U.S. GOVERNMENT PRINTING OFFICE

60–970 WASHINGTON : 1999

PROPOSED CHANGES TO PART 9 OF THE FEDERAL ACQUISITION REGULATION RELATING TO

CONTRACTOR RESPONSIBILITY

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

WASHINGTON, DC, OCTOBER 21, 1999

Serial No. 106–37

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)

C O N T E N T S

Page

Hearing held on October 21, 1999 .......................................................................... 1

WITNESSES

Davis, Hon. Thomas M., Virginia, United States Representative ....................... 4

Lee, Hon. Deidre, Administrator, Office of Federal Procurement Policy ............ 7

Spector, Ms. Eleanor, Director, Defense Procurement, Department of Defense 9

Ballentine, Mr. James, Acting Associate Deputy Administrator, Small Business Administration ............................................................................................. 11

Schooner, Mr. Steven, Professor of Law, accompanied by Kovacic, William,

Professor of Law, GWU Law School ................................................................... 32

Alford, Mr. Harry C., President, National Black Chamber of Commerce ........... 36

Slater, Phyllis Hill, President, Hill Slater, Inc ..................................................... 38

APPENDIX

Opening statements:

Talent, Hon. James .......................................................................................... 52

Vela ́zquez, Hon. Nydia ..................................................................................... 56

Prepared statements:

Davis, Thomas M .............................................................................................. 60

Lee, Deidre ........................................................................................................ 66

Spector, Eleanor ............................................................................................... 73

Ballentine, James ............................................................................................. 79

Schooner, Steven .............................................................................................. 90

Alford, Harry C ................................................................................................. 123

Slater, Phyllis Hill ............................................................................................ 128

Additional material:

Statement of Representative James P. Moran ............................................... 133

Statement of The Associated General Contractors of America ..................... 136

Letter to Chairman Talent from R. Bruce Josten, Executive Vice President, U.S. Chamber of Commerce ............................................................... 149

Letter to Chairman Talent from William T. Archey, President and CEO,

American Electronics Association ................................................................ 155

Statement of LPA, Inc ...................................................................................... 167

Letter to Chairman Talent from Stanley E. Kolbe, Jr., Director, Sheet

Metal and Air Conditioning Contractors’ National Association ................ 177

Press Release of Mechanical-Electrical-Sheet Metal Alliance ...................... 179

Memorandum from Francis X. McArdle, Managing Director, The General

Contractors Association of New York, Inc .................................................. 182

Letter to Chairman Talent from Lawrence F. Skibbie, President, National

Defense Industrial Association .................................................................... 183

Statement of Gary D. Engebretson, President, Contract Services Association of America .............................................................................................. 187

Letter to Ms. Laurie Duarte, FAR Secretariat, from Chairman Talent

and Ranking Member Vela ́zquez ................................................................. 197

Post-hearing questions submitted to Honorable Deidre Lee ........................ 201

Honorable Deidre Lee’s response to post-hearing questions ......................... 203

Post-hearing questions submitted to Mr. James Ballentine ......................... 239

Mr. James Ballentine’s response to post-hearing questions ......................... 241

(1)

THE PROPOSED CHANGES TO PART 9 OF THE

FEDERAL ACQUISITION REGULATION RELATING TO CONTRACTOR RESPONSIBILITY

THURSDAY, OCTOBER 21, 1999

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Committee met, pursuant to call, at 11:00 a.m., in Room

2360, Rayburn House Office Building, Hon. James M. Talent

[chairman of the Committee] presiding.

Chairman TALENT. The hearing will come to order, please.

I want to welcome everybody. Our hearing today is about a proposed rule change in the Federal Acquisition Regulations and how

that proposed change will hurt the small businesses that contract

with the government to provide a wide variety of goods and services.

On July 9, 1999, the agencies with primary responsibility for developing federal procurement regulations issued a proposed rule

that is purportedly designed to clarify the existing standards by

which contracting officers make responsibility determinations prior

to the award of a contract.

In particular, the proposed rule would require that contracting

officers find that a prospective bidder is not responsible if the contracting officer has persuasive evidence of lack of compliance with

tax laws or substantial noncompliance with labor laws, employment laws, environmental laws, antitrust laws or consumer protection laws. Those are only examples.

In fact, the contracting officer could find a lack of responsibility

for violations of any of the regulations in the single-spaced 17 linear feet of the Code of Federal Regulations. Contracting officers’ efforts to clarify the responsibility standard permits the contracting

officers to find a business non-responsible based on persuasive evidence—a standard of evidence which does not currently exist in

civil, criminal, or administrative law.

What the federal agencies view as a clarification, small businesses view as a trap preventing them from being awarded federal

government contracts. As Congress recognized when it enacted

SBREFA, the Small Business Regulatory Enforcement Fairness

Act, it is especially difficult for small businesses to stay abreast of

the changes made in the Code of Federal Regulations, much less

be experts at complying with all of those rules.

Thus, a series of technical violations, such as not having material

safety data sheets, could result in a finding of non-responsibility.

2

And if one contracting officer finds that the small business lacks

appropriate business ethics and integrity, another contracting officer considering the same violations for a different contract would

be hard put to reach the opposite conclusion.

The end result is that a small business could be prevented from

contracting with the government for what is the regulatory equivalent of a combination of parking and moving violations.

What I find even more distressing is the contracting agencies’

lack of concern for the potential adverse consequences to small

businesses. The agencies determined that the proposed rule is ‘‘not

expected to have a significant economic impact on a substantial

number of small entities.’’ Well, if you are a government contractor,

I can think of no more severe penalty than being prohibited, without appropriate due process procedures and by the ad hoc actions

of contracting officers, from doing business with the government.

And little doubt exists that small businesses represent a significant portion of the federal contracting community. In fiscal year

1998, small businesses were awarded nearly three-quarters of all

Federal Government procurements with a total value of more than

$33 billion. Potentially adverse significant consequences of the proposed rule have been recognized by numerous small business organizations, including—and I have about 20 listed here. I am not

going to read them all—in fact, more than 20—30 or 40. I will put

them in the record.

In addition, nearly 600 small business owners have already

taken the time to file comments with the Federal Acquisition Regulation Secretariat opposing the proposed rule. A cursory review of

a sample shows that these are not simply one-line statements but

relatively detailed comments noting the potential consequences

that the proposed rule, if implemented, would have on their businesses. I suspect many more small businesses will file comments

by the November 8 deadline for filing comments.

Today’s hearing will investigate the legal and policy implications

of the proposed rule. I expect to examine such issues as how the

federal agencies plan to implement the rule and its impact on government procurement efficiency, while maintaining the mandate to

increase opportunities at both the contractor and subcontractor

level for small businesses.

I am also interested in finding out how the federal agencies plan

to implement the proposed rule at the contracting officer level and

whether the safety valve of the SBA’s Certificate of Competency

Program will function in this new responsibility environment.

Let me conclude by saying that I am not opposed—in fact, I support—a Federal Government policy refusing to do business with

businesses, big or small, that have been convicted of crimes or have

had major civil penalties imposed upon them, or for some other

reason that they can understand and attempt to comply with,

would render them ineligible to do business with the government.

This rule goes far beyond that point to corral many small businesses within its ambit. These consequences give me great pause.

I look forward to a lively and informative discourse on the issues

which will begin, I am certain, with the opening statement of our

ranking member, who I am pleased to recognize now.

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

3

Ms. VELA ́ZQUEZ. Thank you, Mr. Chairman, and welcome everyone.

I am gratified that we have come together today in this responsible and timely fashion to consider the important issue of Federal

Acquisition Regulation and contractor responsibility. Federal contracting and small businesses is one of the most important priorities or topics covered by our Committee. Today, we are here to explore an issue that most of us agree is a matter of common sense.

There is nothing controversial in saying that contractors should

abide by environmental and labor laws. We can all agree that contractors should pay their taxes. And there shouldn’t be anyone in

this room who is uncomfortable with using contractor responsibility

to promote acceptable behavior.

For the better part of this century—since the 1920s—the government has been concerned with the corporate responsibility of federal contractors. Since World War II, the government has instituted a formalized process to tie contract procurement with federal

responsibility.

And even putting aside the fact that these are questions of regulation and law, nobody—not in the business community and not in

government—wants one contractor to be able to circumvent these

regulations and create an unlevel playing field. Companies should

not have to deal with a competitor that employs unscrupulous

methods so that it can undercut others’ bids, and government

should do what it takes to make sure that doesn’t happen.

So let me say one thing at the outset. I do not consider it our

job today to debate the importance of contractor responsibility, or

whether or not there should be contractor responsibility. Our job

today is to determine the best way to ensure contractor responsibility, because even the best idea, improperly implemented, can

have unfortunate, unintended consequences.

These regulations need to be structured in an intelligent and effective way. Determining a company’s integrity and ethics will always, unavoidably, be at least in part subjective. If we are going

to expand the definition of this criteria, we must provide a mechanism for responsibly putting it into practice.

In our efforts to promote responsibility, we must not inadvertently deny small businesses the right to due process or permanently restrict small businesses from competing for government

contracts following one or two minor accidental violations. And

critically, we must ensure that our efforts to make the process

more clear do not inadvertently add confusion and mixed messages

where none existed before.

Making sure government contractors are good corporate citizens

is little more and little less than common sense. The question we

face now is how we make sure we implement this goal with a little

common sense.

I am optimistic that we can. I commend the Chairman for holding this hearing today, still weeks before the end of the comment

period. He is dealing with this in a responsible manner, and I am

committed to doing the same.

Thank you, Mr. Chairman.

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

4

Chairman TALENT. All right. We will go right to our first witness

and our first panel.

The first witness on that panel is our colleague, the Honorable

Thomas Davis from Virginia, who has done a lot of yeoman’s work

on this, along with Mr. Moran, who couldn’t be here.

And thank you for waiting, Tom. Please go ahead.

STATEMENT OF HON. THOMAS M. DAVIS, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF VIRGINIA

Mr. DAVIS. Thank you very much, and I know my colleague Mr.

