goodwill?

Dr. HAYES. There is no penalty in a formal sense. But I do believe, in fact I know firsthand, that the various administrators of

the agencies take these goals very, very seriously. As Ms. Lee said,

we made a presentation in front of the PMC (President’s Management Council), the second-level managers in the agencies. There

was very spirited discussion about how we can meet those goals

and what can happen. We are now engaged in goals for the coming

year. And so agencies take this very seriously.

And while we have no sanctions, I am sure there is discussion

between the various agencies when they do not meet the various

goals.

Ms. VELA ́

ZQUEZ. For those who are deficient, have you considered

sanctions? Denying bonding on the grounds of their poor performance?

Dr. HAYES. No, ma’am.

Ms. VELA ́

ZQUEZ. Why not?

Dr. HAYES. That has never come to mind. That is something, if

you want us to look at, we will. But I don’t think the statute authorizes us with that level of authority.

Ms. VELA ́ZQUEZ. Is that based on the law?

27

Dr. HAYES. The SBA’s power and authority is to appeal, to persuade, to be an advocate on behalf of small businesses. We do this

very vigorously; but it has to be a partner, I believe, with the agencies and to produce a win-win both for the small businesses and for

the agencies. We take our job very, very seriously. We are, I think,

successful when we are engaged in the exercise of the process, and

we will continue to be so.

Ms. VELA ́ZQUEZ. Dr. Hayes, do you see the contract after the decision has been made, after the agency has decided they are going

to bundle? Would it be helpful to have a requirement that you

must sign off first so that small business and disadvantaged is represented before the decision is made?

Dr. HAYES. I would like to look at this, but I think that would

be a problem. It would sort of delay the process. Again, keep in

mind there are many, many thousands of procurement actions that

go on throughout the year. We have a fairly limited staff with respect to engaging in this process. When we negotiate a deal with

an agency, the agencies stick by the deal. We have been very successful in those situations where there were bundled procurements

and where we objected, we filed appeals and negotiated. The agencies have kept their words.

So I think that is actually a better way than having SBA sort

of being the traffic cop.

Ms. VELA ́

ZQUEZ. But the numbers are showing us otherwise.

Dr. HAYES. Again, with respect to the overall numbers, we are

meeting our goals. Things are happening. We are concerned about

the future. But I think the numbers indicate that the agencies are

taking this very, very seriously with respect to meeting their goals,

small businesses, disadvantaged businesses, and otherwise. We are

concerned about women-owned small businesses and we are trying

to figure out ways that we can address those issues.

Ms. VELA ́

ZQUEZ. Mr. Neal, I just want to echo the comment made

by the Chairman and request that, if we do have another hearing,

that your staff make sure, make it your business that your testimony comes to our offices on a timely basis so that we could be

able to read your testimony before you come before us.

You head the office of the Small and Disadvantaged Business

Utilization. Does your office help the PCRs?

Mr. NEAL. Yes.

Ms. VELA ́ZQUEZ. What do they do when the Defense Department

recommends a bundle? Do your people weigh in or analyze or get

a chance to comment on it before it goes out?

Mr. NEAL. We work very closely with the SBA. Our small business specialists in many instances are in direct contact with the

PCRs prior to any disputes that are raised about a particular procurement proposal. Then after the procurement proposal if there is

a dispute, the small business specialists provide background information for the senior management in any of the service or defense

agencies where the dispute is raised. Because when the SBA folks,

for example, appeal a procurement proposal, then it goes to the

head of the buying activity, and that activity relies on the small

business specialist who has been working with the SBA on advice

on how to dispose of that—appeal.

28

Ms. VELA ́ZQUEZ. Do you weigh in before a decision is made by the

agency?

Mr. NEAL. Yes, we work directly with our contracting officers and

our program heads.

Ms. VELA ́ZQUEZ. I have DOD’s report card in front of me. Almost

50 percent of the contracts have been let and your percentage, particularly for small business and women-owned business, is way

below the goal. What does the DOD do when they are behind?

Mr. NEAL. As a result of the report card, we have been in contact

with our—senior procurement officials and made them aware that

we need stepped up activity if the Department is going to make the

goals.

We take the goals very seriously .

Ms. VELA ́ZQUEZ. I just want to hear, what is it that your office

does to turn this around?

Mr. NEAL. Well, since we report directly to the Under Secretary

for Acquisition and Technology, we bring it to his attention that we

are below the goals and in working with the Under Secretary and

the Director of Defense Procurement, we send out guidance to our

folks to ask them to step up their activity to ensure that the Department makes the goal.

Ms. VELA ́ZQUEZ. And when you see that the Department hasn’t

reached the goal, what is the next step? What do you do?

Mr. NEAL. Well, we are in the process now of looking at our performance, and we are devising recommendations that we will give

the Under Secretary to help ensure that we will do a better job

should we not reach the goals and to maintain the level of performance that we currently have. A number of initiatives that I have

cited in the testimony attest to that.

But we also have things, for example, in the area of womenowned business. We know that we are substantially below the goal.

We just recently had a major procurement conference in the southeast directed at women-owned businesses that are in the manufacturing area where we brought in a substantial number of our prime

contractors and women-owned businesses to try and facilitate

matchmaking so that they could get contractual opportunities. We

have another one scheduled for, I think, the southwest for later

this year. But we are very actively pursuing women-owned businesses and encouraging them to participate in our contracts.

Ms. VELA ́ZQUEZ. I can see that by the numbers.

Ms. Lee, I listened to your testimony with great interest, particularly the part where you say that the Federal Government is pretty

close to their midyear averages. Your records show for the first half

year overall small business prime contract procurement is at 15.8

percent of all prime contracts. What is the goal for overall procurement?

Ms. LEE. The goal is 23 percent.

Ms. VELA ́ZQUEZ. Do you expect them to come close to that goal?

Ms. LEE. Yes.

Ms. VELA ́ZQUEZ. You state that you are at 17 percent and the

goal is 23 percent. That means the Federal Government will have

to do, say, over 30 percent small business for the last half of the

year. Given that that is almost double for the second half of the

year, is that realistic?

29

Ms. LEE. That follows the trends that we have followed for 5

years. In fact, last year having met the goal, we were at 17.6 percent at midyear. So at 17.8, we are on track. We would like to do

better.

Ms. VELA ́ZQUEZ. Do you think you will do better?

Ms. LEE. We will do better.

Ms. VELA ́ZQUEZ. Sure. I noted that in your testimony you combined the goals of 8(a) and SDB. I would like to focus just on 8(a)

for a second which I see as a critical business development program. Are you seeing a decline in their activity or percentage over

the past few years?

Ms. LEE. The midterm, I am using just the midterm numbers,

but for this year that is 3 percent. That is better than last year of

2.8 percent, but it is not as good as we did in 1995. So we have

seen kind of a peak and then a drop-off and it looks like we are

picking back up and we are trying to emphasize that program.

Ms. VELA ́ZQUEZ. What we are hearing from 8(a) companies is

that they are experiencing a dramatic drop in opportunity, say

comparing opportunities now to 3 or 4 years ago. You are not noticing that drop?

Ms. LEE. Not from the midyear numbers. We have noticed a

drop-off from 1995, but in 1998 we were at 2.8 and in 1999 we are

at 3.0.

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

Ms. LEE. We are close.

Chairman Talent. You have a quick question? I will allow it.

Ms. MILLENDER-MCDONALD. Ms. Lee, you were saying that this

midyear you had a percentage of a 2.8 and now you have a 3.0?

Ms. LEE. Last year, 1998, midyear was 2.8. This year, 1999, midyear is 3.0.

Ms. MILLENDER-MCDONALD. Just what the gentlewoman has spoken of is what we are troubled with and that is the decline of 8(a)

contracts, specially to minority businesses and even more specifically to African-American businesses. And we need to look at some

data that tells us differently that there is not a decline, but we are

of the opinion that it is.

Ms. LEE. These are our midterm numbers. We will again get the

end-year numbers, and I would be happy to come and meet with

you and discuss those.

Ms. MILLENDER-MCDONALD. I would need to have you come and

meet with me, because at 3.0, I would like to know where we are

in that mix.

Chairman Talent. Ms. Napolitano, she is next.

Ms. NAPOLITANO. Thank you, Mr. Chairman. One of the things

that I keep hearing over and over again—and I agree with Mr.

Abercrombie—is that we will get to it, we will do it. In the past,

that has not brought the results. I need to know specifically, are

you dealing with the procurement officers being able to train the

agency bureaucrats that will talk—you will give direction to, but

they will go on business as usual and still not get the work done

that we are proposing that is the intent of Congress to be able to

put through?

That bothers me because I keep hearing it over and over again,

not just from your agency but from many agencies, and I think we

30

need to address how are you getting to those career bureaucrats

that will turn and continue doing whatever it is they please, even

though they are being given direction from this Congress and this

Committee?

Dr. HAYES. Bob can respond. DOD has, for example, many,

many, thousands of procurement officials. It is a constant effort to

keep people informed about the programs, the requirements, the

goals, and so forth. We do the best we can with the resources we

have. We work very hard with our sister agencies and use every

possible forum that we can take advantage of to get the word out.

Ms. NAPOLITANO. How do you get the word out, may I ask, sir?

Dr. HAYES. We have joint conferences.

Ms. VELA ́ZQUEZ. Will the gentlelady yield? Sir, you come here

and I just—every time that we ask a question and you say the lack

of resources. We held a hearing here about the SBA budget. When

did you or the administrator talk to us about the lack of resources

in these particular areas?

Chairman Talent. I will say to the gentlewoman in my time as

the Chairman and yours as ranking member that has never come

out in any of the testimony. There has never been a request for

more money in this area. Now, Dr. Hayes, we don’t know what he

said internally, but never before this committee.

Dr. HAYES. Our budget, as you know, is negotiated in the context

of the overall administration’s budget. We try to do the best we can

with the resources we have. We do not, as you know, have PCRs

at all the buying sites. We have never and we probably never will

in the current budget climate. So our goal is to figure out how we

can make use of—best use of the resources that we have to do the

job. And I think we do a very good job of that.

Also, we have got to figure out other ways that we can work aggressively with the other agencies and with the Department of Defense who has, as Bob says, 500 small business specialists who are

advocates for small businesses and are there when these decisions

are, in effect, made.

All I can say is that we are working the best we can with our

existing resources to carry this important job out.

Ms. NAPOLITANO. Reclaiming my time, but, again, we keep hearing that it is being done, that you are talking to them, but the results are not being shown in the percentages. So how does that

mean to you, what steps can you assure this Committee that you

will take to be able to start turning around the mentality that

women-owned business and minority businesses are not important

to the economy and are not important to the agencies that you deal

with?

Dr. HAYES. I travel a great deal around this country. I meet with

small businesses. I meet with the other agencies. The Federal Government is meeting the goals for small businesses and for SDBs.

The women’s goal, which is a fairly recent concern, is not being

met. We are at 2.1 percent. If you look at the rate at which we

have reached the 2.1 percent, while good, not good enough. Reaching the 5 percent goal is an extremely high priority of my boss,

Aida Alvarez and this administration, and we will do the best we

can. We will do better than better to address this issue.

31

It is important that we find women-owned businesses. They are

good people. They are good businesses. They can do the work, and

we want to get them in front of the procurement officials to have

them take advantage of these opportunities.

Ms. NAPOLITANO. I have no question about the ability of your employees to do the work. It is the type of work that is necessary that

is being directed by this Congress to do to assist small and minority-owned businesses. And somehow the mentality is it doesn’t matter. Let’s bundle because it is simpler; it is cost cutting. It is time

saving. And that is just not going to be happening anymore.

We are tired of it. We get consistently complaints in my district

office about the small business being eased out, aced out. And they

have been there before. So I don’t know how many complaints your

agency gets and how you deal with them, but I certainly am very

displeased with what is happening in my area, my small businesses and women-owned businesses.

Dr. HAYES. I share your concern. Every complaint we get we vigorously explore it. We try to reach a satisfactory resolution with

every complaint that we get on our bundling hotline or situations

that are identified by our PCRs. We try to reach a satisfactory solution with the buying site. And if we cannot, we will appeal it. We

will go to the head of the agency to look at the matter .

Ms. NAPOLITANO. I think some of us would be glad to have you

in our districts to have you listen to the small businesses and have

them tell you their horror stories about what is really happening,

because the bureaucracy sometimes it just doesn’t filter down. And

I would certainly like to invite you and any of you who would like

to come and listen to them.

Dr. HAYES. I would more than welcome the opportunity.

Ms. NAPOLITANO. Thank you.

Chairman TALENT. I thank the gentlelady for her questions. I

have Mr. Gonzalez next on the list.

Mr. GONZALEZ. Thank you, Mr. Chairman. Mr. Chairman, this

will be two short questions. The first one is directed to Dr. Hayes

and that is regarding the Marine’s proposal on the cafeteria

regionization plan. And there has been correspondence—and I appreciate your response and think your last letter to me was July

13th. You are going to follow up with a second meeting with, I

think, the Department of the Navy or the Marines to see about the

concerns that were being expressed.

But what information did you have by way of analysis, any kind

of costs or efficiency studies by the Navy to justify the regionization

proposal?

Dr. HAYES. As you know in our correspondence, we did meet with

the Marine Corps. We expressed our concern about that particular

strategy. We are aware of small businesses that can, in fact, do the

job. And our most recent discussions with them reveal they are still

considering our appeal to figure out an alternative way to carry out

the strategy. But as of today, we have not heard back from the Marine Corps as to how they are going to address this issue. But we

remain convinced that there are small businesses that can, in fact,

do the work and we would like them to figure out a way to restructure the procurement so that small businesses can be very major

players in that overall effort.

32

Mr. GONZALEZ. And up to the present time, have they provided

you with any kind of study, research, or analysis?

Dr. HAYES. I am not personally aware of anything that I have

received, but we have had discussions as to why they wanted to go

to basically bundle those particular procurements and that particular approach. But I am not certainly aware of any overall analysis justifying that activity.

Mr. GONZALEZ. But it is a requirement that you would impose on

them to document.

Dr. HAYES. The documentation requirements are part of the new

contract bundling rule. Currently, it is really a negotiated effort

where, if an agency wants to bundle a procurement, we sort of discuss what their plans are and see if we can, in fact, provide an alternative under the new contract bundling rules. If there is substantial bundling, then they would be required to submit to us an

analysis which justified their activities but also would indicate the

steps that they are taking to make sure that there is going to be

a very strong provision for subcontracting with small businesses.

Mr. GONZALEZ. Because we made that request, we asked what

are they predicating the proposal on. The second question to all

members of the panel is the Chairman has already alluded to what

we hear when we go to our town hall meetings and we have our

breakfast meetings with our small businesspeople, and I will tell

you right now, and it is consistent. It is consistent probably with

everybody that is sitting here today, and the complaint is simply

that the contracting officers have a certain attitude or bias against

the 8(a) business individuals to the extent—and I will paraphrase

it—that someone in San Antonio actually said this to a woman, a

small businesswoman to her face and said: You 8(a) people are a

pain in the rear.

And so it is something that Congresswoman Napolitano was referring to. When you have something like that happening, it is not

a matter of sensitivity or anything like that. It is really a mindset. And you will never accomplish your goals as long as you have

the people that are down there that are supposed to be effectuating

this policy with an attitude, and I really believe that it does exist.

In San Antonio we are going to be looking into it.

But I am sharing the concerns expressed by every member here,

and I am hoping that you do have something in place that will go

down there and when these complaints are being made, that you

will interview these individuals. That is the first thing.

The second thing, of course, is to have something already in place

that will indicate to these individuals that the responsibility—that

this is what they are supposed to be doing that these are their

goals, this is their mission. This is not an alternative. This is not

an option. This is their mission. And so to the extent that you address that concern over and above what you all have stated to the

Congresswoman, I would appreciate a response.

Dr. HAYES. I assure you that that attitude is not shared by the

head of that agency or anyone else in this administration. The 8(a)

program is an extremely high priority program, and we will do

whatever we can do to see that it survives and grows. In addition

to the PCRs, we do have people in our district offices who directly

run the 8(a) program; and those individuals they negotiate conVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00036 Fmt 6633 Sfmt 6602 E:\HEARINGS\60797 pfrm08 PsN: 60797
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tracts, they help the 8(a) companies in their business development

activities. And if there is a complaint or a problem, I would encourage that individual to contact the local district office, and we clearly will pursue that kind of problem. We are just not going to stand

for it.

Mr. GONZALEZ. Anyone else?

Ms. LEE. Just the same comment, it is unacceptable.

Mr. GONZALEZ. Thank you very much. Thank you, Mr. Chairman.

Chairman TALENT. Mr. Phelps.

Mr. PHELPS. Thank you, Mr. Chairman. I will be brief. I am

going to try to see if I can look at the advantage from the managerial standpoint. Do you have any numbers or can you verify the

fact what advantage bundling has in the way of saving the taxpayers costs? I am trying to think from the standpoint of the positive side of bundling to try to understand the rationale. Because I

am one to know that we can, you know, engage in the conversations and you can say this is priority to us, but all these things reflect whatever is priority. But it will reflect in your actions, and obviously we have pointed out enough here what the lack of action

is.

So the priority must not be there, even though you say it is. So

there must be some rationale to base what you are not willing to

admit to us about the actions that are reflected as priority. Is it

a big cost savings in bundling? What is the taxpayers’ gain from

how things are being carried out?

Dr. HAYES. I am not aware of any overall numbers on individual

procurements. There may be savings to the Federal Government.

The statute talks about different areas where there might be benefits from bundling, improved service, reduction in cycle time and so

forth. These can be translated into dollar savings on a particular

procurement. In other cases, the savings may not be there; and in

those cases we vigorously oppose those bundling activities. But I

am not aware of any overall government-wide number that would

give you the total savings to the Federal Government.

Mr. PHELPS. So there is nothing from the top that is being communicated, look, we need have so much bundling because this is a

tax savings to the people and to our agency to justify to Congress

or whatever else? You cannot really say there is anything like that

that is being communicated through the ranks?

Dr. HAYES. I am not aware of any overall analysis in that regard.

Agencies make individual decisions about proposals to bundle certain procurements because it is in the interests of carrying out

their mission. We may or may not agree on a particular individual

procurement.

Mr. PHELPS. Have you seen an increase at all, an effort for small

businesses to consolidate to compete with the bundling and see

what the advantages would be in that respect?

Dr. HAYES. This is one of the provisions that is in the statute

that we will have in the final regulation which will allow small

businesses to affiliate, to come together and be treated as a small

business for the purposes of that procurement. And they still retain

their small business status. We think this is one way that small

business can team together and, in fact, can handle the larger procurements if there, in fact, is going to be a bundled procurement.

34

This is a provision that we have put forth in other regulations

again so that small business can benefit in this regard.

I think it will be a win-win for those small business teams that

come together and bid on these procurements.

Mr. PHELPS. Thank you.

Ms. VELA ́ZQUEZ. Mr. Davis from Illinois.

Mr. DAVIS. Thank you very much. You know as I have listened

to the hearing and the proceedings, it reminds me of the 1960s

when we used to go through a piece called ‘‘Mau-Mauing the flak

catchers.’’ those of us who worked in the civil rights movement—

most people are too young. But I do not believe that you can get

blood out of a turnip. I do not believe that you can make brick

without straw. I do not believe that you can put a square peg in

a round hole. And I do not believe that you can serve two masters

at the same time.

I am just a simple kind of person. It seems to me that, and especially from what I just heard, that there is no real reason to have

bundling. I mean, can you cut costs? Increase efficiency and effectiveness at the same time? Expand small business participation

and create opportunities for new people to get into business all at

the same time? Can you do that through a process of bundling? Or

is bundling simply a way of giving big businesses the opportunity

to get bigger? Giving the rich greater opportunities to get richer?

I am trying to figure out why are we doing this. And so maybe

if someone could answer, I thought maybe it had to do with saving

money, until my colleague Mr. Phelps asked that question. And I

understand that that is not the purpose, you know, that we are not

really saving any money.

We are not increasing efficiency and effectiveness. Then my question is, what are we doing? Why are we doing it? So maybe if someone could answer that for me, then I could understand.

Dr. HAYES. I am not going to defend bundling. We are concerned

about bundling. But it does occur in some situations because the

agency views that it is the best way to carry out their mission. My

concern being with SBA working for SBA is to make sure that

small businesses get a fair shake in those situations where an

agency deems it in their interest to bundle a contract. I want to

make sure that the small businesses are participants; that they are

players, players in quality work; that they have the opportunity to

grow and benefit from the activity. That is what we are about.

That is what our job is.

Mr. DAVIS. Then I guess what you are saying to us is that all

of the questions that are being raised, they really need to be taken

someplace else, and we really need to take them to the Floor of the

House, or we need to take them to Management and Budget or to

the President or somebody——

Ms. MILLENDER-MCDONALD. The President. Thank you, Mr.

Chairman.

Mr. DAVIS [continuing]. Because there is a flawed policy. I

empathize with you all. I mean, trying to respond to a policy that

is already flawed, you can’t get blood out of no turnip. I mean, I

already know that and all of the rest of us know that, also, that

you really can’t. I mean, and so the policy is flawed in the beginVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 E:\HEARINGS\60797 pfrm08 PsN: 60797
35

ning from the outset if we are talking about being of any value to

small businesses. And so I appreciate——

Ms. MILLENDER-MCDONALD. If the gentleman would yield. Mr.

Davis, you have certainly put your finger on the core problem. It

suggested to me as I was listening to the other members of this

Committee, we really should not be sitting here. We should be

going to the administration and administrators to tell them that

this is a flawed piece of legislation. And we are not going to move

from square, blocks, curves or anything else until we can get something that is sufficient and will sufficiently address the issue here.

We will sit here and raise these questions, but answers do not flow

from the three persons who are here or anyone who succeeds them

because this is a flawed piece of legislation or flawed in its implementation, Mr. Chairman. And, therefore, you are not going to get

blood from the turnip, as Mr. Davis has said. Thank you so very

much.

Mr. DAVIS. Reclaiming my time, let me just appreciate your testimony in terms of the good-faith effort that I think you might certainly be putting forth to try and do the best job that you can do

to understand a most difficult set of purposes and circumstances

and rules and regulations. I grew up in rural America, and we had

a great work ethic. My father used to tell us to do things that were

virtually impossible, but he would tell us to do it anyway. I think

that you are in an impossible situation. So keep on trying to do it

anyway. But it ain’t going to happen under these kinds of rules and

regulations. You just can’t serve two masters all at the same time.

I thank you very much, Mr. Chairman.

Chairman TALENT. I thank the gentleman, and also I thank the

gentlelady from California. We are going to pursue this matter. I

am telling the committee I am not going to ask the President to

testify. We will have to go a little lower than that.

Ms. MILLENDER-MCDONALD. I was trying to help you, Mr. Chairman.

Chairman TALENT. Mr. Moore was next.

Mr. Dennis MOORE. Mr. Chairman, I have to leave. I would like

to yield my time to my colleague here who has some questions.

Thank you.

Chairman TALENT. Mr. Wynn is recognized.

Mr. WYNN. Thank you, Mr. Chairman. I would like to thank Mr.

Moore for yielding time and thank the Committee for its indulgence, as I am somewhat of an interloper. I am very concerned

about this issue, and it is a sad fact that this began with the socalled streamlining of Government. The Office of Federal Procurement Policy actually encouraged bundling as part of that effort. I

think that you are right, Ms. Millender-McDonald, that we are

going to have to go to the administration to challenge this policy

because we are not really making a lot of progress. Specifically, if

I am understanding correctly, Mr. Hayes, you are negotiating with

OMB and the Office of Federal Procurement over the implementation of these regs; is that correct?

Dr. HAYES. And other Federal agencies who will comment on the

regulations in the review process.

Mr. WYNN. I want to find out the status of certain provisions.

There is a provision that would require that the PCR be notified

36

by the agency that has bundled a contract by the procurement officer who is proposing to bundle a contract. Is there agreement on

that notice requirement?