Moran has put a statement in the record. And I would ask that my

entire statement be in the record, including a statement from a

small contractor in my district that we want placed in the record

as well.

Let me just say it is a pleasure to appear here with Dee Lee, who

I have a very, very high regard for. We have worked together on

a lot of issues. Eleanor Spector and I have shared podiums on procurement law through the years and is an expert. And my friend

formerly from Mr. Wynn’s office, who is part of their flag football

team—which I think was undefeated up here on Capitol Hill and

he still comes in. [Laughter.]

But they are excellent people, and I think as we get through this

today we want to try to get to the nub of what the issues are and

our concerns.

I spent 20 years doing procurement law before I came to the Congress. I was general counsel at a company—and special counsel at

a company called PRC, which is a billion dollar a year government

contractor out in McLean, Virginia. And before that I was with a

startup called Advanced Technology and was general counsel and

took it public.

Chairman TALENT. We have to get you on the Small Business

Committee. [Laughter.]

You think I am kidding. [Laughter.]

Mr. DAVIS. If they will let me keep Commerce. Okay? [Laughter.]

And let me just say, working with this administration, and Dee

Lee in particular and Steve Kelman before her, we have made really tremendous progress in procurement. I don’t want to lose sight

of that. We passed FASA, FARA, the Clinger-Cohen Act.

We developed the GSA multiple award schedules, giving federal

agencies greater flexibility to get the products and services they

need. And I think the overall record has been an A out of this administration on procurement, and I would be less than remiss if I

didn’t say that.

We do disagree on the nature of the proposed regulations and

how we see it, but it is only a proposed regulation. And we proceed

to move forward, I just want to express my concerns on the record.

The regulation issued on July 9th I think takes us backward. I

think, first of all, we should do no harm. We have a system now

that is not broken. It debars bad actors. Additionally, we will punish people twice if we take away government contracts for alleged

environmental labor, consumer-related tax, and antitrust violations—there are cases of double jeopardy—and particularly if these

violations have nothing to do with their ability to deliver the best

value to the government at the lowest cost.

5

And that is really what ought to be driving government contracting is getting the best value for our taxpayer, not some incidental issues. And what bothers me the most I think about the proposed regulation goes to the language where it says normally the

contracting officer should base adverse responsibility determinations involving violations of law or regulation upon a final adjudication by a competent authority concerning an underlying charge.

And here is the concern. It says, ‘‘However, in some circumstances, it may be appropriate for the contracting officer to

base an adverse responsibility determination upon persuasive evidence of substantial noncompliance with a law or regulation.’’ In

other words, no final determinations, no adjudications, a subjective

judgment of the contracting officer. And this can really make for

mischief because this is not a predictable path, I think, for contractors to follow.

I agree with Ms. Vela ́zquez in her opening comment that bad actors ought to be put out of it. We have ways to do that now. If this

is the goal of this, I think we can work together to do this. But if

you are not asking for final determinations from the contracting officer, if you can allow the contracting officer a lot of steeped-up

complaints, I think it empowers outside groups to come in, put

headlines in newspapers, make all kinds of allegations that would

never win an adjudication, but to create that aura that would then

empower, or in some cases frees a contracting officer to giving that

contract to the contractor who is basically the best qualified to do

that. And that is our concern in this.

Remember, contracting officers—this just gives them one more

check they have to deal with. In some cases, this can delay the contracting process as they look through allegations to see if they are

good allegations or not because it allows them to go beyond determinations by an adjudicating authority. And that is the concern in

this case.

Contracting officers, in my judgment, would be unable to award

contracts because they can get blitzed with complaints. This is an

invitation for other companies to blitz these contracting officers

with complaints, and companies can become the victims of baseless

accusations. It could particularly harm small businesses that may

not be able to defend themselves against these accusations.

It is already happening. Businesses are afraid to publicly comment for fear of retaliation by interest groups. A small business

owner in my district was afraid to testify today for fear of retaliation. We have his statement in the record. He feels it may jeopardize his $3.5 million a year business, which employs eight people.

And his comments, as I said before, are in the record.

If we have to delineate these new criteria, let us not go beyond

the goal of ensuring good labor practices. We are giving them, otherwise, the ability to force companies and to employ and unionize

with allegations, and then going to contracting officers without any

kind of final determinations. That is the concern.

If these regulations were applied to the Federal Government, it

would preclude them from continuing to carry out their functions.

But yet it proposes to apply them to business. But the Federal Government itself is remiss with all kinds of complaints and adjudicaVerDate 11-MAY-2000 14:48 Aug 30, 2000 Jkt 061742 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 E:\HEARINGS\60970 pfrm07 PsN: 60970
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tions against it, and yet for a small business here, even without a

final adjudication, they are held at risk here.

For example, in 1997, according to the Federal Labor Relations

Authority, the Federal Government has 5,323 unfair labor practices

charges filed against it. The Federal Government reached a collective bargaining impasse 148 times in 1997. For fiscal year 1998,

the Occupational Safety and Health Administration issued the Federal Government 1,153 citations. The EPA took 365 enforcement

actions against federal facilities in 1996, and fully one-quarter of

all federal facilities are not in compliance with the Clean Water

and Clean Air Acts.

Lastly, the government has 36,333 unresolved bias cases being

investigated by the Equal Employment Opportunity Commission.

So the Federal Government is a bad actor in this. They are not applying the criteria here. In many cases, these haven’t been adjudicated and they may be groundless.

The Federal Government procures $28 billion in information

technology products a year. The government is the largest purchaser of IT products in the world, and our rapidly-growing economy I think could be harmed if these regulations go too far.

I would like to point out the effectiveness of the contracting process as it currently operates. The administration claims that the

proposed regulations clarify the intent of the current law. They

claim, therefore, there is no need to be concerned about the new

regulations. As an example, they describe a firm—Standard Tank

Cleaning Corporation—that was denied a federal contract to clean

up an environmentally contaminated site.

The firm was denied the contract because they had past environmental violations. I would counter the administration’s argument

by noting that we don’t have to complicate a process because it

worked in this case, without these regulations, by adding—and we

don’t need to add layers of ambiguous regulations.

I think all of us agree that the instance described above is when

a company should be prohibited from performing a government

contract; and, indeed, the current regulations worked in that case.

If there is a nexus between the violation and the job the company

would like to perform, that is entirely appropriate and they ought

to be found not to be capable of doing the job.

Unfortunately, these proposed regulations do not use that standard, and it takes to a new threshold of proof that encourages companies, interest groups, and disgruntled employees to use accusations to hurt responsible companies and hurt the day-to-day operation of our nation’s procurement system.

Let me just go, finally, and note the current standards for deeming a contractor irresponsible are as follows: adequate financial resources, the ability to meet the required performance schedule, a

satisfactory record of performance on other contracts, a satisfactory

record of integrity and business ethics, the necessary organization

experience, accounting, and operational controls, and the necessary

production, construction, and technical equipment and facilities.

These criteria are broadly written to give a contracting officer the

flexibility he or she needs to prevent bad actors from contracting

with the government. These new regulations, I believe, could enVerDate 11-MAY-2000 14:48 Aug 30, 2000 Jkt 061742 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 E:\HEARINGS\60970 pfrm07 PsN: 60970
7

sure that the Federal Government and our procurement of goods

and services is set back decades.

The proposed regulations ignore all of the streamlining initiatives that this administration has worked so hard to achieve in the

past, and I am hopeful that the concerns that I express today will

be incorporated in any kind of final regulations. And I appreciate

the opportunity to be here today.

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

Chairman TALENT. Thank you. And I know your schedule is

tight. If you can’t stick around through the rest of the panel, Tom,

we understand.

Next witness is the Honorable Dee Lee, who is the Administrator

for the Office of Federal Procurement Policy of the Office of Management and Budget.

We are honored to have you here, Ms. Lee.

STATEMENT OF HON. DEIDRE LEE, ADMINISTRATOR, OFFICE

OF FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET

Ms. LEE. Thank you very much.

Good morning, Mr. Chairman, and members of the Committee.

I have been invited to appear before you today to discuss the administration’s proposal to amend the Federal Acquisition Regulation, the FAR, in three areas—one, contractor responsibility, which

is Part 9; and two changes in Part 31, which are regarding reimbursement of certain costs relating to contractor legal proceedings

and costs regarding unionization activities.

A proposed rule was published in the Federal Register on July

9th of this year, and the extended comment period—about 120

days—closes on November 8th, in approximately two weeks. We

will review all comments that we receive during this period, and

we will keep you informed of the next steps following the comment

period.

This morning, I would like to briefly discuss the proposed rule.

The fundamental purpose of this rule is to protect the taxpayer.

Like any private citizen doing business in the commercial marketplace, we want to be assured that the government is doing business

with individuals and entities who can be relied upon.

More specifically, we hope to protect the public’s interest by having greater assurance that the firms we deal with are responsible

citizens—firms that have a record of compliance with law and not

a record of repeated serious legal violations. The overarching theme

behind the proposed rule is the concept that the Federal Government ought to do business with good citizens who comply with the

law.

Currently, FAR 9.104, subparagraph D, concerning general

standards of contractor qualifications, states, that to be considered

a responsible contractor, a contractor must ‘‘have a satisfactory

record of integrity and business ethics.’’ This proposed rule would

clarify the existing FAR rule by adding examples of what would

constitute an unsatisfactory record of integrity and business ethics

for the purposes of implementing this long-standing general standard.

8

We are not proposing to create any lists of unacceptable business

firms. We are not proposing to change any debarment or suspension rule currently contained in the FAR. And we are not proposing

to change any procedural due process rights that a prospective contractor currently enjoys with respect to the FAR responsibility criteria.

And most importantly, we are not proposing to punish anyone by

denying them federal contracts. What we hope to do is protect the

public’s interest by having a greater assurance that the firms we

deal with are responsible citizens.