Dr. HAYES. There is always—without speaking specifically to the

final version of the rule, there is a notification of requirement.

Mr. WYNN. I know that there is a notification of requirement. My

question is within the administration, is there agreement that your

PCRs will be notified when bundling is proposed, or is that part of

the fight? I am trying to figure out when we are going to get these

regs, and I need to know what is agreed upon and what is still in

the active debate.

Dr. HAYES. Our PCRs already have that authority independent

of this regulation. We are there——

Mr. WYNN. Do they have the right to be notified or the right to

inquire?

Dr. HAYES. We inquire, again, because——

Mr. WYNN. So my question is will the regs provide for an automatic notice of any bundling? In other words, when the contract

terms are changed to consolidate a contract or change its original

character, will your PCRs be notified? Has that been agreed upon

within the administration?

Dr. HAYES. Again, the draft final reg just was submitted to OMB.

Mr. WYNN. Ms. Lee, what is your view of that?

Ms. LEE. The draft final rule was in this week. We sent it out

to the agencies and they made comments. We will get all of the

comments together. I don’t know right now what agencies are going

to comment and how they are going to react, but we will certainly

work through all of those.

Mr. WYNN. Next question. The small business combinations, the

ability of the small businesses to consolidate to bid on a bundled

contract. Has that been agreed to?

Dr. HAYES. That is a provision in the statute and is also in the

regulation.

Mr. WYNN. Ms. Lee, in other words, does OMB agree with SBA

that that ought to happen?

Ms. LEE. We agree that is part of the statute.

Mr. WYNN. I know it is part of the statute. I don’t want to hassle

you, but please don’t insult me. Yes, it is in the proposal, but does

OMB agree with it? Does OFP agree with it?

Ms. LEE. Yes.

Mr. WYNN. Mr. Hayes, you keep saying that you have appealed

these. How many have you appealed?

Dr. HAYES. I don’t have the overall number. In 1998, I think

there were—I don’t know the exact number of the appeals. There

were 60 situations of bundled procurements that we intervened in

and we were successful about 90 percent of the time. An appeal is

a particular action where we file a form——

Mr. WYNN. When you say that you were successful, does that

mean that the contract was unbundled?

Dr. HAYES. Either the agency unbundled or changed the procurement strategy to provide for a larger role for the small businesses.

Mr. WYNN. I am hearing two things here: one, that on the subject

of measurably substantial benefits, some people want specific

measurements, 10 percent savings, or what have you. Others are

37

saying that we don’t need a cookie-cutter approach, we need flexibility. We could argue that all day. The statute said measurable.

Are we going to have quantifiable figures? I am not asking what

those figures are going to be, but are we going to have the quantifiable figures, or is it going to go left open-ended?

Dr. HAYES. It is SBA’s position that in order for us to effectively

measure what is going on there needs to be a quantifiable aspect

of this.

Mr. WYNN. Ms. Lee, you are shaking your head. Do you disagree?

Ms. LEE. I was trying to make sure that I heard.

Mr. WYNN. He said he wants to quantify it. Does OMB agree?

Ms. LEE. We agree there needs to be a—you need to be able to

delineate what the benefits are. What I am concerned about, as I

said, a cookie cutter that says 10 percent is the answer. Because

10 percent of a million dollars versus 10 percent of a hundred million dollars——

Mr. WYNN. Are you advocating a sliding scale?

Ms. LEE. We might look at that, but we need to keep it in harmony and balance and make sure we are wisely expending the dollars but also broadly including small business.

Mr. WYNN. I would just make one more comment. I thank the

Committee for its indulgence. I am in addition to being concerned

about individual small businessmen as you have heard from all of

the people here, there is another concern, that the taxpayer is ultimately going to be cheated when the big businesses run the small

businesses out, there is no further competition for these large contracts, and then the price goes up to the taxpayer and no vehicle

with which to contain prices. It seems to me that the Office of Federal Procurement ought to be weighing this in its policy because

not only is small business going to lose, the taxpayer is going to

lose. We are going to pay more for a lower-quality product if we

don’t get a handle on this issue. Thank you, Mr. Chairman.

Chairman TALENT. I thank the gentleman. Ms. MillenderMcDonald.

Ms. MILLENDER-MCDONALD. Thank you, Mr. Chairman, and for

bringing this hearing before us. This is something that has been

very troubling to us and that is the whole process of procurement

and bundling. I have several questions. If you do not have the answers to this, I would like you to submit them to me at a later date

in writing so that I can share this with my colleagues.

In looking at the—small businesses receive over $40 billion in

Federal prime contracts. My question is, considering the prime contractors and subcontractors of Federal projects, how many firms

that are minority-owned participate in the procurement process as

prime or subcontractors in the Federal procurement process? Can

any of you answer that question at this juncture?

Ms. LEE. Not at this moment.

Ms. MILLENDER-MCDONALD. That is why my questions might be

of such where you have to go back and research. Then I would like

you to submit that in writing to me so that we could have a better

handle on it.

Number two, what percentage of the $200 billion procurement

budget goes to the larger corporations? Do you have that answer?

38

Ms. LEE. We will get the exact number, but again our goal is 23 percent. The budget itself is substantially less than $200 billion

now. It is around 10 because of——

Ms. MILLENDER-MCDONALD. But I also see there is a decline of

13 percent of small business procurements. Within the Federal

Government it has fallen to 13 percent. I would like to know of

that shift, how many have gone from small businesses to large

businesses, of this shift that has taken place in terms of a decline

of Federal small business procurement? I need to know that.

And how are minority and women-owned firms impacted by the

bundling process of the Federal Government? I need to know that

as well.

Those are some of the major concerns that I have and would like

to at least get something written so that we can share this. We will

have perhaps the handle on going to the administration or to whom

we will go to. I am going to follow the Chairman’s lead and the

ranking member, but I am certainly behind them on addressing

this issue because we cannot tackle the giant if we don’t have the

type of tools to do so.

And certainly it seems that it is flawed, that we do not have the

types of regulations and/or laws that would help us to really crack

the nut on small businesses. We go back to our districts; and we

are constantly being asked, where and how can we get a hold of

these procurement contracts. We cannot afford the bundling because of the myriad of things that go into that before they even go

into this bundling process.

So we must then come to you and ask how can we best help the

small businesses in our community. Those are the questions that

have been raised. I would certainly like to have those answers reported back to me, please. Thank you.

Chairman TALENT. We have a vote coming up and, Ms.

Millender-McDonald, I thank for your questions. She is the last

person to ask questions for this panel. What I will do is recess the

hearing and then take the second panel.

Without objection also we will hold the record open for ten days

so that any member who wishes to do so can submit written questions, and we will include those answers into the record of this

hearing. I want to thank the panel for being here. I know that it

has been at times a delicate exercise, but you can tell how concerned the Committee is about it. And we do appreciate what you

are doing and look forward to working with you on these issues.

We will recess the hearing and then come back after the vote for

the second panel.

[Recess.]

Chairman TALENT. If we could have the second panel take their

seats, please. I am sure the other members of the Committee will

come trickling in. We are behind time and you have been very patient, and I think that we will go ahead and go forward. What we

will do is go ahead with the witnesses that we have here, and then

I am sure that the others will be coming back. I am going to tell

the Committee and witnesses I am going to have to be leaving in

a few minutes so I will miss some of this testimony. But I do appreciate you being here and I did ask the staff to make certain that

we had examples of people who really have been affected by this

39

because we could talk about deadlines and numbers and all of the

rest of it.

It is important to remember this is having a real impact on real

people. I am also going to talk to the ranking member that I think

that the next time it might be good to have the real people go first

so that the—that is terrible. They are all real people, but have the

people who have been affected by this go first so that those in

charge of this can hear that testimony and give us their comments

on that.

Our first witness on the second panel is Mr. Terry Head, who is

the president of the Household Goods Forwarders Association of

America. We appreciate you very much being here, Terry.

STATEMENT OF MR. TERRY HEAD, PRESIDENT, HOUSEHOLD

GOODS FORWARDERS ASSOCIATION

Mr. HEAD. Thank you, Mr. Chairman. Knowing that time is

short, I did a shortened version of my written testimony that I presented, but I would like to cut right to the chase because it was

obvious to me that in the first panel and particularly the question

and answers that pursued, you people are aware of the problem.

I would like to at this point take my time and state what we think

could be one of the solutions or some of the solutions to the problems.

Again, I am Terry Head——

Chairman TALENT. Terry, if you would, just suspend for a

minute. Take a minute and tell us the specific nature of the problem you are dealing with bundling. You don’t have to take a long

time to do it, but the Committee is interested, and we will have

this for the record. Take 60 seconds or 2 minutes and tell us what

you are dealing with.

Mr. HEAD. All right, sir. I am president of the Household Goods

Forwarders Association. That associate is made up of people who

are involved in, let’s call it the moving and storage arena. Our

members are made up of forwarders, moving and storage companies who act as agents at the local level, trucking companies, people who supply to the industry. Even the airlines and the ocean

freight companies are members of our association. Where we have

been experiencing the problem that relates to this hearing is particularly in the DOD arena.

Our members who are actively involved predominantly provide

the service for the movement of military families, all services. In

recent years we have been experiencing the impact of contract bundling, but more in the form of reengineering, which ties back to the

streamlining of government. Specifically, the command that is responsible for our military traffic management, command as well as

DOD specifically, office of the Secretary of Defense, have launched

a number of reengineering pilots.

These are truly, in my opinion and I believe the opinion of my

members, the best example of contract bundling where we have

gone from having 200 or 300 people supporting a base or installation, providing moving services, domestic or international, these pilots are focussed on putting the business in the hands of one or

maybe two or three large contractors. Then those large contractors

are focussed on, again as Congressman Abercrombie said, in a

40

sense brokering the business down through a subcontract scheme

to the service providers. So the service providers haven’t changed.

What has changed is the method by which the Government acquires the services and then the method that that business is distributed down to the people who have always been doing it and are

continuing to do it. The problem is we are trying to maintain our

position as prime contractors. The bundling, because it puts us at

a disadvantage to the large companies, doesn’t allow us to do that.

Chairman TALENT. Here is the impact on the average service

member. These people are ordered to move from one base to another. Now, you have injected another layer. So you have the prime

contractor which is a big moving company. And they, by the way,

have been supportive of your efforts to try and get this changed.

They are saying bundled contract, they must subcontract to another labor. The point of this is to save money. Initial contracts,

they bid at a discounted cost. So now, you have got a squeezed

profit margin and another layer of business that has to live off of

that squeezed profit margin and another layer of between the person being served and the provider, the servicer, because you have

this subbed. So the inevitable effect it is to exert a downward pressure on quality as everybody is living off of this squeezed profit

margin. I am testifying for you here.

Mr. HEAD. You are doing an excellent job, too.

Chairman TALENT. You have a downward pressure on quality

and on accountability. Then after the first contract is up and a lot

of the movers who previously have been able to service that base,

they have gone out of that business. Because they had to, they turn

their efforts elsewhere or they just went out of business. Then you

rebid the thing. Now, there is a lot fewer competitors. So then you

don’t even get the discounted value anymore. Nobody from the

DOD has ever explained to me why that logic isn’t going to work

no matter what you try and do.

Mr. HEAD. To be correct, in the examples that we have seen so

far, the pilots that have been run, specifically the pilot that was

run at the Hunter Army airfield, we already saw an increase in

cost per move. That was recently reported in the June this year report from GAO who was tasked, of course, by Congress to look at

these pilots. We went from what was $2,641 average cost for a domestic move within the continental U.S. to over $7,000. That is almost a 60 percent increase in cost. So that we saw right from the

beginning. Then you add the added element of the reduction or

driving away of the small business, i.e., the other competitor, and

Lord knows where costs would go in the future.

Someone was commenting earlier, there is an obligation to the

Government and the procuring agency, but there is also an obligation to the taxpayer to protect us as well, sir. If I could, you have

hit right to the essence of our problem. I would like to say what

we would like to see in your efforts, the Congress’ efforts in the future. Granted as came out earlier, there is legislation that has already been passed focussed on this. There is a policy that the Government has come forward that allows bundling. As Mr. Davis said,

it is a flawed policy. Something has to be put in place that provides

us, the small business entities, some protection from that policy

until it is changed. This is what we would like to see, sir.

41

We firmly believe that any legislation or subsequent regulations

must include mandatory provisions requiring contracting officers to

quantify any expected cost savings from the practice of contract

bundling. We believe that an analysis beyond the warm and fuzzy

assertion that contract bundling is in the interests of the government is necessary. There should be a minimum threshold to be

reached before a contracting officer could justify a decision to proceed with a bundled contract.

We believe that a contracting officer who intends to bundle a contract should be expected to prove that it exceeds a dollar threshold.

Once that threshold is determined, it then be published in the Federal Register of the Commerce Business Daily and the Small Business Administration Web site so the business is aware of what the

intent and the impact is therefore. We believe that notification

should be provided to all small businesses who currently hold contracts that are being considered for bundling. That is a very key

point.

These people don’t have the ability to have huge contracting offices following a lot of procurement. So they need the Government

to help them know what is going on. In the event that a requirement has been previously bundled and is to be recompeted in a

bundled format, the contracting officer should provide an analysis

demonstrating that the bundled contracts save the Government

money over and above any administrative savings.

Furthermore, we recommend that on an annual basis each agency be required to report to Congress to the Small Business Administration on all bundled contracts and the effects of bundling on

small business, particularly with emphasis on the ability to maintain small business participation as prime contractors.

Sir, I yield my time to the other—I know that you are aware of

our issues.

Chairman TALENT. I thank you for being here and making the

Committee aware.

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

Chairman TALENT. What we are going to do—because Mr. Filner

is here to introduce Mr. Smith. And so we are going to go a little

bit out of order. Phyllis, we are very eager to hear your testimony.

We will hear it in just a few minutes, but in order to protect Mr.

Filner’s time because he needs to go, I am going to ask him to introduce the person who is third on our witness list now.

Mr. FILNER. I thank the Chair. I thank the members of this committee for holding this hearing. It is extremely important to my

constituents. I would just add, by the way, to your last speaker, it

is hard to quantify the cost of small businesses going out of business. That is one—that is the real cost of this bundling issue that

we have to get at. The story you will hear from Mr. James Smith

from San Diego, California, will tell you that.

In America we tell our children that if they get a good education,

work hard, and give back to your country, play by the rules, they

will be successful. Mr. Chairman, James Smith has listened to that

advice as a child and after giving back to his country by serving

in the U.S. Marines, he went into business. He started the United

Janitorial Services by himself, and 15 years later he employs 50

people in our community and is still giving back by participating

42

in all kinds of community activities. He is a model of hard work

and resulting success.

But now, Mr. Smith has run into a problem that he hasn’t been

able to overcome with hard work and fair play. The Department of

the Navy’s attempt to bundle several small 8(a) contracts for janitorial services into one large contract will cost him the majority of

his business. His life’s work will be shattered. He is not alone. As

he speaks to you today and these other people from various parts

of the country speak to you, they represent not only many other

8(a) business contractors in their own districts, but obviously small

business appeals across the Nation.

This concept of contract bundling I think is completely contrary

to the intent of the SBA. It takes the small out of small business

and takes the fair out of fair play. I am glad that you are hearing

these folks, Mr. Chairman, and I hope that you listen carefully. I

think that you will see that, as I say, you and the others this morning know the issue very clearly, but you will send this idea back

somehow to the drawing board. Thank you for holding this hearing.

I am proud to introduce my constituent, Mr. James Smith.

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

Chairman TALENT. Please go ahead, Mr. Smith. Thank you, Mr.

Filner.

STATEMENT OF MR. JAMES SMITH, UNITED JANITORIAL

SERVICES, INC.

Mr. SMITH. Mr. Chairman, and members of the Committee, my

name is James Smith. I would like to begin by telling you a little

bit about myself. After serving in Vietnam as a combat Marine, I

entered the world of small business. I did this by starting my own

company, United Janitorial Services. Although it remains a small

company, it has grown from one employee to over 50; and it is the

largest employer in my community. My family and I are very active

in our community. I currently serve on the board of directors of the

San Diego Boys and Girls Club, the CDC board of directors, and

serve as chairman of the Encanto Community Fund.

It was not until I entered the 8(a) program that I was offered the

opportunity to really succeed and expand my company. Because of

8(a), I currently contract with the Department of the Navy. If the

bundling of custodial contracts actually goes into effect, the change

will have a devastating impact on my business and others like me.

My business along with many others will not be able to compete,

ultimately forcing many of us into a struggling subcontracting role

with minimal or no chance of development and growth. This hardly

seems fair, considering the sacrifices and struggles that all of us

have had to endure to assure success for our businesses.

I know for a fact that bundling custodial contracts will eliminate

current opportunities for my company. It would, in effect, be a cancellation of current contracts ultimately causing my small business

to lose 80 percent of its business. The bundling of contracts in

other cities and States has proved that the local businesses are, in

fact, the losers. Recently, two large contracts in San Diego were

bundled and the entire situation was a huge failure. These contracts were then set aside for 8(a) contractors who are performing

successfully.

43

Mr. Chairman, on behalf of myself and my fellow 8(a) contractors

of San Diego, I would like to close by sharing with you the following information about the impact of contract bundling. Contract

bundling will eliminate various opportunities for 8(a) contractors.

It will force 8(a) contractors into a subcontractor’s role with little

or no chance of development and growth or in many cases out of

business entirely. Contract bundling will be put into effect with no

studies on how the change will impact local businesses and in the

community they helped to support. It would eliminate the sole

source contract for many businesses.

Currently, 8(a) contracts are distributed to various contractors

which encourage and support the development of local businesses.

These contracts are essential to the development and survival of

the existing businesses and those new to the program. Bundling of

these contracts will cripple and possibly eliminate the 8(a) program. In theory, contract bundling sounds great, maybe even practical. But in reality hope of further success of small disadvantaged

businesses and the vitality of many communities will be shattered.

The existence of small businesses all over the Nation are being

threatened as huge companies force the small ones out of business,

killing the entrepreneurial spirit in America. It is time for more

support to be given to the small businesses of America instead of

less which is exactly what the bundling of contracts will do. Mr.

Chairman, and members of the Committee, I graciously ask for

your assistance in preventing contract bundling which will without

a doubt have a devastating effect on my business and other small

disadvantaged businesses in my community. This concludes my

statement. Thank you.

Chairman TALENT. And thank you, Mr. Smith, for that very informative and moving testimony.

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

Chairman TALENT. I am going to have to go, but before I do, I

want to introduce our next witness, a lady who has testified on several occasions before this Committee. We are always grateful to

have her. She has a real story to tell about how subcontracting is

working out. I refer, of course, to Ms. Phyllis Hill Slater, who is

the president and owner of Hill Slater, Inc., and in addition to also

being here in that capacity is also representing the National Association of Women Business Owners, of whom she is the past president. Phyllis, thank you. I want to thank all of you for taking time

away from your small businesses to come here and inform us. We

know that time is money for you and we are grateful. I want you

to know on behalf of the whole Committee it makes a difference

when you come down here and testify. Phyllis, please.

STATEMENT OF MS. PHYLLIS HILL SLATER, NATIONAL

ASSOCIATION OF WOMEN BUSINESS OWNERS

Ms. SLATER. Thank you. I am also going to stay away from my

written testimony. You have it. I think you had a very good thing

going with a lot of dialogue. I am glad that you are on our side.

I am going to tell—just make clear for the record, NAWBO, is

against bundling. That is it. Bundling does not help us at all. And

it hurts women business owners, it hurts them very badly. We

talked about I heard some people talk about women’s issues. It is

44

not a women’s issue, but economic issue. Women business owners

are employing 27 million people. When you start putting things in

the way to keep us from being able to employ more people, you are

talking about economics, less taxpayers out there. So this is not

just a small business issue or women’s business issue or minority

business issue. It is an economic issue that impacts this whole

country.

The more of us that are working, the more of us that are contributing to the society. I have been in business now with my dad—

well, my dad passed away in 1984. So it is a third-generation business. I always tell people that I am the daughter of an engineer

and the mother of an engineer. So we have had all different kinds

of experiences and most of our business has been in the Federal

Government, local, state, and municipalities as prime subcontractors of any work that we can get.

This one particular project that I was on, the Federal courthouse

on Long Island, I was on from the very beginning. And I was on

as part of a team. We went on this project as part of a team, had

to put in qualifications, had to put in the people that were going

to man the job, their resumes, et cetera. My past experience, which

added to the job since I had courthouse experience, plus I had a

Long Island presence and I do have a very large Long Island presence. And I sit on all of the boards that are there and had all of

the contacts necessary with all five of our Congress people to help

push this courthouse project through. We won the contract. And we

won as a team. We were awarded the contract.

That is another thing that I want to say. Awarding numbers—

I heard the people talk here about what was awarded. Awarded

and what is collected are two different things. Watch those numbers, because they keep telling you what has been awarded. What

has been collected? What has small business people actually received? That is another number altogether.

We were awarded this contract, and it went on hold because of

budget approval, et cetera. When it came back, they thought, okay,

it is up for renegotiation. We were asked to jump through all kinds

of hoops to keep on this project. We have been carrying on our projections all along. We have been keeping the people busy saying,

well, when the courthouse starts, you will work from there. We

were running a business as we had been for 32 years. This is real.

Well, we were even asked to get a $100,000 bond. We are not

brick and mortar, but we got $100,000. Do you know what it costs?

We got it. Guess what? Seven years we have not collected one

penny off of that project. They have done everything to keep us off

of that project, yet we were listed as the elite women business

owner, minority business owner on that project. So that every time

you asked them who do they have, they would say us. They have

never used us. This is not new to us. This is new to us on this

level, but it seems like it has been more of a practice.

In New York City, we were asked to put in a workload disclosure

form. We were told that our workload disclosure form was not correct because they had us down as receiving other contracts that we

had no knowledge of. We were put on without our knowledge to

win the contract. But we were never told of it nor were we ever

utilized.

45

These are some of the problems, and you touched on them today.

Bundling is just adding to the problems because we have no voice.

We talked with another problem, collecting funds. As a subcontractor, it is very, very difficult to collect funds. I worked on

LaGuardia airport for 41⁄2 years. I was paid on an average of 72

days. To make that average for 41⁄2, there was some 160 days and

180 days in there that we went without pay while we paid seven

employees. Not only did we pay seven employees, but we paid

seven professional salaries. We are talking about $25 to $55 per

hour.

So I have everything else here. If you have any questions of me,

I would appreciate it. But bundling is not a good thing. It is just

going to add to the problems that we—they haven’t addressed already. If we are going to have goals, we need to put some teeth in

the goals. Thank you.

Chairman TALENT. Well, I couldn’t leave. It was so compelling.

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

Chairman TALENT. But I am going to go after I introduce Ms.

Cathy Ritter, who is the president of Constellation Design Group,

Inc., of the American Consulting Engineers Counsel. She has another very interesting story to tell. Again, thank you, Ms. Ritter,

for being here.

STATEMENT OF MS. CATHY RITTER, PRESIDENT, CONSTELLATION DESIGN GROUP, INC., AMERICAN CONSULTING ENGINEERS COUNCIL

Ms. RITTER. You are most welcome. My name is Cathy Ritter,

and I am president of the Constellation Design Group. We are a

21 percent woman-owned engineering firm in Timonium, Maryland.

In our business, bundling often results in contracts of a size of a

geographic nature for which small businesses cannot logically compete. I can give you a couple of examples. Several years ago a number of the Federal agencies started using indefinite quantity contracts for the procurement of architect and engineering services.

These contracts at that time were typically for a base period of 1

year with an option of an additional year. Their total annual fees

were from 250 to $500,000 per year. Then, individual tasks ran

from 25 to $75,000. This type of arrangement worked very well for

smaller projects and smaller firms.