In addition to the clarifications in the FAR’s responsible contractor criteria, we are also proposing two changes to the contract

cost principles that are contained in FAR Part 31. The first change

would end reimbursement of contract costs incurred for activities

designated to influence employees with respect to unionization, either for or against. This is not a new idea; for many years, a large

number of federal programs, for example, Medicare and Medicaid,

have made these types of costs unallowable as a matter of public

policy.

Moreover, this change is in furtherance of the government’s longstanding policy to remain neutral with respect to the employer-employee labor disputes. And, of course, there is a great deal of information in Part 22 of the FAR that talks about employee and employer relationships.

Finally, we are proposing a technical change to one of the FAR

cost principles to close what we believe to be an existing loophole.

At present, the government does not reimburse contractors for

their legal expenses where, for example, in a criminal proceeding,

there is a conviction, or where in a civil proceeding there is a monetary penalty imposed.

However, there are a number of civil proceedings initiated by the

Federal Government that do not result in the imposition of a monetary penalty, but that do involve a finding or adjudication of a violation. And we think that this would be appropriate, to make this

change that reimbursement of the contractor’s costs would depend

on whether or not a violation was found, rather than the remedy

imposed.

Additionally, my written statement addresses the four questions

posed in your invitation letter. In the interest of time, I will not

read those responses here. But I understand they will become part

of the record.

Mr. Chairman, and members of the Committee, I would like to

reiterate that we want all companies, large and small, to have the

opportunity to do business with the government for the taxpayer.

And we want that system to be as efficient and effective as possible, supported by the underpinnings of our national social and

economic goals.

The overarching theme of this proposed rule, doing business with

companies that comply with the laws, is a sound one. We will

shortly be receiving the public comments on this rule, and I assure

you that we will be very—that they will be very carefully reviewed

and discussed.

I am confident there will be ideas on how to improve the proposal, such as the ones brought forth by the Congressman, and I

9

will commit to you now that I will work with this Committee and

others to ensure that the ideas and issues are considered. Working

together, we can ensure we are judicious in exercising sound business principles in our acquisition system.

Thank you. I am available to respond to any questions you may

have.

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

Chairman TALENT. Thank you very much, Ms. Lee.

Our next witness is Ms. Eleanor Spector, the Director of Defense

Procurement of the Department of Defense.

STATEMENT OF ELEANOR SPECTOR, DIRECTOR, DEFENSE

PROCUREMENT, DEPARTMENT OF DEFENSE

Ms. SPECTOR. Good morning, and thank you for the opportunity

to appear before you as the Department of Defense representative

to discuss proposed changes to the FAR concerning contractor responsibility.

Since the proposed rule is out for public comment, nothing has

yet been put in regulation that would change the way that we do

business. As has been mentioned, the comment period closes on November 8th, and as a result of the comments we certainly may

make changes to the rule before it goes final.

I will try to address the questions you asked me. Your first question concerned how we determine contractor responsibility now,

and if the methodology varies for contracts of different size. In fiscal year 1998, we conducted 6.6 million contract actions with a

value of about $129 billion in DOD. Of these, about 277,000 actions

worth $118 billion were contract actions in excess of $25,000.

We did an additional 7.5 million purchase card actions—normally, those are under $2,500—with a total value of $3.4 billion.

As you can see, we conduct a very large number of purchases of

greatly different amounts with the vast majority being of relatively

low dollar value.

The rules on how to determine contractor responsibility are in

Part 9.1 of the FAR. They provide general standards that have to

be met, which include adequate financial resources, ability to comply with the delivery schedule, satisfactory record of performance,

satisfactory record of business ethics, and the organization, accounting skill, technical ability, and facilities to perform satisfactorily.

For purchases under $100,000, unless the contracting officer is

aware of a specific problem, the primary method to determine contractor responsibility is to check the list of parties excluded from

federal procurement and non-procurement programs that is maintained by GSA and is available online. That contains information

on firms and individuals that have been suspended, debarred, or

otherwise excluded from doing business with the government.

This suspension or debarment would generally be due to an indictment, conviction, or violation of a statutory prohibition, generally related to fraud, although some firms are listed due to repeated poor performance.

Placement on the list is an automatic bar to receiving any contract award for the time that the firm or individual is on it. For

larger purchases, there are many resources available to help deterVerDate 11-MAY-2000 14:48 Aug 30, 2000 Jkt 061742 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 E:\HEARINGS\60970 pfrm07 PsN: 60970
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mine the responsibility in addition to the suspension and debarment list.

There are the contracting officer’s own history files that may contain information on past performance. The Defense Logistics Agency maintains information on how companies have performed for

DOD in the past. Another source of information is Dun & Bradstreet that provides detailed financial performance and other information on individual firms.

The most detailed DOD resource is the preaward survey that is

conducted by the Defense Contract Management Command. In ’98,

there were about 2,000 preaward surveys performed. These are

generally extremely detailed reviews of a company’s ability to perform a proposed contract, and they provide the contracting officer

the best and most up-to-date information. They normally cover financial, technical production, quality assurance capabilities, accounting systems, property control systems, safety records, and

compliance with other special interest items.

Due to the expense and time required to perform these surveys,

they are predominantly used when there is a real question of

whether the selected contractor can perform the contract. Because

these surveys are likely to remain valid for some time, we use

preaward survey monitors who maintain files on contractors, and

we consult those preaward survey monitors more often than we do

a full-up survey. There were approximately 2,000 calls in ’98.

As you can see, the most detailed checks take place on a tiny

fraction of the awards that we make. This is due to the sheer volume and that a number of our contracts are awarded to contractors

with whom we are familiar and don’t need to do these repeated

surveys.

Also, we award a number of ordering contracts where we place

orders on another agency’s contract, and that agency makes the determination of responsibility.

If we know something negative about a firm, or if someone brings

a contractor’s responsibility into question, we certainly investigate

the accusations thoroughly. The short answer to your question is

there are various levels of responsibility reviews. Contract size is

one consideration, though not the only one.

You asked how the proposed rule would affect the award of DOD

contracts and whether contracting officers could make these necessary determinations. Let me explain what I would propose as a

way of implementing this.

While contracting officers would remain the primary determiners

of responsibility, if this rule is implemented as a final rule, they

will need a substantial amount of assistance from the organizations

with responsibility for the specific areas that we are adding. Without such support, we will not have readily available means of determining if a contractor is in substantial compliance with labor,

employment, tax, environmental, antitrust, or consumer protection

laws.

By this, I mean we would need a single point of contact at each

of the agencies that has cognizance for compliance with the particular laws. Additional training for contracting officers might also

be helpful, but I believe that training would probably require some

11

experience with a new regulation and might not be available when

we first have to implement this.

Your second question asks the effects on the award of DOD contracts. There might be delays, depending upon the complexity of

the reviews required. Also, there might be litigation in high-profile

cases, if we determine contractors to be non-responsible based on

evidence of noncompliance with the laws that I have mentioned. It

may also be that these problems will occur seldom enough that

there may not be disruption.

Your third question asks whether our contracting officers can determine whether prospective awardees are in compliance. And,

again, I think we would need the help of other agencies to do that.

You asked what education and training makes contracting officers

capable of making such decisions. I will work to see that we get

them educated properly, so that we can exercise this responsibility

properly.

Your final question is how we expect contracting officers to handle the added responsibility, and, again, we would see that they

have the resources they need if this becomes a final rule. And we

certainly intend to review any and all comments before we implement any final rule.

I will be pleased to answer any other questions. Thank you.

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

Chairman TALENT. Thank you very much.

Our next witness is Mr. James Ballentine, the Acting Associate

Deputy Administrator for Government Contracting and Minority

Enterprise Development of the Small Business Administration.

Mr. Ballentine, it is a pleasure to have you here.

STATEMENT OF JAMES BALLENTINE, ACTING ASSOCIATE DEPUTY ADMINISTRATOR FOR GOVERNMENT CONTRACTING

AND MINORITY ENTERPRISE DEVELOPMENT, U.S. SMALL

BUSINESS ADMINISTRATION

Mr. BALLENTINE. Thank you.

Good morning, Mr. Chairman, and members of the Committee.

As the Chairman mentioned, my name is James Ballentine, Acting

Associate Deputy Administrator for the Office of Government Contracting and Minority Enterprise Development. I am appearing on

behalf of SBA Administrator Aida Alvarez, whose schedule does not

permit her to be with us today.

It is my pleasure to testify before you today on the SBA’s Certificate of Competency (COC) Program as it relates to the proposed

changes to Subpart 9.1 of the Federal Acquisition Regulation affecting contractor responsibility. We understand the Committee’s

interest in this proposed regulation and its potential effect on

America’s small businesses.

The purpose of the COC program is to ensure that small businesses, especially new firms in the federal marketplace, receive a

fair share of government contracts. The COC program, authorized

under Section 8(b)(7) of the Small Business Act, affords a small

business the right to appeal a contracting officer’s responsibility determination.

Where SBA issues a COC, the Small Business Act directs the

contracting officers to accept the certification as conclusive and preVerDate 11-MAY-2000 14:48 Aug 30, 2000 Jkt 061742 PO 00000 Frm 00015 Fmt 6633 Sfmt 6602 E:\HEARINGS\60970 pfrm07 PsN: 60970
12

cludes the contracting officer from requiring the firm to meet any

other requirements of responsibility.

In the beginning, the COC program was limited to areas of responsibility dealing with capacity and credit. In 1977, Congress significantly enhanced the COC program, authorizing SBA to issue

COCs with respect to all elements of responsibility, including perseverance, integrity, and tenacity. Tenacity and perseverance are

those qualities of persistence and steadfast pursuit of an undertaking with the aim to do an acceptable job.

In 1984, Congress further refined the program by requiring SBA

to accept COC referrals regardless of the dollar value. Previously,

there were no COC referrals for procurements below $10,000.

Mr. Chairman, in your letter of invitation, you asked several

questions. Your first question pertained to how SBA’s current COC

program works, and to what extent does the program cover general

compliance. Upon determining that the apparently successful small

business offer is non-responsible for a proposed contract, the contracting officer is required to refer that firm to SBA for a COC determination.