In recent years, however, the trend for some agencies has been

toward very large IQCs with annual limits of a million to $5 million. It is unreasonable to expect that a small firm could compete

for those projects. They are not prevented from competing for

these, but it is unreasonable that a small firm would go after it.

I, too, am going to be in the process of cutting mine short. Small

firms cannot afford time and the money to pursue work that they

reasonably would not even be short listed for. These jobs that have

a million and $5 million in a year are unreasonable for small firms,

particularly firms like mine that are 21 to 25 people.

An addition concern is the increasing request for the multiple

and often disassociated services, in essence, the capacity for asking

for a firm to be able to do everything. We have an example. One

advertisement from the Bureau of Land Management in Oregon requested and I quote, ‘‘multi-disciplinary architect/engineering servVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00049 Fmt 6633 Sfmt 6602 E:\HEARINGS\60797 pfrm08 PsN: 60797
46

ices including architectural, structural, civil, mechanical, electrical,

landscape, environmental, asbestos abatement, interior, interpretive, geotechnical, estimating, specification writing, drafting, materials testing, and construction inspection.’’ Not likely in a small

firm.

The mind-set of multi-year, multi-discipline, multi-location,

multi-et cetera, et cetera, et cetera, favoring large firms located in

metropolitan areas is unreasonable. Such requirements limit the

Federal agency’s opportunity to utilize the services of qualified

firms that may be smaller and may be in smaller disciplines. Delivery orders of this type often have large geographical areas and

broad experience requirements, and they eliminate many qualified

firms from consideration.

Skipping down here. Many small firms’ only choice is to market

themselves to the large firms as subconsultants. Unfortunately, the

very large firms can provide all of these services in-house so that

cuts us out again. One other aspect that has been alluded to originally, Government agencies place great emphasis on past performance during AE selection, and hence identification as a prime is

being more and more important. Unfortunately, the agencies’ databases on AE performance keep records under the name of the

prime only.

So if a small firm is employed as a subconsultant, you do not

have the opportunity to develop a data base. So even if you went

as a prime later, there is no information in your file because they

don’t keep information on anyone but the prime. Again, same story:

some of the IQCs have been awarded, but many have had few or

no deliver orders executed. Agency offices tend to keep one or two

around just in case they need it. It is expensive for AE firms, no

matter the size, to be truthful, to market and obtain what we call

in our profession ‘‘hollow contracts.’’ The award of any size IQC

without strong indications of upcoming work is clearly detrimental

to any firm that is participating.

One other quick example: recent modifications of the Alaska district’s policies with respect to subcontracting will have a negative

impact on both engineers and on the prime contractors who are

performing environmental sort of work. The following definition

provided by the court itself is intended to define the approach to

obtaining best value and subcontracting: ‘‘because the type and

value of remedial action or construction services cannot be quantified at this time, agreements with team members subcontractors

shall not commit to an actual percentage to contract revenues. The

team subcontracts are nonbinding. No preferences will be given to

teaming relationships or to team subcontractors. A best value analysis would be required with all quotes submitted for each individual task.’’

Now, some of the problems with that are obvious. Let me just

jump to a couple of them. Prime contractors are the experts at performing construction, but they rely on their subs to help them get

the project and to put the proposals together. If teaming is not encouraged and these subcontractors do not participate in the initial

proposal effort, many of these primes frankly don’t have the expertise to qualify and compete for the contracts themselves. The subs

have no incentives to assist a prime contractor with his initial proVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00050 Fmt 6633 Sfmt 6602 E:\HEARINGS\60797 pfrm08 PsN: 60797
47

posal because, one, even after they have incurred all of this cost,

they have no assurance of any future work; and, two, they still

have to incur the cost on each individual task to be considered as

a sub.

Finally, relationships play a key role and help primes and subs

best provide service to the customer. By requesting that prime contractors openly complete subcontract work on each task order, the

advantage of any relationship is lost. ACEC has provided in our

written testimony certain things that we would suggest that indefinite quantity contracts be implemented, among them trying to use

a significant amount of each contract; ensuring that all of the pertinent information is provided in the announcement so that those

firms who are actually right for the job will know to go after it;

track and evaluate the subcontracting opportunities; and do not require the teams that are qualified to recompete for each and every

individual task.

We certainly appreciate your time, and we appreciate this opportunity. We will be happy to answer questions later.

Mrs. KELLY [presiding]. Thank you, Ms. Ritter.

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

Mrs. KELLY. Mr. Moore. I am sorry, Mr. Gonzalez. You would

like to introduce Mr. Moore?

Mr. GONZALEZ. I sure would. Thank you very much for the privilege, and I will keep it very short. It is my privilege and pleasure

to introduce Dan Moore, who is president of Moore’s cafeteria services that is headquartered in my district. It was founded in 1981

by his mom and dad, Genevieve and Mike Moore. This is a small

woman-owned business, as I said, that provides cafeteria services,

food services, to the private sector as well as to the military.

I think that we are going to find Mr. Moore’s testimony enlightening because it stands for the proposition that no matter how well

you perform, no matter how efficient or the quality of your product

and service, you may still be in a very precarious position if, as,

and when they decide to bundle. He will be addressing the Marine’s proposal and the regionalization of the food service’s contracts. I think that we have covered much of it. But again this is

going to be one of those examples that will bring it all home to us

today. So it is with great pleasure that I welcome my constituent,

Mr. Moore.

STATEMENT OF MR. DAN MOORE, PRESIDENT, MOORE’S

CAFETERIA SERVICES INC.

Mr. MOORE. Thank you, Congressman Gonzalez, for your kind introduction. My name is Dan Moore, and I am the president of

Moore’s Cafeteria Services. Moore’s Cafeteria Service is a small

women-owned business, that means that my mom is the boss. We

are headquartered in San Antonio, Texas. We believe that it is the

entrepreneurial spirit of the small businessman that is the very essence of our capitalistic system here in the United States. And it

is that spirit that you protect and promote here in this committee.

I want to thank you for your hard work and for your attention to

these issues.

Moore’s Cafeteria Services will be celebrating its 18th year in

business in just a few days. For the last 13 years we have had the

48

privilege of providing both mess-attendant and full-food services to

the Marine Corps at Camp Lejeune, North Carolina. In reviewing

our contract performance this past year, which is also a best-value

contract as you heard touted earlier today, the Marine Corps rated

us as exceptional in the areas of cost control and the quality of

product or service rendered.

I highlight these ratings by way of indicating to you the expertise

that small business has and has obtained in the last 13 years of

working with the Marine Corps. Small business has expertly and

economically supported the Marine Corps food service needs in the

past. We would like to continue to do so in the future. Small business has proven that, when the Marine Corps will compete their

work among small businesses, they will consistently receive great

value and excellent quality. This is why I am here today, to tell you

that this bundling of food services is not going to save the Government any money, that the Marine Corps’ description of their reinvention of food service is not smart reform.

The Marine Corps has proposed consolidating 15 of its existing

contracts into two regional contracts. That is bundling in spite of

their current claims. Both the Marine Corps and the SBA have told

us that the bundling of services is now required by law and that

small businesses must be content with a lesser role of subcontractor. We note, however, that the Congress and this Committee

has stated that each Federal agency to the maximum extent practical shall comply with congressional intent to foster participation

of small business concerns as prime contractors, subcontractors and

suppliers.

Secondly, that they have been instructed to structure their contract requirements to facilitate competition by and among small

business concerns, taking all reasonable steps to eliminate obstacles to their participation. And, thirdly, to avoid the unnecessary

and unjustified bundling of contract requirements that preclude

small business from participating in the procurement as prime contractors.

Please consider the Marine Corps’ action in relationship to the

intent of the congressional law. In 1997, the Marine Corps established five regional contracting centers. With this structure already

in place, the Marine Corps now plans to establish just two regions,

but only for the purposes of soliciting food service contracts and

then will send those contracts once awarded back to the previously

established regions to be administered.

It becomes apparent that the Marine Corps has established these

two artificial regions in an effort to exclude small businesses from

competing. In an effort to justify its need to bundle food services,

the Marine Corps has cited their need to incorporate advanced food

protection methods. That is better known as ‘‘cook and chill.’’ The

obvious question about cook and chill is what it is. Well, if you listen to the proponents of cook and chill you would think that it was

the food service equivalent of rocket science.

In fact, my first contact with cook and chill came in the 1960s

when my mom brought home some plastic bags and a heated seal

element which would allow her to cook a giant batch of her Irish

stew, seal it while it was still hot, and put it in the freezer. Proponents of cook and chill, and those are usually the people that sell

49

it, will tell you how much more sophisticated the technology has

gotten today and not to mention how much more extensive it has

gotten. But it is still the same basic concept.

Cook and chill proponents will still claim today what they did in

the 1960s, it tastes just like it did when it was first cooked. I have

to tell you my sisters and I never agreed that was the case. The

second question that occurs to me is how did the Marine Corps determine that the cook and chill was going to save them any money.

The Marine Corps in its industry forms continually cited studies

that they had done. When they were questioned about these studies, they declared that the primary study they were relying on was

done in 1987, which they had conducted in- inhouse and recently

indexed for inflation. However, when the Marine Corps received

freedom of information requests to produce this study, the Marine

Corps admitted there was no 1987 study.

So how did the Marine Corps decide that there was any savings

in cook and chill? We took a look for ourselves and we checked into

cook-and-chill plants. We found a lot of failures. The Alameda

County School District had to close their cook-and-chill plant just

to slow down the flow of red ink. The Reno, Nevada, school district

had to do the same. Cook-and-chill plant-supporting state agencies

in Tennessee located in Nashville is still open, but it is hemorrhaging. And the cook-and-chill plant in Albany, New York, is

still way below its projected return.

West Point has had a cook-and-chill plant for nearly 2 years and

has yet to produce a single meal. The Marine Corps has a cookand-chill plant in Okinawa which you heard about earlier which

they claimed would save the Government $200,000 a month. To

date they have only been able to produce some salad products out

of it, which are not part of the cook-and-chill process.

Besides all of these failures that I mentioned, it is important to

note that the Marine Corps’ concept of cook and chill would only

impact a small fraction of the work that we do in the mess halls,

less than 10 percent on those days. Where are all of the savings

going to come from? This is not smart reform. We asked the Small

Business Administration how the Marine Corps justified their need

to bundle food services. They indicated to us that the Marine Corps

was relying on a study that was done by a giant multinational food

service company. If the SBA is correct and the only study that the

Marine Corps has is from a large business who would be excluded

from bidding small business set-asides, it might be in the large

businesses’ self-interest to suggest to the Marine Corps their best

option would be to use a contracting process that would allow big

business to compete for that work and would also exclude as many

small businesses as possible.

If the SBA is correct, there are a lot of concerns that come to

mind, the obvious conflicts of interest, the study is relying totally

on vendor claims. By law, the Marine Corps is required to independently arrive at their cost estimates before they attempt a procurement. Because the Marine Corps has not independently developed their cost estimates, they have no real way of knowing what

they are going to save.

They also need to remember that a study is not a binding offer

developed to meet the Marine Corps’ actual food service needs.

50

They generally rely on industry standards and don’t apply to military operations. If cook and chill is the answer to the Marine

Corps, however, in saving them money, why spend any money at

all when cook-and-chill technology is already available and it is

free to them? The DSCP branch of the Defense Logistics Agency

currently handles all of DOD’s subsistence needs including the

prime vendor program which the Marine Corps currently uses.

They claim they can provide cook and chill right now at no cost to

the Marine Corps. In discussions with Thomas Langdon, the chief

of that branch, he has indicated to me that he can’t get the Marine

Corps interested in getting cook and chill for free. Why is that?

On the surface, it seems like a much more logical way to source

food through your food suppliers rather than through service contractors. In addition to violating the intent of the bundling legislation, the Marine Corps is blatantly in violation of the Federal acquisition regulations which requires contracting officers to set aside

exclusively for small business participations any procurements exceeding $100,000 where there is a reasonable expectation of receiving fair market value prices from at least two small businesses capable of performing the contract requirements. The contracting officer additionally is required to make a reasonable effort to ascertain

whether or not such offers will be received.