Once SBA receives an acceptable COC referral, SBA contacts the

small business, apprises the firm of the reasons surrounding the

referral, and offers the firm an opportunity to apply for a COC.

SBA gives the small business six working days to submit its COC

application and notifies the contracting officer of the date for the

COC decision.

The COC application consists of, among other things, written

documentation and information to support the firm’s ability to perform the proposed contract. The COC specialist reviews the information provided by the contracting officer and the small business.

Also, a financial specialist reviews the financial information to determine the applicant’s financial capability.

The COC committee, chaired by the COC program supervisor,

consists of a COC specialist, a financial specialist, and an attorney.

They review the findings and they make recommendations to either

issue or deny a COC. An attorney attests to the legal sufficiency

of the committee’s findings and the supporting information.

The SBA area director for government contracting makes the actual decision to issue or deny a COC based on COC committee’s

recommendations. Upon receipt of the SBA area office’s decision to

issue a COC, the contracting officer can, among other things, appeal within 10 working days the decision to SBA headquarters offices of government contracting. On appeal, SBA headquarters can

confirm or overturn an area director’s decision to issue a COC.

You also asked whether or not the program covers compliance

with legal requirements outside the procurement process. SBA has

processed some COC referrals where violations of labor laws and

tax laws are alleged, such as violations pertaining to prevailing

wage rates under the Davis—Bacon Act. In these cases, SBA reviews the totality of circumstances, court-imposed fines, or sentences, weighs the severity of violations, and makes the decision.

SBA also handles COC referrals based on non-responsibility determinations where a small business is unable to meet regulatory

requirements imposed on them by other agencies.

13

SBA tracks the COC process very closely. We track the COC

issuance, contract award, and contractor’s performance. More than

95 percent of small businesses that receive a COC have successful

contract performance with delivery of goods and services on time.

In the second question you asked whether the appeal process

under the COC program delays the award of contracts. SBA is required to process a COC referral within 15 working days. Typically,

SBA meets this requirement unless there is an appeal of the SBA

area director’s decision to issue a COC to headquarters.

We believe the COC appeals process is necessary to ensure a

level playing field for small businesses in federal procurement.

You asked two or three other questions, which in lieu of time I

will surpass. And actually I will submit my written statement for

the record, so that we may get to the questions.

Thank you.

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

Mrs. KELLY [presiding]. Thank you very much, Mr. Ballentine.

As you all have heard, we have been called for a vote. I think

we are going to take a short 15-minute break until we can go and

vote, and then come back to begin the questioning.

Thank you for your indulgence.

[Recess.]

Chairman TALENT [presiding]. Let me reconvene the hearing. We

have another panel, so I am going to go ahead and open it up with

my questions. And as members file in, I will recognize them.

Ms. Lee, let me get your opinion of what is now happening, and,

Ms. Spector, you may want to—in fact, Mr. Ballentine, you may

want to chime in, too. Now, what I am told is that the way the law

is now interpreted, a bidder would get excluded for being non-responsible if they have a record of violations or false statements or

dishonesty going to the bidding process.

So, in other words, if the government can’t trust the statements

that they are making in the context of a bid, violations going to

honesty that affects your ability to judge the rest of their qualifications, or if they have violations that indicate they are not capable

of doing the contract that they are bidding on.

So if they have a history of environmental violations, and they

are bidding to do environmental cleanup, that is obviously relevant

to that. And those are the two bases on which contractors are declared non-responsible for the purposes of the requirement that

they have a satisfactory record of integrity and business ethics. Is

that a fair summary of what you now do?

Ms. SPECTOR. Essentially, that is correct. The kinds of things

that we look at, related to integrity, right now would be things like

commission of a fraud or a criminal offense, related generally to

performing or attempting to obtain a contract.

While we look at other compliance’s, generally that is what we

consider when we say someone is not responsible.

Chairman TALENT. And that makes sense because if they are

not—if they have committed violations that undermine the integrity of the bidding process itself, you can’t trust anything else they

are doing. That certainly would make sense.

Now, is it your interpretation of what you are doing here that

you intend to reach out—and maybe I will direct this to Ms. Lee,

14

and the others may want to comment—you intend to reach out so

that procurement officers would have the discretion and I guess the

responsibility to declare somebody non-responsible for legal violations that—let us start with legal violations for a second and not

get to things that fall short of that. But legal violations that either

don’t—that don’t go to the honesty of that person as a bidder, and

also are not related to that particular contract.

So, for example, they were found by the IRS to have not paid

their taxes. It was not a criminal violation, let us say, but it is a

serious civil violation. They paid the interest. They paid the penalties. Now they are bidding to do shipbuilding for the Navy, or

whatever. Is it your intention with this that the contracting officer

would look at that history of tax violations and consider whether

to declare them non-responsible?

Ms. LEE. Mr. Talent, one of the thrusts behind this is that each

contract needs to be looked at individually. And one of the most important things I think of acquisition reform, as Congressman Davis

mentioned, is one of the things that we’ve emphasized to our contracting officers is talk to each other. Don’t have this mysterious

passing papers back and forth.

So what we are asking the contracting officers to do—and by the

way, it is usually a team, their legal team, their technical team.

Generally, unless it is very small, it is not an individual. But the

team needs to look at that individual circumstance. They need to

see what do we have here. They should ask the contractor what is

going on here, get the relevant information from others on their

team, and discuss it and make a decision that is relevant to that

particular issue.

Chairman TALENT. Okay. But what—in your mind, as your agency has issued this, in your mind what is it they are asking questions to determine? Are they asking questions to determine, yes, we

did have this IRS problem, we did owe the back taxes? Are they

asking questions to determine, look, did you intentionally not do

something? Are they asking questions, how big it was, how many

times it occurred? And this is the uncertainty that is out there in

the small business community that is the problem.

You seem to think—well, go ahead and answer that. What is the

purpose of the questions? What are they trying to find out?

Ms. LEE. Well, they would want to find out what the issue was,

and, just as you mentioned, the severity, the repetitiveness, and

the corrective action. Has it been remedied, and is that remedy—

what we are trying to do is protect the taxpayer.

Chairman TALENT. Okay. From what?

Ms. LEE. So if it has been remedied, you need to consider that

and say, ‘‘Okay, what do I do with this information?’’

Chairman TALENT. From somebody who seems to be a recalcitrant repeated violator of federal law—so are you trying to get at

people who intentionally violate federal laws?

Ms. LEE. Yes.

Chairman TALENT. Okay. What about people——

Ms. LEE. Pattern, substantial, repetitive, yes.

Chairman TALENT. Intentional violation of any federal laws.

Okay. So the question, if it was a tax case, would go to whether

they knew they were violating the—law or knew what they were

15

doing—that they intended to do what they did, or they intended to

violate the law.

I am trying to make this difficult for you. I am trying to go

through if I was a counsel advising a potential contractor, and they

had had some tax problems, I would want to give them advice

about how much this might put them in jeopardy in terms of the

contracting process.

So are you trying to get at people who take an action knowing

it is in violation of federal law?

Ms. LEE. Yes. As well as those who have repeated violations, and

then we would ask, ‘‘What have you done to remedy that?’’ If no

remedy has been taken, then we need to say, ‘‘Okay. What is the

risk involved behind this?’’ If a remedy has been taken, then we

need to look at it and say, ‘‘Okay. Now where are we, given the

facts and circumstances?’’

Chairman TALENT. Okay. Now here would be my problem with

that. The Federal Government, of course, and state governments as

well, regulate the activities of business people and small business

people pretty extensively. Now, we all have a sense that some of

those regulations are designed to prevent things which all of us

would say, even apart from the regulations, you ought not to do.

I mean, there is a class of things:

You know, you ought not to fire people because of their race. You

ought not to have unguarded buzz saws in your workplace. Even

if there wasn’t an OSHA, you ought not to have that. And there

is a class of things that go to things that even apart from the regulations you ought not to do.

Then, there is a class of things which are pretty technical in nature. That doesn’t mean that they are not important. But the reasonable person, absent the regulation, might not do them, such as

the material safety data sheets, the cash versus accrual method in

the IRS. Don’t you think—it is unfair, isn’t it, to say to somebody

because they have committed a series of technical violations like

that, therefore, you can’t bid on a federal contract?

Ms. LEE. Just patently saying, ‘‘Therefore, you can’t bid,’’ I do

think would—is not the objective or the end result we are trying

to achieve. What we are trying to do is get enough information and

really look at it and say, ‘‘What does it tell us? How does it relate

to this issue?’’ And that is the goal. Do we or do we not have a

problem or an issue here? Whether that even ends up in a non-responsibility determination, it could just end up being—we have got

some concerns here. We would like to see you correct them. It is

a learning experience for all of us.

Chairman TALENT. Because sometimes people will settle with the

IRS or OSHA or something when they really haven’t——

Ms. LEE. Right.

Chairman TALENT [continuing]. In their own mind done anything

wrong, because it is cheaper than fighting it. And you would admit,

wouldn’t you, that it would be wrong to say to somebody, ‘‘You are

non-responsible,’’ in that kind of an instance, right?

Ms. LEE. I think we would have to look at those circumstances.

If there are——

Chairman TALENT. Well, now wait a minute. Can’t you just tell

me it would be wrong to say somebody is non-responsible?

16

Ms. LEE. On a one-time issue, yes.

Chairman TALENT. Yet I will just get at another point, and this

comes before the Committee a lot. You have got to put yourself in

the position not of the enforcer of the law, which you are now—and

you are a fair person, and I think most people who work for you

are fair people, and most procurement officers are fair people.

But put yourself in the position of the person who has an awful

lot riding on being in compliance with the law. And really, what

you have told me is you can’t tell me what the law is. You told me

that it is going to be up to each set of contracting officers.

And, yes, they are going to be trained, Ms. Spector, and, yes,

they will have Mr. Valentine to advise them and everything. But,

I mean, these are—if you do a lot of business with the government,

and you depend on that, and you have all of these regulations out

there you have got to comply with. You don’t want to be in a situation where, oh, my gosh, I settled that tax case, and now this contracting officer thinks I am non-responsible.

Do you see what I am saying? It is an arbitrariness that introduces into the law that is alien to our jurisprudence, to sound like

a lawyer or that guy from Green Acres, Oliver Wendell, what is his

name? [Laughter.]

But, I mean, you have got to look at it from the business owner

perspective—that is why you are getting all of these comments

from people.

Ms. LEE. Right.

Chairman TALENT. You understand that.

Ms. LEE. Right.

Chairman TALENT. A couple of other points I have got to get in

before I let the Committee ask you questions. One of them is, let

me read the relevant sentence. And it is really a sentence, so members who haven’t read it may want to. It says, ‘‘Examples of an unsatisfactory record may include persuasive evidence of the prospective contractor’s lack of compliance with tax laws or substantial

noncompliance with labor laws, employment laws, environmental

laws.’’

Here is why people are concerned. All right? What is——

Ms. LEE. Mr. Chairman, where are you reading from, so I can

follow along.

Chairman TALENT. I am sorry. From Part 9, 9.104–1(d). It is

from the Federal Register notice. This is the relevant provision.

‘‘Examples of an unsatisfactory record may include persuasive evidence of the prospective contractor’s lack of compliance with tax

law or substantial noncompliance with labor laws.’’

Now, first of all, what is persuasive evidence? That is not, as I

said in my opening statement, that is not a term of art in the law.

It is not like substantial evidence. What would persuasive evidence

be?

Ms. LEE. Well, what we were aiming at was, as we have mentioned, was of patterned, substantial, substantive evidence there.

We are looking for comments. Our language is not perfect, and I

know there have been some people that have actually suggested

some improvements in that language. And I think we will get those

from the comments, and we will be working to improve that.

17

But the thrust behind it, again, is that—to use Congressman

Davis’ term—if you have a bad actor, you need to be aware of it

and take the appropriate action.

Chairman TALENT. Okay. Well, then, it seems to be two different

standards here. One of them, it is enough if there is a lack of compliance with tax laws, but there must be substantial noncompliance

with labor laws, employment laws, environmental laws, antitrust

laws, or consumer protection. Is that intended to be two different

standards?

Ms. LEE. I don’t believe so. The intention was to make sure that

people didn’t know it was a one-time trivial issue that said, gee,

as you mentioned, one time I didn’t fill out my forms. Therefore,

I am not eligible. That is not what we are trying to do.

Chairman TALENT. Well, I am going to defer to the other members. But let me just say something to you, and I—you really have

to adopt a perspective of people—of the small business people, and

particularly small business people who have been trying to break

into this system and haven’t been able to, or have maybe broken

into it and are concerned about getting pushed out.

It is fine to say that contracting officers are going to do this, and

we are going to train them, and they are going to be fair and all

of that stuff, but subjective decision making has been a means for

excluding groups that you have wanted to exclude for other reasons

for a long time.

I am not saying at all that that is what you intend. But that is

why there is a lot of sensitivity out there. We are going to have a

representative from the National Black Chamber and the National

Association of Women’s Business Owners testify about their concerns about this. And so it is always the more subjective things are,

the more somehow it seems like it is the old network that has always gotten things, that continues to get things, and just the new

people somehow never seem to be able to comply.

And that is a major concern that I have. I don’t know if you

would want to comment on it or not.

Ms. LEE. Just that we do not want to exclude—small business is

very important. As you know, we have got our small business

goals. We have got a lot of activities trying to increase small business participation. The last thing we want to do is put out a rule

that has the opposite effect.

Chairman TALENT. Okay. Well, I will recognize the distinguished

ranking member for her questions.

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

Ms. Lee, as you have heard, and I guess by the number of individuals that are here, there is a lot of confusion out there, and

small business people are really concerned about this. And we have

got to work together to make sure that we have a mechanism in

place that will prevent small businesses from being punished—and,

of course, that is not the intention of this rule—but at the same

time protecting taxpayers’ money as you said.

Let me ask some questions. With the proposed clarification of the

definition of integrity and ethics, it appears that the goal is to have

every contracting officer determine contractor responsibility the

same way. If this is so, and a business is determined non-responVerDate 11-MAY-2000 14:48 Aug 30, 2000 Jkt 061742 PO 00000 Frm 00021 Fmt 6633 Sfmt 6602 E:\HEARINGS\60970 pfrm07 PsN: 60970
18

sible by one contracting officer, logic says that every other contracting officer would also determine the firm non-responsible.

Explain to me why this wouldn’t result in de facto debarment.

Ms. LEE. I think you expressed it quite well in your statement,

in that what we are looking at is responsibility determination on

that action at that time. You are very familiar with debarment,

which is a different procedure but which excludes everyone from all

government activities, not only procurement activities but personal

loans, mortgages, etcetera, if they are through the Federal Government.

So they are two different procedures—the debarment being you

are excluded from all, the responsibility being looking at this particular activity at this particular time, and does that contractor

have the capability to perform that action.

Ms. VELA ́ZQUEZ. So how do you respond to the contention that

the proposed change is a way to circumvent the current debarment

regulations? What separates non-responsibility from debarment?

Ms. LEE. Well, currently, we do have a responsibility determination, and we do have business ethics and integrity that are a required determination.

Ms. VELA ́ZQUEZ. Ms. Lee, the reason I ask this is that there appears to be some confusion about an apparent discrepancy regarding antitrust law violation. If you look at Part 9 of the Federal Acquisition Regulation, at 9.406–2, it refers to violation of federal or

state antitrust statutes relating to the submission of offers.

Yet, antitrust law violation has been included in the examples in

the proposed regulation. If a firm has a violation of an antitrust

statute, wouldn’t that firm automatically be eligible for debarment?

Ms. LEE. I believe the answer is yes, but I would like to research

that further and give you the specifics.

Ms. VELA ́ZQUEZ. So why, then, did you put it in the proposed

rule?

Ms. LEE. As an example. We certainly can take that as a comment and see whether that needs to be corrected or changed.

Ms. VELA ́ZQUEZ. Would you get back to me on that?

Ms. LEE. Absolutely.

Ms. VELA ́ZQUEZ. I am concerned about the way these regulations

will be implemented in the field. Are you going to suggest to OSHA

and other enforcing agencies that they define the threshold of what

is considered substantial and communicate this threshold to federal

procurement officials?

Ms. LEE. That is not our current plan. We——

Ms. VELA ́ZQUEZ. Why not?

Ms. LEE. Because what we are asking for is information on the

individual activity, and then the contracting officer would consult

based on that information. They may end up going back to OSHA

and saying, ‘‘This is what we have. Help us interpret what this

means and what we should do with this information.’’

Ms. VELA ́ZQUEZ. So once you do all of this process, and you come

up with a final rule, then what will be the next step, in terms of

enforcing agencies? For example, OSHA.

Ms. LEE. Once we go through the process and the comments and

put out, say, for example, a final rule, we will certainly do the education process to explain to the contracting officers how we will do

19

that. We also need to have an outreach program to the agencies

that have and will provide some information and see how we can

make that the most accessible and the best resources to make sure

we have correct information.

Ms. VELA ́ZQUEZ. Regulatory flexibility, Executive Order 12866, is

triggered by persuasive evidence of impact on small businesses. It

seems to me that the proposed regulations will be covered by this.

Why wasn’t reg flex triggered?

Ms. LEE. We did the analysis that this was the parenthetical.

However, in line with your concerns, we specifically put in the rule

and asked people to comment whether they felt that was different,

and actually gave them the site and said they can comment back.

So I expect to see something in the comments regarding that.

Ms. VELA ́ZQUEZ. Would you consider going back and having at

least the implementation portion reviewed by——

Ms. LEE. Absolutely. We will do a review and see where we

should go with that.

Ms. VELA ́ZQUEZ. Okay. Ms. Lee, we are going to hear from Steven Schooner, who used to work for the Office of Federal Procurement Policy, who says that the proposed regulation is a significant

departure from current procedure, and he believes that reg flex

does apply. So how do you respond to this?

Ms. LEE. That we will be happy to look at it, not only hear his

opinions, but also look at the public comments and see how other

people responded.

Ms. VELA ́ZQUEZ. In your interpretation of the proposed rule, if a

complaint is filed with National Labor Relations Board, or if a complaint was filed with EPA, would that be enough grounds for a determination of non-responsibility?

Ms. LEE. In my interpretation, a complaint, no.

Ms. VELA ́ZQUEZ. Ms. Spector, in your opinion, if an accusation

alone can be used as grounds for a determination of non-responsibility, how would you train your contracting officers to evaluate accusations?

Ms. SPECTOR. As I have said, Ms. Vela ́zquez, my preference

would be for the responsible agencies who administer those laws to

advise us if they believe there was substantial noncompliance to

prevent disparate interpretations of what was substantial noncompliance.

Short of that, we would have to try to educate our contracting

officers. But my preference is that they get the advice from the responsible agency.

Ms. VELA ́ZQUEZ. Ms. Spector, do you think that contracting officers or even the SBA’s Certificate of Competency specialist are

equipped at all to decipher the national labor relations law and tax

law, for example?

Ms. SPECTOR. Not now, they are not. At least I can speak for generally contracting officers.

Ms. VELA ́ZQUEZ. Can COC specialists make judgments about

what is persuasive evidence?

Ms. SPECTOR. That I don’t know. I believe you would have to ask

the COC specialist. I can speak for contracting officers, and, indeed, they are not generally educated in the intricacies of all of the

laws.

20

Ms. VELA ́ZQUEZ. If the contracting officer is required to make a

thorough review of the record, must he or she review every previous contract and every type of law that may be violated?

Ms. SPECTOR. It is not clear precisely what would be involved

yet. Again, I would have to say my preference would be for there

to be a database at each of the relevant agencies that one could call

or check because it is not clear precisely how the contracting officer

could go about doing this.