We would like to recommend to Congress that they encourage

the Marine Corps and the Department of Defense to halt this regionalization of bundling of food services to ensure that the SBA

and the Marine Corps follow the 1997 anti-bundling legislation.

Thirdly, to obtain a copy of any and all studies the Marine Corps

and the SBA utilize in regarding this initiative. Fourthly, we request that you would request from the SBA and the Marine Corps

that they provide independent studies of this issue incorporating

real and actual savings and analysis utilizing occupational manpower levels and not tables of organization. Five, we request that

you require DSCP to be consulted in determining if they can meet

the Marine Corps’s need for cook and chill. Six, if DSCP is unable

to meet the Marine Corps’ needs, require the Marine Corps to identify successful advanced food production operations that would

meet—that have met their preinvestment targets and determine

the cost effectiveness for the Marine Corps application. We would

also like to recommend that the Marine Corps be required to solicit

small business for their ideas on how the Marine Corps could economize their food service program. I would also like to recommend

that they ensure that public moneys are not used to build private

state-of-the-art production facilities.

Mrs. KELLY. Mr. Moore, you have gone way beyond your time. If

you want to just wrap it up quickly, that would be good.

Mr. MOORE. I would just like to say thank you for your leadership on this issue and your taking it to the forefront. Thank you

for your advocacy for small business. What you do here is going to

affect my industry for the next decade. Thank you.

Mrs. KELLY. We thank you, sir.

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

Mrs. KELLY. I thank all of the panelists. I would like to just ask

a couple of questions of my own. Mr. Head, how has the SBA and

the Department of Defense responded to your concerns?

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Mr. HEAD. Well, I think the SBA has been very helpful but only

to the point that they are allowed to be—they are only taking it

to the extent where the procuring agency—in our case, DOD—is

willing to come on board and help us further. I found SBA——

Mrs. KELLY. What have you found with the DOD?

Mr. HEAD. DOD it would appear—there are various aspects within DOD so I am lumping all of that together—in the early stages

they had their mind set this is the way that we were going to do

it, and they have rolled down that road. With some effort on our

part, the industry, and some involvement from Congress, there is

a willingness to listen and they are talking to us now. Unfortunately, they still have their mind set, we have ours, and there is

a lot of space in between the two. So there has been some progress,

but not to the point where we can go forward and feel that we are

in a real partnership with them.

Mrs. KELLY. What are the results of previous demonstration programs?

Mr. HEAD. We have basically four programs that are out there

now, some of which are coming to an end, some are just beginning.

The first pilot program which I referred to earlier was the Hunter

Army airfield program. That was, in a nutshell, the contract was

awarded to one large entity, a subsidiary of a multi-billion dollar

corporation. At the highest price, it was one of the first FAR-based

contracts that our industry has been involved in and the winner in

this case and the mobility was by far priced much higher than anybody else. That is point number one.

Point two is that the small business participation has literally

just dropped through the floor. Number one, you have eliminated

small business as prime contractors by giving the contract to one

entity so we are relegated to doing the business as subcontractors.

But even at that level, we are well below what we were experiencing prior to this pilot. Then I mentioned earlier the pricing that

has come out of that. Again, you all should be concerned as people

who spend our American tax dollar, has sky rocketed. There is no

cost savings in this whatsoever that has been identified. That is

just not my industry’s opinion, that is the opinion of GAO who has

done a study as best as they could because GAO in its June study

said they are unable to validate the information that has been provided to them by the Army and the Army audit agency.

There are other pilots in place, the military traffic management

has a pilot in place, but it has been running less than a year. It

is hard to say, but again in that one, even though my industry does

not support set-asides as the means to our problem, there are setasides in that. But again we have not been able to really look at

it, do any kind of analysis of cost or anything else. I will tell you,

based on my own personal knowledge, costs have been increased in

that program rather than being reduced. Everything else is either

in a developmental stage or so small it is not really worth—the

Navy has a small pilot program which is a total small business setaside, but less than 150 have moved through that, so it is not really good to do an analysis on that yet.

Mrs. KELLY. So we will need to follow up on that a little bit?

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Mr. HEAD. Yes, ma’am. I think what is on record already shows

us there is not cost saving coming as a result of contract bundling

in our industry.

Mrs. KELLY. Thank you very much. Ms. Hill Slater, I really have

to say that I relate to what you said in terms of some of the problems that you had experienced with regard to working very hard

to try to help get a contract and then suddenly discover yourself

out of that contract when the contract was executed. I find that

that has been a problem for small businesses across the Nation.

One thing you said, though, that I wanted to ask about, you said

that the Federal Government does not enforce use of or even track

to any significant degree those subcontractors who are key in obtaining a successful bid.

How would you think that we could ask the Federal Government

to do this without overloading you with paperwork?

Ms. SLATER. One more piece of paper won’t make a difference for

me. We do so much anyway. That is not the problem. I think that

they just keep track of—when you put in a proposal, you say that

you are going to use somebody, I think there should be someone

when you put in your requisition for money, you could put a—is

this your subcontractor, the same subcontractor? Have you paid

them? Are you using them? Where are they? It seems to be a simple form of whether or not you are used or not or even paid on

time.

Mrs. KELLY. That is actually my next question.

Ms. SLATER. The whole thing of being paid on time is ludicrous.

What they will tell you is as a subcontractor, they will say we will

pay you when we get paid. I think usually in their contract they

can pay you within 15 days after they get paid. That is not always

the case. One of the things that happened is they hold the subcontractor to a different level of having to be financially secure in

order to even be on the team.

Then there is no one holding the prime to that same scrutiny as

far as do they have the money to pay the subcontractors if they

haven’t put their bill in for 120 days, so that is why they haven’t

gotten paid because they haven’t bothered billing, where they still

have to pay the subcontractor. The other thing is it is a little different with brick and mortar. Brick and mortar subcontractors can

stop the work. When you are in the A&E business, you don’t stop

work. You just keep designing. You keep putting in your bills and

hope that you are going to get paid one day. It is a very difficult

situation. I tell people that I am not only in the engineering business, but also in the banking business, that I finance state and

Federal Government projects.

Mrs. KELLY. That is very interesting. But you know, what you

have just said it seems fairly obvious to me and others in the room

that if the Federal Government were to—once these prime contractors were given a contract, when the Federal Government pays

them, then if they got a feedback from the prime about documenting when they paid you, that is a fairly simple train to follow

to make sure that these things are happening.

Ms. Ritter, I will go to you because I saw your hand go up.

Ms. RITTER. I just wanted to say something. We have been conversing on women as in women-owned engineering businesses. We

53

do the exact same thing. The State of Maryland had a very simple

solution to this. It is just human nature, sort of. They began requiring the prime consultant to certify on their next invoice that they

had, yes, invoiced their sub, and, two, paid their sub. Whether or

not anybody truly goes back and looks at every one of those, the

act of having to put your signature down on a certification that you

have done that makes it all easier to do. It is a very, very simple

thing. It was a very simple request. Nobody—it takes another 2

seconds to do, and it has very much helped our situation in Maryland.

Mrs. KELLY. It kind of makes me wonder what Dr. Hayes was

talking about when he said it was so complicated because it doesn’t

seem to me from listening to you all that it could be that complicated. I thank you because I think this is a major problem for

small businesses, this lack of payment on time.

Mr. Smith, I wanted to ask you a couple of questions. First of all,

I was curious about why you all didn’t form a team. As I understand it, you didn’t have enough time to form a team to go for that

contract that you are talking about?

Mr. SMITH. I am not sure what you are saying about forming a

team to go for a particular contract.

Mrs. KELLY. You said if the Navy consolidated its janitorial service contracts.

Mr. SMITH. If they were to bundle, yes. We would be in a subcontracting role. I presume that to get on partners. I have had experience with partners. It simply doesn’t work. We started off as entrepreneurs, entered the 8(a) program, which was designed to develop

our business to the point that we could become our own prime contractor and move onto larger contracts.

Mrs. KELLY. I understand that, Mr. Smith, but my question really goes to the fact did you do any outreach to other people that

could provide the services that were in the bundled contract forming a team to try to get that contract for a group of you?

Mr. SMITH. I haven’t actually lost the contract through the bundling process. I have been notified that both of my contracts will

be coming to an early end. One of the contracts, my very first contract, was a sole source which is used to help develop the 8(a) contractor. I used that experience to go for a competitive bid. I came

in as a low bidder, $100,000 less than the next lowest bidder. I

have been performing that contract for hundreds of thousands of

dollars less than any previous contractor. This was verified through

the Freedom of Information Act.

I did so by innovative management, purchase of equipment, and

training. Some of the things I did, were the replacing dispensers

in the facilities, I did so at my own expense which is something

that the military contract should have taken care of, but the projected savings would have been great enough in labor costs that I

did it anyway. And the reward that I received for this is that they

are telling me that the contract is going to be cut short several

years. Now, I was able to get this equipment through lease arrangement, not based on the strength of my company, but the

strength of a contract with the Federal Government. They said if

you have a 5-year contract, yes, we will go along with you if you

sign a 5-year lease, which I did; but the contract will be short and

54

I will still have this 5-year lease; and the military will still have

this equipment that I installed in their facilities that will go to another contractor. Now, how exactly they are going to save money

there, I am totally lost.

Mrs. KELLY. Has the SBA offered you any help along this line?

Mr. SMITH. The local SBA has been very supportive.

Mrs. KELLY. Thank you very much. I have got to find your testimony.

Ms. SLATER. I would like to ask a question because I have heard

this kind of story. What happens here is I don’t know whether he

has an SBA loan also. Because usually sometimes when people get

a good sized contract, they get an SBA loan as well as being able

to get leased, and then when the Government pulls the contract,

such as this one being pulled earlier, they default on their loan as

well as on their lease payments; and it puts them into a very bad

situation. I have seen businesses—I have been down here for 32

years—go under because of this. It seems that it happens to more

8(a) firms than anybody else.

Mrs. KELLY. Ms. Slater, I really appreciate you bringing that

point forward. That is good information for us to have here. And

I thank you and Mr. Smith for pointing that out. I wanted to go

back here to Ms. Ritter here for just one minute talking about the

teams again. I am just going to try to very quickly here hit a couple

of things. When you are talking about teams on page 5, you were

talking about making sure that they get—the prime contract is entered into based on negotiation, provides adequate competition, and

assures that the USACE is getting best value without the need of

openly competing subcontract work on an individual task-order

basis. You have found that by teaming, I assume, that this is a way

of functioning and it does work for you; is that correct?

Ms. RITTER. Absolutely. In the AE industry, we most often get

our contracts by qualifications-based selection, which means that

you put the best team together that you can. As I said, part of that

team is the relationships that you have with each other. There may

be two firms that are equally technically qualified but perhaps for

some reason they operate better with other prime consultants than

not. So establishing a team and then working together as a team

is all part of securing the project and then being able to provide

the best quality engineering and design services that are possible.

Often—I can’t speak for Ms. Slater—but often in Maryland we

find the same teams over and over because we work well together.

I have been in business 18 years, and you kind of find the folks

that you deal the best with and that provides the best quality engineering design to the customer.

Mrs. KELLY. Can you just discuss quickly the financial, geographical, and liability charges that the current use of the ID/IQs

pose to small firms in the architectural and engineering area.

Ms. RITTER. Sure. Financial is often—she gave great testimony.

Financial is often you say that you are going after a particular

project and you submit the resumes of seven, nine, 10 professional

engineers, and then if you don’t know forever whether or not you

have that job or whether or not there are actual tasks assigned to

it, you have carried those people for seven, nine, 10, however long

it takes.

55

Geographical, there was an example which I don’t have here of

a Bureau of Land Management project out in the western States

that they wanted you to be able to perform, load these many different tasks in seven different States. When the States are Alaska,

Washington, Oregon, New Mexico, Colorado? How many did I

name? Anyway, the point is that if you are a small firm, being able

to provide the engineers for all of the States is a little difficult because we have to be registered in all of those States.

Then the last one was liability. If you have a project where an IDQ where the upset limit is one to $5 million, often the professional liability that they would like to see is more than a small

firm can afford to carry. My professional liability is the second

highest cost to my company in the year’s time other than health

insurance. So if I had to increase any liability insurance just in

order to be able to go after the project, that in itself is a financial

cost.

Mrs. KELLY. Thank you. Anybody else want to——

Mr. HEAD. Just a point on teaming and I think that you touched

on it. There are a couple of forms that bundling can take, the bundling of associated services or products and then there is the geographic aspect of it. I think that is one that needs to be emphasized. When you take someone who is operating in a market, and

that market could be small, medium or large, but you expand it by

way of expanding the scope of the contract, you really put a small

company at a disadvantage. In some cases you are forcing them to

work with someone who is their competitor which is very hard to

do. But as she just mentioned trying to go out beyond your normal

scope and identify who the potential players are, let alone spend

the time and money to go interview and talk to them and put a

team together, it really is a disadvantage to a small business.

Thank you.

Mrs. KELLY. Thank you. Mr. Moore, I just want to ask you one

question. That is have you any idea why the Marine Corps would

have gone to this—moved to these large regions since it is obvious

that the cook-and-chill is not going to address the full food needs

in any one meal. It is only going to be a portion of any one meal

and some meals are going to have to be totally done on site. Are

you willing to hazard a guess on that one?

Mr. MOORE. Let me attack it this way by saying there is no practical reason to do it. I mean, to go any further would be to speculate to their motivation and none of that is good. Let me elaborate

on that for just a second, though. What we would actually end up

doing is breakfast, for example, for the Marines wouldn’t change a

bit. All of that is done cook to order. Lunch, 60 percent of what I

serve is fast food. So lunch for the most part is not touched and

dinner is in the same condition.

What cook-and-chill actually touches are those things which are

pumpable. The whole idea is to take all of the food that they are

going to eat that is a pumpable item, such as spaghetti sauce. And

instead of 12 different mess halls cooking spaghetti sauce, you

would take a giant steam kettle that has a pumping system in it,

and you would cook off 200 gallons of spaghetti sauce all at one

time. Then you would bag it and freeze it and tumble chill it, depending on which method they choose, and send it to the mess

56

halls to be refirmed and served. There is no economic reason to do

it as far as Government savings is concerned. If there are any economic advantages, they are not in the public sector.

Mrs. KELLY. Thank you. Ms. Hill Slater, I didn’t mean to ask

these questions, but your testimony again keeps bringing up things

in my mind. You spoke of in your testimony the fact that you had

been kind of—a subcontract was shifted to a male-owned womanfronted firm. Do you find this happening in your constituency with

the women-owned businesses? Are the women actually owning

those businesses or are these women fronting?

Ms. SLATER. On a whole, most women that say they own businesses will certify they really do own their businesses. This particular woman is a qualified women-business owner. She is a PE.

She does not, however, put one foot in our office and she is a housewife and her husband runs the firm day to day. That is the difference there. So she has all of the certifications, but she does not

run the business.

Mrs. KELLY. Thank you very much. I turn now to my colleague

from New York, Ms. Vela ́zquez.

Ms. VELA ́ZQUEZ. Thank you. I just want to thank you all for your

great testimony. It really brought a lot of insight to what is going

on up there for small businesses. You have got my commitment

that we will do everything that we can to correct the inequities.

We heard in the previous panel that we had this morning a lot

on the cost saving or imagined cost savings the agencies say they

can get. Can you give me an idea of the cost to you when it comes

to bundling? Any of you?

Mr. SMITH. Dollar cost, I can’t give you a dollar cost; but it is

going to cost me 80 percent of my business if they bundle 80 percent. This was not achieved by someone handing me something.

Like I said earlier, I went out and competitively bid and used my

innovation and training to achieve a small profit. I took on the job

with such a small profit to use it as a stepping stone to go on to

something bigger and use that on my resume. Actually, the cost

would be my whole business. The jobs of at least another 60 percent of my personnel or more would be a cost that I would incur,

I don’t know. A lot of people would be unemployed. To put a dollar

value on it, I would have difficulty.

Ms. VELA ́ZQUEZ. If any of you would care——

Mr. MOORE. It would cost Moore’s Cafeteria Services $7 million

a year.

Ms. VELA ́ZQUEZ. In terms of your business?

Mr. MOORE. Yes, ma’am.

Ms. SLATER. It costs to be a subcontractor because you don’t have

control of your money when you don’t get paid in that sense. It

costs time to put in for proposals. It costs time and money to hold

onto people that you don’t know whether will be used or not. And

you cannot run a business on bogus contracts.

Ms. VELA ́ZQUEZ. We have heard testimony that if bundling occurs

there is always subcontracting. I would like to ask any of you the

following question: Do you want to be subcontractors or prime contractors? And if you care to share with us, if any of you have been

a subcontractor, what you experienced in terms of the difference of

being a prime contractor and subcontractor. Mr. Head.

57

Mr. HEAD. To answer the previous question, from my industry’s

perspective, if bundling continues at the rate it is and escalates as

it is, the ultimate price is to be paid. That is the total elimination

from business altogether. That is one point. As far as choice of subcontractor or prime contractor, I don’t know why anybody would

want to be a subcontractor if they had the options of being a prime.

As a subcontractor, you give up all rights that you have whether

it is a FAR-based contract or not. You are totally subservient to

that prime.

As was testified earlier, the Government really doesn’t put any

enforcement on the prime as far as how he handles the subcontractor. I could tell you in my business and probably a lot of these

others, there are many primes that are excellent, well-run companies; but many of the others run through subcontractors, never

paying them ever. When that job is done, they will just go to the

next guy and the next guy and eat up subcontractors. We as subcontractors have nowhere to go.

Ms. SLATER. Ms. Vela ́

zquez, it is almost like saying that I have

been rich, I have been poor and rich is better. Being a prime is

much better than being a subcontractor. To be in control of one’s

fate is more than—is what we want to be. When we go into business is to be in control and to be able to ask for our money when

our money is due and to be held accountable for the work that we

do and not to have to answer to layers of people that don’t have

our best interests at heart.

Ms. RITTER. I would very definitely agree. I would not disagree

with that at all. I would like to make one real quick comment.

Someone asked a question about did you consider putting a whole

bunch of small firms together and make a bid on a particular contract yourself. That is easily said. It is not so easily done. In our

business we call those joint ventures when you get a number of engineering firms together and you create a joint venture. That is a

legal entity. It requires lawyers and attorneys to draw up the papers, accounting-wise and so forth. It goes on for a while. You already are at a disadvantage to the large firms because you have

incurred all of that just in order to be able to submit a proposal,

whereas they have gone down the hall and asked their marketing

department to put it together. It is not as easy as it sounds.

The previous panel said that we encourage those folks to get together. That is not always the answer because you are still not operating as a prime. You are, but you are not. You are operating

with all of these partners that you have to get signatures from

every step of the way and all of that. As Mr. Head alluded to, if

those partners are in Alaska, New Mexico, Colorado, and California, the costs incurred are more than a small firm is willing to

go.

Just to answer your previous question, I think in the AE industry, the cost is really incurred by the Federal Government because

most of the small firms in the AE industry are just plain not going

off those projects at all. They are just ignoring them. So asking

what the cost is, right now the cost is none. We are not even considering them.

Ms. VELA ́

ZQUEZ. Thank you.

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Mr. SMITH. Being an entrepreneur, it is more than just a word.

I am an entrepreneur as we all are here. The nature of the entrepreneur is to be his own person. It would be like asking a football

player or quarterback to be a water boy just to stay on the team

or an artist to start handing paint to someone else or pouring it

into a machine to do mechanical paintings. We are entrepreneurs.

No, I would not want to be a subcontractor. I took all of the risks

of leaving a job, what they called a good job, civil service, but it

was a job. I had no desire to work for someone. I wanted to do my

own thing.

Ms. VELA ́ZQUEZ. Thank you. Mr. Moore.

Mr. MOORE. I don’t think that it is to the government’s advantage that we kill the greatest part of the competition that exists.

In my contracts, particularly the one that I currently have at Camp

Lejeune, there were 30 different small businesses that bid on that.

If we form some sort of coalition, there is that many less people

competing it. It is in the government’s best interests that we compete with each other. We bring to the table with us our own individual insight into management, our own individual insight into

cost savings. In our case we returned $2.5 million to the Government up front when we won our contracts simply because we were

that much lower than the next bidder. I have been on the contract

15 years, and it was not a misbid. It was the fact that it was competed that the Government saved that $2.5 million.

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

Mr. SWEENEY [presiding]. Mr. Abercrombie, the gentleman from

Hawaii.

Mr. ABERCROMBIE. Thank you, very much. I must say my friends,

that when you talked about trying to put this team concept together that they put forward to you so cavalierly, it reminded me

of General Clark trying to organize the Kosovo conflict, having to

deal with 19 different nations deciding who in the hell is going to

be able to bomb somebody. In this instance, it seems that you are

the ones being bombed. I was pretty hard with some of the people

that were here before. I don’t want to give the wrong impression

on that. I am upset with them because I wish they would be swinging the bat on your side instead of against you, particularly from

the Small Business Administration.

I would like your comments. I think from what I am gathering

out of this and out of the material here, the SBA needs some real

clout. They need some enforcement clout. They need to be able to

go to the Department of Defense or any of the other departments

and say, look, here is the what the deal is and you are going to

do it or we are going to sanction you. They need to be the cop on

this beat it seems to me. Somebody has got to be the cop on the

beat. I don’t think that you could do it internally Like the Department of Defense, Mr. Moore. I don’t think you are going to get that

internally. You have got to have somebody be able to come in and

make that happen. Does that make sense?

Mr. MOORE. That is exactly right. The Department of Defense

isn’t going to police this issue. Small business has got to be the one

that steps up and advocates for us. There is nobody else.

Mr. ABERCROMBIE. Not just be an advocate, but they have got to

have some enforcement power. They need to be able to say this is

59

the way that it will be done and it has to be enforced. They

shouldn’t have to go to court and prove it or some appeals judge

or anything. They should be able to decree whether or not the contract is being lived up to correctly. Does that make sense?

Mr. MOORE. It does. On that very point——

Mr. ABERCROMBIE. We can legislate that, can we not?

Mr. MOORE. You sure can.

Mr. ABERCROMBIE. Let me ask apropos of that. This has to do

with payment. You folks were here, I think, when I was questioning before. Unless I am losing my hearing in my old age, the

way that I heard it is I could not get an answer to the why and

how, especially on the how part. How do they do the enforcing?

They say they are committed and this and that. Everybody is committed. What is the argument about when you have got ham and

bacon, the pig is committed? There is no question about that. I am

sure Mr. Moore understands that part, but that doesn’t solve anything for the pig.

On this particular instance, unless there is a mechanism to enforce prompt payment and a sanction attached to it, I don’t think

that it is going to happen? Am I correct on that? You are always

going to be on the Oliver Twist side of things. You have got your

begging bowl out there and if somebody wants to fill it full of gruel,

fine. But if they don’t want to do it, you are standing there with

your begging bowl. Am I correct? Now, what would it be if we could

write legislation that said if you did not get paid in the same 2

weeks, quick pay—isn’t that the period that prime gets it in, 2

weeks? Isn’t that right? Is that correct? Fourteen days. Is it 14

working days?

Mr. MOORE. Ten-day prompt payment.

Mr. ABERCROMBIE. Why shouldn’t you be paid 10-day prompt

payment or the contract gets suspended for the prime, if you happen to be a sub?

Ms. RITTER. The only problem with that is it also gets suspended

for the sub.

Mr. ABERCROMBIE. Why?

Ms. RITTER. Because if the only legal agreement is between the

agency and the prime——

Mr. ABERCROMBIE. I am talking about where the agency pays the

prime. You could suspend the prime or not allow them to have a

further contract.

Ms. RITTER. Not allowing them to have a further contract is

okay. But cutting that contract off also cuts us off.

Mr. ABERCROMBIE. No. The way that I am thinking of it then is

the way here. You would be held harmless. The agency would pay

you. No reason why they can’t do that.