Ms. VELA ́ZQUEZ. Does your agency have the resources to start

doing this?

Ms. SPECTOR. If it became policy, we would implement it, of

course.

Ms. VELA ́ZQUEZ. Ms. Spector, your testimony does not address

how your agency determines whether a firm has violated laws. You

referred to what you do when firms have previously been evaluated. But what about a new bidder to the Department of Defense?

Ms. SPECTOR. Generally, if it is a new bidder about whom we

have concerns, we would do a check on the bidder or a responsibility determination. The way we check now, we check to see that

he is not on the suspended or debarred list, the list of parties excluded from federal procurement.

Generally, if he is not, unless we are aware of other violations

of the law, we will generally consider that our check. So we check

if he is suspended or debarred for fraud or the other factors listed

under suspension and debarment. If a company is not on that list,

we will check to see if there is any other information we have, and

then generally look at his ability to perform the contract.

Ms. VELA ́

ZQUEZ. Ms. Lee, you stated—no, I am sorry. Yes. You

stated when I asked you—I just want for you to clarify something

that you stated. That an accusation will not trigger a finding of

non-responsibility. What about several?

Ms. LEE. I am sorry?

Ms. VELA ́

ZQUEZ. That one accusation—that an accusation will not

trigger a finding of non-responsible. What about several accusations?

Ms. LEE. That could be. It depends what they are, what the degree is, the relevancy to that procurement. There is—as you mentioned, there is subjectivity to this, and that is why we want the

people to get the information, to get as accurate information as

they can, and then they are going to look at that as a team and

do some analysis.

Ms. VELA ́ZQUEZ. Okay. Mr. Ballentine, I just have some questions for you. One of the first things that I did was to look at the

Certificate of Competency process. And I know that you are new in

your job, but is there any way that the COC process can be streamlined?

Mr. BALLENTINE. Well, one thing I have learned is that they

don’t allow being new as an excuse for anything. [Laughter.]

We are always looking at ways to streamline the process, and we

have done so over the past four to five years. There is a 15-day period right now for us to respond back to a contracting officer. And

if that process could in any way be streamlined, we would look into

it.

21

Ms. VELA ́ZQUEZ. When we started preparing for this hearing, one

of the things I did was to look at the current process. And I have

got to tell you, it seems to me that this application, along with the

attachments, will be very difficult to complete in only six days. If

there is any way that that could be changed?

Mr. BALLENTINE. As I mentioned, we are mandated to respond

within 15 days. The small business has six days to respond. We

have nine days to respond. Sometimes that takes a little longer for

the small business. We try not to let it go past one or two days,

which will take away from our nine-day period. But within that 15

days we get a response out.

Ms. VELA ́ZQUEZ. What I am saying is, not looking at the responses but at the whole process and the application itself, can

that be streamlined?

Mr. BALLENTINE. We can look at that. We are happy to work

with you on that, if that is possible.

Ms. VELA ́ZQUEZ. Because you understand that now this process

is going to be more important in light of the new rule.

Mr. BALLENTINE. Agreed.

Ms. VELA ́ZQUEZ. And so that we make sure that it—make it more

user-friendly.

Mr. BALLENTINE. Agreed. We are happy to look at that.

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

Mrs. Kelly is next.

Mrs. KELLY. Thank you, Mr. Chairman.

Ms. Lee, can you provide me with the number of small business

contractors who were found to be non-responsible because of a lack

of integrity and business ethics?

Ms. LEE. I cannot, but I believe it is in Mr. Ballentine’s statistics.

I would be just quoting his statistics.

Mrs. KELLY. Do you have that, Mr. Ballentine?

Mr. BALLENTINE. Could you repeat the question, please?

Mrs. KELLY. Can you provide me with the number of small business contractors who were found to be non-responsible because of

a lack of integrity and business ethics? Do you have that number?

Mr. BALLENTINE. Over the past three fiscal years, we have had

16 referrals.

Mrs. KELLY. Sixteen?

Mr. BALLENTINE. Just 16 from our end.

Mrs. KELLY. Okay.

Mr. BALLENTINE. And only three of those which we sent forward

to COC.

Chairman TALENT. And if the gentlelady would yield just to clarify. That is only that you have seen.

Mr. BALLENTINE. That is what we have seen.

Chairman TALENT. There could be a whole lot more out there

that you have not seen.

Mr. BALLENTINE. That is correct.

Chairman TALENT. So we know the number is 16. But if they

didn’t appeal to them, they wouldn’t know about it.

Mr. BALLENTINE. We don’t get every referral.

Chairman TALENT. So I guess the answer is they don’t know, beyond his 16.

Mrs. KELLY. Is that a correct answer, Ms. Lee?

22

Ms. LEE. If it is a small business and the non-responsibility determination is made, the contracting officer must notify SBA. SBA,

working with some—some small businesses accept that and say, ‘‘I

saw it. I’’—I don’t know that they agree, but they accept it and

they don’t pursue the certificate. So there it is different. But if it

a small businessMrs. KELLY. So you don’t have any statistics on this, is that

what——

Ms. LEE. I have statistics government-wide. We have the small

business referrals, but we don’t keep specific records of other—say,

large business non-responsibility determination.

Mrs. KELLY. But your rule would apply to all businesses,

wouldn’t it?

Ms. LEE. It does now, yes.

Mr. BALLENTINE. Congresswoman, if I may correct that. The 16,

that is outside of issues unrelated to capability, and financial.

These are related to environmental, tax laws, anything that may

be outside of our general purview.

Mrs. KELLY. But you don’t, Ms. Lee, have statistics even on large

business, is that correct?

Ms. LEE. No, I do not.

Mrs. KELLY. You have no statistics at all?

Ms. LEE. Correct. We keep statistics on the contracts that we are

awarded. We do not keep statistics on the unsuccessful bidders,

whether that be responsibility or they just weren’t the best proposal, or they just weren’t the best price.

Mrs. KELLY. Could you venture a guess based on what you know?

Or do you want to give me any kind of number you may have on

any of the numbers that you do know, on how many people were

found non-responsible because of prior criminal violations? Or were

they suspended or debarred—I mean, were they suspended or

debarred because of a criminal violation? Would you have statistics

on that?

Ms. LEE. I do have a copy, although it is online; it is easier. This

is a copy of the debarred, suspended, and ineligible. There are a

good number of people on the debarred list.

Mrs. KELLY. But what about the debarred for criminal activities

is what I am asking.

Ms. LEE. I would venture a guess that is predominant of these,

but each individual is different. But that is debarred versus responsibility.

Mrs. KELLY. I want to ask you another question, Ms. Lee. Coming out of a small business background, I recognize that some of

these procurement contracts are given to a large contractor who

has—who is coming in with a group of bids from subcontractors.

Does your rule apply to the subcontractors equally as well as to the

large contractor?

Ms. LEE. The Federal Acquisition Regulation currently requires

that the prime contractor do the responsibility determinations on

their subcontractors. There is some instruction in Part 9 in some

instances where, if there is an issue with a subcontractor, the

prime would notify the government in some cases.

Mrs. KELLY. How would you envision the prime contractor vouching for the responsibility of the subcontractor without investigating

23

their tax records or something like that? I mean, the prime contractor under the law is responsible for the subcontractors. And

how would you envision the subcontractor under your new proposed rule as finding out information—the prime contractor finding

out information about the subcontractor?

Ms. LEE. I don’t have a crisp answer for you. We need to certainly do some more of that, but they currently do make that responsibility determination as far as——

Mrs. KELLY. Well, how do they do that?

Ms. LEE [continuing]. Probably more capability——

Mrs. KELLY. How can they do that? If I were a subcontractor,

and I were involved in a bid with a prime contractor, and the

prime comes to me and says, ‘‘I have got to verify that you are

okay. Give me your tax records. Show me your books’’—I am not

so sure I would like to have that happen to me. That is what I am

asking you.

Ms. LEE. That we are going to ask—that we are asking for compliance, not necessarily the data behind it. We currently have a

certificate that is put in all contracts over $100,000 that asks people, and they certify, whether or not they are under indictment or

whether or not they are on the debarred list. So——

Mrs. KELLY. I am going to run out of time here, and I want to—

I just want to ask my question again. And that is, as a prime contractor, I don’t want to have a subcontractor who is—who could be

or has been disbarred or something. But on the other hand, you are

not providing me, as I understand it, with this rule the means of

effectively establishing that with my subs.

You are making me responsible for people that I may—that I am

afraid that you are going to make me look in their books and

things like that. I don’t want to do that as a subcontractor. I don’t

want to show my books to the prime contractor. And I don’t want

to see the prime contractor held to that high responsibility with the

subs, absent something that you are going to give me in that rule

to protect my subcontractors and me.

Ms. LEE. Okay.

Mrs. KELLY. And I think that that is something I would like to

see you give—I don’t know if I am being clear here, but I think it

is really—absent some kind of a certified statement——

Ms. MILLENDER-MCDONALD. Would the gentlewoman yield?

Mrs. KELLY. What kind of liability do you think is going to hit

the prime contractor?

Ms. MILLENDER-MCDONALD. Will the gentlewoman yield? Because you are making sense. And I certainly would like to see——

Mrs. KELLY. I don’t have any time to yield, but——

[Laughter.]

Ms. MILLENDER-MCDONALD. That is why I am trying to go very

fast.

Chairman TALENT. If the gentlelady wants to, go ahead. You can

run over a little.

Ms. MILLENDER-MCDONALD. Because she is really right on point

here with the question that is very ambiguous at this time, or not

very clear—I suppose may not be too ambiguous, but it is not clear.

If you have—the onerous provisions here will be on the part of the

prime contractor, and yet the subcontractor—the prime contractor

24

is asking the sub to present papers that will clear him or her of

any wrongdoings, or to see whether or not they are in compliance.

Where does the—who falls prey to this law, if they are out of

compliance? Is it with the subcontractor or the prime, if they are

not complying with this Certification of Competency?

Ms. LEE. It is performance-related, so certainly there is a combination thereof. I think it is a very good point, and we need to

do——

Ms. MILLENDER-MCDONALD. I think it is an excellent point she

made, and I think you should follow up on it to get her an answer.

And please give me an answer when she gives it to you.

Mrs. KELLY. Thank you very much.

Ms. Lee, if this law is supposed to clarify—all I am seeing is a

lot of obscure possibilities—I think you are going to have to really

come back to us with some information about——

Ms. LEE. Well, certainly, as we get the comments in, we will be

up here discussing them and telling you what we have got.

Mrs. KELLY. Well, I am worried about one thing. After you get

the comments in, can you get—are you going to be talking with us

before this rule becomes an actual fact or after?

Ms. LEE. No. Before.

Mrs. KELLY. Thank you.

Chairman TALENT. Ms. Christian-Christensen is next.

Ms. CHRISTIAN-CHRISTENSEN. Thank you, Mr. Chairman, and

thank you for holding this hearing. Just based on the questions

that have been asked, this is an issue of great concern to us, and

I share some of those concerns because our small businesses, our

rural businesses, our minority businesses, have a lot of difficulty as

it is getting the contracts. And this almost seems as though it is

going to make it more difficult.

When Congressman Davis was speaking, he was saying basically

the way it exists now, the responsibility exists now, should be satisfactory. It is a good program. The rule as it exists is good. And

if it is not broken, why should we be fixing it? I am wondering,

what was the impetus to change the rule? I hope this question

hasn’t been asked. What was happening? What was the experience

of the Federal Government with regarding to contracting that

caused us to feel that we must change and expand the rule?

Ms. LEE. It certainly was intended to be a clarification. I think

there have been some good points made here today that we didn’t—

it isn’t as clear to everyone as we had intended it to be. And I am

looking forward to the comments because I know—and people have

informally talked to me, even suggesting changes to language or

more specific citings. And so we will work through that.

But the intent is to make it clear to our contracting officers that

we—that that is part of their decision making process, to make

sure that the contractor is responsible.

Ms. CHRISTIAN-CHRISTENSEN. But it is not just clarification. This

is an expansion to include other areas of responsibility that were

never included, that have nothing to do with contracting and the

work to be done. So what was the impetus to include the environmental, the other areas that are now going to be included as you

look for the responsibility in the contractor? For what reason are

we doing this?

25

Ms. LEE. We are doing it truly to say we want to make sure that

contracting officers look at these issues and to reiterate that those

are the kind of things that can be considered as part of business

ethics and integrity.

Ms. CHRISTIAN-CHRISTENSEN. Was a study done that showed that

businesses, large or small, were not compliant with environmental

or labor relations or OSHA or any of the other rules and regulations? Was there a study done? And was it found that businesses

were not compliant, and so now it is decided that we must include

these as we review the contractors?

Ms. LEE. A separate study, as far as behind this rule, no. There

certainly is a lot of information that for other reasons accumulates

and summarizes our compliance with other laws. So I would not—

there is not a specific study behind this.

Ms. CHRISTIAN-CHRISTENSEN. Okay. I am not sure that the question was answered really to my satisfaction. Let me ask another

question. One of the concerns is the vagueness and the subjectivity

of the process. What can you tell me to—and the Committee—to

show that it is not a subjective and vague process that would leave

some companies vulnerable just based on the individual contracting

officer—what assurances are there in the rule as it is proposed that

take vagueness and subjectivity out of it? What——

Ms. LEE. Vagueness—we certainly don’t want to have that issue.

There will be—as Ms. Vela ́zquez said, there is some subjectivity. I

don’t know that we can make it purely objective that says two of

these, three of those, equals this. We really do want an analysis

and a meaningful analysis of the information and the relativity. We

need to work on the vagueness. I believe there still will remain

some subjectivity.

Ms. CHRISTIAN-CHRISTENSEN. Okay. Just one—let me ask the

first question a different way. What was wrong with the current

process?

Ms. LEE. My personal opinion is under the current process you

can consider these issues. There were some people that said you

cannot, so we said, ‘‘Let us make it very clear that you can.’’

Ms. CHRISTIAN-CHRISTENSEN. Well, I am looking forward to hearing—to seeing what the comments are during the comment period.

And I am going to have my contractors make sure to get their comments in, and my district as well, before we make a decision as to

whether we can support this or not.

Thank you, Mr. Chairman.

Chairman TALENT. Ms. Millender-McDonald?

Ms. MILLENDER-MCDONALD. Mr. Chairman, thank you, and let

me thank you for bringing this very important issue to this Committee. We have been back and forth and have not had a chance

to really get wrapped into it until just recently.

Now, what I would like to say, though, is there is a lot of subjectivity to this criteria that you are outlining here. And especially the

area that speaks to satisfactory record of integrity and business

ethics. And this will all rely on your contracting officer to make

this determination. Am I correct?

Ms. LEE. The contracting officer, with their counsel and team,

yes.

26

Ms. MILLENDER-MCDONALD. All right. Now, first of all, the contracting officers, what kind of education do they have?

Ms. LEE. Certainly, that is varied and different. In fact, that is

one of my personal initiatives. I would like to see us have an affirmative education requirement. We are working with the Office

of Personnel Management on that.

Ms. MILLENDER-MCDONALD. You mean you don’t have one?

Ms. LEE. DOD has a very specific——

Ms. MILLENDER-MCDONALD. But, I mean, when you have got to

put someone in this type of subjective position, you should certainly

be able to discern whether or not these folks are capable of making

the decision unbiased. And given that criteria, it is inconceivable

to me that you would even come here with these types of recommendations when you are not familiar with, or any one of you,

with the contracting officers’ background and education.

Ms. LEE. Well, we can certainly give you statistics on that. I just

can’t give you an ‘‘everyone is like this.’’ There is a broad range

of——

Ms. MILLENDER-MCDONALD. But there should be a certain criteria that needs to be met——

Ms. LEE. Yes.

Ms. MILLENDER-MCDONALD [continuing]. With reference to——

Ms. LEE. And there is a very formal training program as well.

Ms. MILLENDER-MCDONALD. And is there an orientation given

somewhere along this continuum that will help small businesses to

know that they are going to be under these types of subjective criteria—a subjective criteria process?

Ms. LEE. Yes. SBA really has quite an aggressive outreach program that they do deal with small businesses and explain to them

how to do business with the government. And I think they cover

these areas——

Ms. MILLENDER-MCDONALD. That has nothing to do with,

though, if they get caught in a tuck, like Mrs. Kelly mentioned,

where whose responsibility it is to ensure that a subcontractor is

in compliance, whereby the prime contractor is not thrown on a

blacklist because he or she was not able to clearly get this information from a subcontractor.

So, there are a lot of things here that we need to look at before

we put pawprints on this as law. It is entirely too ambiguous, and

small businesses already have problems with trying to clear some

of the ambiguity of the law as it is. And then you are going to come

up with anything—something like satisfactory record of integrity.

My God, that is absolutely open to interpretation by anyone who

perhaps might have a biased streak in him or her.

And so this right here becomes extremely problematic for me

with your proposed changes. So I wanted to put on record that before anything happens here, I hope we have the opportunity of

coming back to talk with you about the comments that have been

submitted to you and other factors that you will factor in, given the

comments of the members of this Committee, because it is very unclear why we should have this, given the ambiguity of the nature

of this outline that you have given to us.

27

Ms. LEE. I would be happy to work with you and your staff, as

I will with—have had and will continue to have many discussions

on this.

Ms. MILLENDER-MCDONALD. Mr. Chairman, I regret that I am

going to have to leave for schedules that we just find to be almost

impossible to keep. But nonetheless, we have made these schedules—because I would be interested in listening to Mr. Alford, Ms.

Hill Slater, and—is it Schooner—as to your feel of this particular

proposed set of criteria.

So if I can ask Mr. Chairman to get a transcript of this hearing,

because I do want to see what they have to say and regret that I

will not be here to listen to you.

Thank you, Mr. Chairman.

Chairman TALENT. We would be more than happy to do that.

And everybody understands the conflicting schedules of members,

and let me say that——

Ms. MILLENDER-MCDONALD. Thank you, Mr. Chairman.

Chairman TALENT [continuing]. The gentlelady from California is

punctual in her attendance in this Committee, and I appreciate it.

She represents her constituents well in doing that. I thank you for

your questions.

Ms. Tubbs Jones is next.

Mrs. JONES. Thank you, Mr. Chairman. I am sighing like this because I used to be the Equal Employment Opportunity Officer for

the Northeast Ohio Regional Sewer District and reviewed compliance for EEO issues with the county, with the sewer district. And

my background is in the law, and so the concepts that you are talking about don’t sound so strange to me, substantial compliance and

the like, because those are terms that are actually used by the

EEOC in much of what they do.

But I hear the frustration of my colleagues, and probably the

people that are coming to speak after them, in the fact that because it has not been clear in the past—the criteria upon which

someone is judged for integrity or the like—that now when you

make it clear what it is you are using to judge the integrity, it

raises all kinds of flags because there are numerous businesses in

this country who have been denied opportunities to do business

with the government.

And we couldn’t clearly state for them why they were denied the

opportunity—be they black, white, men, women, urban, suburban,

or whatever. I don’t really have any questions much different than

what my colleagues have already put to you. But what I would suggest to you is that in detailing what will be the criteria or determiners for how someone does business with the government, and

in training your compliance officers for determining who will do

business with the government, that many factors need to be taken

into consideration. And many people need to have the opportunity

to comment on the issue.

I hope I don’t sound like I am talking around, but I am really

saying is these are issues that have always been considered but nobody knew you were considering them. And now, as you open the

box to let them know, you are going to get issues. But also, I think

that it is the right thing to do to let people know upon what you

28

are basing your determination for compliance and then letting people comment.

With regard to the contractor/subcontractor, I think that is in

any situation. We talk about agency and the law. And if you are

the prime, you are responsible for the sub. And it doesn’t only go

to these issues; it goes to many, many other issues. And it is the

law. Well, it is the law. I mean, it is the law in any other circumstance, not just in compliance.