Ms. RITTER. Right now, I think legally there is——

Mr. ABERCROMBIE. Legally because they only have the contract

with the prime. There should be a pass-through in the contract

that is signed with the prime. I am not trying to keep you from

being primes; I will get to that. I am saying should you be a subcontractor, there should be in the original contract with the prime

a pass-through or its equivalent requirement that is part and parcel of the original contract, that is simply required of them.

60

Ms. RITTER. It sounds like a terrific idea. I would applaud your

efforts to do that. Let’s not lose sight of another problem that Ms.

Hill Slater brought up, that we also don’t have any control of when

the prime decides to submit your invoice. If I send an invoice to a

prime today, I have no idea when he is going to submit that to the

agency. It could be with his—I say his, with its invoice this month.

It might be in their October invoice. I have no way of knowing that.

Mr. ABERCROMBIE. I think that goes back to what we set up in

the first place with the responsible agency. This is elementary

stuff, the same kind of thing that you require yourselves. If you

have a salesperson working for you, you don’t say, well, submit the

activity that you got, if you don’t do it this week, do it next week,

or something like that. If you have an order out there that we are

supposed to have that in 30 days, take a couple weeks to turn it

in.

You don’t have that in your own business. You have rules and

procedures that have to be followed or the person isn’t going to be

working for you very long. If you don’t follow it yourself, you are

going to be out of business. I keep thinking of my dad. I got my

start in life—I am sure all of the politicians here can appreciate it.

My dad was a retail food broker. I was in the retail food trade coldcalling people to try to get pickles and baked beans on people’s

shelves and saying that we would service it for them. I had a delicatessen saying, what do you mean, you are going to come out here

and service a half dozen jars of pickles? I said, if I want your business, I will. You better believe I am going to do it. I don’t want you

to have to think about it.

That is the way that my dad did business. When Don Abercrombie showed up, you knew it was being done right. You didn’t

have to give it a second thought. That was servicing. And servicing,

there is no magic to services. You know who is doing that. I just

don’t—I don’t see any of this. I think this is just the big guys kicking the living hell out of you and taking the money and run and

they don’t have to own up if it doesn’t work out. It seems to me

that we should be able to write some fundamental legislation here

with respect to procedures and the quick pay.

I think that we need to look into how much the prime is able to

take away from the sub, too. In my State we have rules on that.

You can’t use the prime as a club to beat the subs into the floor

so that you can make a profit or unfair profit off of them. That is

something that I think needs to be looked into it. Let me just ask

a couple of more. I appreciate your indulgence, very much, on this.

Mr. Smith, I was not here when you were first speaking. I had

to be elsewhere. You indicated that your contract is being pulled

early. How is that possible? If you are fulfilling all of the terms of

your contract, what kind of a contract is it that says one side can

pull out of it? I don’t expect that you could pull out of it if you

wanted to or try to change the terms of the contract with the DOD.

Mr. SMITH. I was simply notified that my contract was going to

be part of a bundle.

Mr. ABERCROMBIE. What part of your present contract gives

them the right to say, well, we are changing the rules on you?

Mr. SMITH. I have no idea.

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Mr. ABERCROMBIE. Mr. Chairman, I think that is something that

needs to be looked into. My view of a contract is both sides have

to live up to it. I don’t think that the Federal Government has the

right to say, I am going to live up to the contract as long as I find

it convenient.

Mr. HEAD. Unfortunately, many of them are written that way.

That is the term that is used, ‘‘for convenience of the Government.’’.

Mr. ABERCROMBIE. That is something that we have to look at. I

don’t see how you can be required to make investments of yourself

and then you leave that for somebody else to pick up on. That is

fundamentally unfair.

With respect to, Mr. Moore, the Marine Corps there, is this service-wide? Do you have any information on that? That each of the

services—I am on the Armed Services Committee—to my knowledge has a food supply division or sector.

Mr. MOORE. The Marine Corps has represented that it is about

to be service-wide. Everybody is watching to see what the Marine

Corps does with theirs and how successful it is to implement their

own.

Mr. ABERCROMBIE. Why would they go outside of their own supply systems?

Mr. MOORE. It makes no sense. For the public good, it makes no

sense at all. Whether there is personal gain involved or not, I can’t

address that issue.

Mr. ABERCROMBIE. I see. Last question that I would like to ask:

Do any of have you any opinion as to whether or not some of the

people who are involved in doing these contracts and so on, do you

have any information, anecdotal or otherwise, about people leaving

the service and then going to work for the companies they have

been dealing with as agents for the Government?

Mr. SMITH. I simply know of one company. All employees are

former Government employees.

Mr. ABERCROMBIE. Do you think it might be a good idea if we

wrote legislation saying, for example, that somebody who has done

business as an agent of the Government could not then become an

employee of a company, say, for 2 years or something after they

leave?

Mr. SMITH. Yes.

Mr. MOORE. Absolutely. In our industry, the top levels on the

military side have complained for years that there is no revolving

door for them because the industry is cluttered with mom and pop

operations where there is no lateral move for them from the Government into our industry. It just happens that if the SBA is correct and their evaluation of what is going on or the Marine Corps

is relying on to make this move, they are, in fact, inviting a large

corporation that would have those types of revolving door jobs

available to them.

Mr. ABERCROMBIE. I see. Thank you, Mr. Chairman. I would like

to indicate or hope for the record that we need to take up that

question as well because I don’t think that we can assume that all

of these contractual negotiations would necessarily be taking place

in an objective context.

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Mr. SWEENEY. I thank the gentleman. It will be noted as the

highest priority. We all want to ensure that there is at least an

arms-length agreement.

Let me just say this about the quick-pay issue. The Committee

has already had conversation and been in with the subcontractors

association. We have asked them to work with us on developing

some options that may exist to deal with the privity issues so that

there may be the development of a more direct relationship between subcontractors and the government agencies so there may be

some at least dispute resolution.

Mr. ABERCROMBIE. You would certainly have my support on that,

Mr. Chairman. Thank you.

Mr. SWEENEY. I thank the gentleman. Now, the gentlelady from

California, Mrs. Napolitano.

Mrs. NAPOLITANO. Thank you, Mr. Chairman. I take very great

exception to the way that small business is treated sometimes by

Federal agencies. So you will hear me side with small business at

every opportunity I can simply because that is the backbone of my

economy in California. I would like to pose to you a challenge possibly to give us information how you feel we can best address the

issues that are facing small business in the bundling area. What

is it that you think is going to help?

We can sit here with all of our very able consultants, but a lot

of our people are not the hands on. What is it that you feel, how

can we close loopholes, what do we need to do as Members of Congress, what steps do we have to take to be able to ensure that, one,

we increase the assistance to small business so they can become

the contractors, the minority and women-owned contractors that

we so desperately want to increase participation from? How do we

get the agencies to understand that we mean business, business

means business. And I mean literally mean business, the economy.

And how do we put it in words so that there will be no mistake

in anybody’s mind what the end result is, and that is to prosper.

As you prosper, so does the rest of the country. How do we begin?

This is a challenge for me and also for you, I do believe, and

other small businesses like you. What do we need to do? We can

talk all we want, but unless we define a path, begin to put it in

a proposal and put it into language, then we are all spinning our

wheels. I would ask you to consider that. If you want to send them

to me, I am certain the Chairman, both the ranking minority person and the chair would be exceedingly thankful for some guidance

to the business community. I know I would. Any suggestions?

Ms. SLATER. I have one suggestion. This is hard ball and may be

extreme, but I think that I know that in private industry this is

the way it works. If you don’t deliver, you are out of business. Well,

if the head of an agency can’t deliver a 5 percent goal for women,

maybe they don’t need to be head of that agency. This is as simple

as that. If we—that goes as far as 5 percent goal. But also bundling. Bundling is not good for business. If business is saying that

it is not good for business, why are we still talking about it? I don’t

understand it. I thought that we are supposed to be saying—I

thought—they are making rules that have nothing to do with us.

I am missing something here. It is going backwards. We are being

dictated to instead of dictating to the law makers. Bundling, where

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are the people—do you have a similar panel like this that says

bundling is good?

Mrs. NAPOLITANO. No. We have a work——

Mr. ABERCROMBIE. If the gentlelady will yield, unfortunately

there are some. There are people that say that. They are the ones

that have taken advantage of it. They are the kind of broker outfits

that I talked about before. So this is—there is a competition going

here. This is David versus Goliath.

Ms. SLATER. You know, it really isn’t. Small business is the economic engine of this country. They may be bigger individually, but

they are not bigger collectively. Small business is what runs this

country. We employ more people than the Fortune 500, so we

should have the bigger voice.

Ms. NAPOLITANO. One of my suggestions, Ms. Hill Slater, would

be the possibility of getting small businesses a contract with Federal agencies together to form a coalition and go at it. I am talking

as a businesswoman and as a person who has seen a lot of this

happening in my area. And not to say that they are not trying. I

don’t know if you have ever worked for a Government agency, but

bureaucracies are at its highest in the many areas that I have

dealt with. How do you reform their thinking? That was my direction earlier with some of the members in the prior panel, how do

we get the career bureaucrats to understand that we really do

mean business because it is important for the economy, it is important for small business.

It just does not penetrate. It is business as usual until we take

some effective steps and I mean effective, not just talk steps. Somehow we need to put that in proper perspective. I haven’t heard anybody say this is what we need to do and this is where we are going.

I congratulate the Chair and the ranking member because they

have really advocated for small business, but we need your help if

you can identify some areas that we can make a difference and how

to do that.

Mr. MOORE. Congresswoman, just one of the steps that jumps

out from being here today is there was a discussion earlier in the

day about an initial idea of cost savings of 20 percent, quality improvement of 10 percent, cycle time improvement of 10 percent. It

really doesn’t matter what numbers they put on that as long as

there is something. Today they can’t even show that there is any

improvement and they are going forward. There needs to be something in place that stops them until they can at least show there

is an improvement of some kind at least in some area in order to

go forward rather than a simple preference for large business.

Ms. RITTER. One of the other issues—and I am speaking before

I have thought my words through, but I am trying to make a correlation between what you just said about career bureaucrats and

Mr. Smith’s definition of entrepreneur. There is no understanding—that is not fair. There is very little understanding at the

bureaucracy level of the sorts of things that these five people have

done. If you have never put your children’s education on the line,

if you have never put your mortgage on the line, there is no understanding of that. How that education comes to pass is difficult. But

that is part of the problem. You hit it on the head. In the States—

in the western States that are bundling these big AE services toVerDate 11-MAY-2000 14:33 Jul 25, 2000 Jkt 065423 PO 00000 Frm 00067 Fmt 6633 Sfmt 6602 E:\HEARINGS\60797 pfrm08 PsN: 60797
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gether, in their minds they are saying what a thing, I have got all

of this out of the way in that amount of time. And they don’t know

the Mr. Smiths and the Ms. Hill Slaters and Mr. Heads down the

line. They have lost their businesses because of one fell swoop decision they have made. So there is an enormous lack of understanding between the various groups involved. That is an education

process I don’t know how we would solve.

Ms. NAPOLITANO. That leads back to my issue on training and retraining. Thank you, Mr. Chairman.

Mr. SWEENEY. I thank the gentlelady. Let me just say in conclusion that I want to commend the panel. You probably are folks who

least could afford the time that you have expended today. We understand that and appreciate that. But your insight was of great

value. Let me just also address Mr. Moore and Ms. Ritter and your

statements underlining all of this as well as not—the question of

are we saving anything here in terms of dollars or resources or

other things. But what is the quality, the result in quality? I think

that you have shed some real light on it. I want to thank you for

that.

With that I will conclude the hearing by asking for a motion for

unanimous consent to leave the record open for 10 days for further

comment.

Ms. NAPOLITANO. I move.

Mr. SWEENEY. Do we have a second, Mr. Abercrombie?

Mr. ABERCROMBIE. Oh, sure, you bet. Second.

Mr. SWEENEY. All in favor, say aye? Done.

Mr. ABERCROMBIE. That is a guest eye.

Mr. SWEENEY. We are adjourned.

[Whereupon, at 2:22 p.m., the committee was adjourned.]

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