So I would just encourage you to give everybody an opportunity

to comment and be clear on the basis upon which you are making

your determination with regard to either having the ability to do

business or not do business with government.

Chairman TALENT. I thank the gentlelady. I have been looking

forward to her comments because I wanted to see what she thought

from a legal standpoint. Let me just ask a couple more things before we go to our next panel, and they have been waiting very patiently.

And I won’t take much time, I will say to the gentlelady.

We have aired this issue, and it is pretty clear to me that there

is an awful lot missing from this proposed regulation. What I want

to focus on is SBREFA, Small Business Regulatory Enforcement

Fairness Act, because I have been trying over and over again to get

agencies to understand that if they will really look at that and

really try and implement it, that avoids a lot of these problems.

So you certify that this would not have a substantial impact on

a significant number of small businesses. But the truth is, as we

have seen here, Ms. Lee, your agency isn’t sure why you are doing

this, and you are not even sure what you are doing. And there is

no way you could have been certain it wouldn’t have an impact on

a substantial number of small businesses.

Isn’t that correct?

Ms. LEE. Mr. Talent, we made the assumption that small businesses are in compliance with the law and that this would not

change their compliance requirements. It would just make it clearer to them that we were looking at those requirements, and that

we did consider them.

Chairman TALENT. Okay. And I am trying to grant you the benefit of good faith because we have had dealings with you and your

agency before, and both under you and Mr. Kelman. I think you

act that way.

But you can’t stand here and say that this is going to vest in procurement officers or their teams. The ability to declare somebody

not responsible, based on at least more than one civil violation—

which may not even have had to have been adjudicated a civil violation—and then it is not going to change the law. I mean, it is

going to change the law.

Ms. LEE. It certainly is going to change the process and highlight

this to the contracting officers. They will pay more attention. Absolutely.

Chairman TALENT. If what you want to say is the law always

should have been interpreted this way, okay, fine. It hasn’t been

interpreted that way. That was my first question to you. If I asked

Ms. Spector this question, she would tell me, ‘‘No, we do not, by

and large’’—well, tell me. Do you go out and—[laughter]—as an

29

agency declare people non-responsible for civil violations that aren’t

related to the contract that they are bidding for?

Ms. SPECTOR. Well, we do look at things like embezzlement or

things that are——

Chairman TALENT. Right.

Ms. SPECTOR. Have we looked routinely at this broad array? I

would say routinely we do not, except perhaps in egregious situations.

Chairman TALENT. Now maybe they should. And if you could

come before the Committee and say, ‘‘Look, we found after doing

an audit that there were these 15 people who got these big contracts,’’ and they had been guilty of violations of Title VII, or violations of the tax laws or something—a number of them were intentional—I don’t want those people doing business with the government either.

But we don’t know that that has happened, do we? I mean, do

we know that we have given contracts to people who committed a

lot of intentional violations of these laws, we don’t know that that

has happened. I would be surprised that that has happened, and

Mr. Kelman tolerated it for years. I mean, I don’t think that that

has happened. Certainly, we don’t know it has happened, do we?

Ms. LEE. No, we do not.

Chairman TALENT. So we may suspect that is out there, and we

don’t really know the extent of the problem if there is one. We do

know we are vesting these contracting officers an awful lot of authority to go further than they now go. That must have an impact

on the three-quarters of the people who get contracts who are small

businesses, mustn’t it not?

Ms. LEE. Like I said, we didn’t look at it that way. We did offer

and ask for comments on that specific activity, and certainly we

will look at those. And I feel like I have an action on that from this

Committee.

Chairman TALENT. Yes, and I understand. What I want to get

home to you is had you done the regulatory flexibility analysis,

which is an analysis of the actual impact and then other ways of

accomplishing what you want to accomplish, that is part of what

they are supposed to be able to comment on.

And this is, by the way, the law. This is not a suggestion from

the Congress. It is the law. It subjects this whole process to a tremendous legal flaw. And in my opinion, I mean, if you went ahead

with this and did promulgate a final rule, I think the court would

throw it out overnight.

And by the way, if you think about it, if that is true, Ms. Lee,

it makes you and your agency a violator of the law. You understand. So, I mean, and I have seen a substantial pattern of noncompliance with SBREFA throughout a lot of federal agencies. I

don’t suspect you have a lack of integrity here. Okay? I just know

you are not used to this. Had you done that, you would have, I

think, explored a lot of these issues in the course of doing that regulatory flexibility analysis, and we wouldn’t have had to be here

telling you about these things. You see?

So what you may want to—what I want to suggest you do is consider pulling this back, doing that analysis, really looking at the

impacts this is going to have on small business, doing that analVerDate 11-MAY-2000 14:48 Aug 30, 2000 Jkt 061742 PO 00000 Frm 00033 Fmt 6633 Sfmt 6602 E:\HEARINGS\60970 pfrm07 PsN: 60970
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ysis. That is going to cause you, I think, to amend your proposed

rule, and then resubmit it for comment. And then I think you will

begin to focus on the things that we all agree contractors ought not

to do.

I mean, I have no problem with saying if there is somebody out

there who is recklessly or intentionally violating some set of federal

laws over and over again, I want them to change their management or something before they come to do——

Ms. LEE. Right.

Chairman TALENT. So I agree with you on that. But I am really

seriously concerned. And this is the other point on it. Small businesses are particularly concerned because they don’t have batteries

of lawyers and accountants, and they could get audited a couple of

times by the IRS—I mean, I know people in this situation.

Right now, we are having a big fight with the IRS about whether

they are going to change their cash accrual method with regard to

contracts. And the IRS has taken the position that if you are a

painting contractor or something, the paint that you keep on hand

to paint people’s houses is an inventory. And, therefore, you have

to use the accrual method of figuring out how much money you

owe. And by the way, they are going to go back in time.

Now, this is a huge controversy. They are probably wrong in

doing it. But you could get a couple of contractors who settle a couple of those things and have some violations, and then they can’t

go paint houses at the Department of Defense anymore. And these

are the small business people.

And if I may say, in particular, probably disproportionately the

newer ones who don’t have a lot of government contract experience—which is disproportionately the women-owned and minorityowned small businesses. And that is why they are here complaining.

So I know I am the fifth person to lecture to you. I don’t like to

do that. But this should not have come here in this condition before

us. So I hope that—yes, I hope that, as others have said, that we

get this process into a more constructive pattern. Are we in agreement on that, that we want to do that?

Ms. LEE. Yes, I certainly have an action on this one.

Chairman TALENT. Okay. Good.

And Mrs. Kelly wanted to ask one more question, and I will recognize her and then go to the next panel.

Mrs. KELLY. Thank you, Mr. Chairman.

I just would like to go to Ms. Spector for a minute. I really appreciate your insightful testimony, but I would like your opinion of

this rule. Do you think that this proposed rule, if it is implemented,

is going to harm our efforts to try to make the government procurement process more efficient?

Ms. SPECTOR. This rule is one of many that we implement via

the FAR that is considered by the administration to be aimed at

a higher good than efficiency of the contracting process.

The more things we must do and look at, in performing contracts

and responsibility determinations, the more time and personnel it

will take. Now, there are many higher goods that we implement via

our contracts. If the administration determines that this is someVerDate 11-MAY-2000 14:48 Aug 30, 2000 Jkt 061742 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 E:\HEARINGS\60970 pfrm07 PsN: 60970
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thing we do need to do to a greater extent than we have already

been doing it, we will certainly do that and implement it.

Mrs. KELLY. Thank you, Ms. Spector.

I just wanted to say to Ms. Lee, you hear Ms. Spector raising the

issue of it costing more time and money. Have you thought about

the cost of this rule to the agencies and in terms of efficiencies?

You don’t have to answer that now. But when you come back, I

would like an answer.

Thank you, Mr. Chairman.

Mrs. JONES. Mr. Chairman, I would like to reclaim some of my

time because I don’t think——

Chairman TALENT. We recognize the gentlelady.

Mrs. JONES. Thank you.

I want to ask a question. Currently, someone applies for a contract, and the contract—for purposes of determining a contractor’s

eligibility or compliance, you could consider their integrity and ethics, right?

Ms. LEE. Yes.

Mrs. JONES. But right now, no one really understood what you

were included and what integrity and ethics were. Some people understood, but some people are saying to you, ‘‘Well, just what does

integrity and ethics mean,’’ right?

Ms. LEE. Yes.

Mrs. JONES. Or am I wrong? Am I——

Ms. LEE. You are correct. That is what we are trying to do is put

this parenthetical below——

Mrs. JONES. There is a guy that I am hoping is going to testify

because he is back there shaking his head, and he is right in front

of my eye, so eventually I will ask him the same question. But, in

fact, people did not understand what integrity and ethics meant.

And so for purposes of trying to be a little clearer on what integrity

and ethics meant, you decided that you would set forth compliance

with tax, labor, employment, right?

Ms. LEE. That was certainly our intent.

Mrs. JONES. Okay. Thank you. That is all I was asking.

Chairman TALENT. Okay. I thank these witnesses, and we will

continue following this issue. And, Mr. Ballentine, if you have suggestions for streamlining the COC process, we are in the middle of

reauthorizing and we would be happy to talk with you. Ms.

Vela ́zquez took a particular interest in that, so——

Mr. BALLENTINE. Thank you, Mr. Chairman.

Chairman TALENT [continuing]. Now would be the time to talk

with staff and let us know what your interests are along those

lines. Thank you.

Maybe we can speed up a little bit some of that streamlining you

are trying to do.

Now I would ask the second panel to come forward. Thank you

for your patience, and, indeed, for being willing to be here. And we

will begin with the testimony right away of Mr. Steven Schooner,

Esquire, who is a professor of law at George Washington University Law School.

Mr. Schooner? And I am going to skip the extensive achievements of all of these witnesses here. We will just stipulate that

32

they are all people of great achievements and excellencies in their

fields.

Mr. Schooner.

STATEMENT OF STEVEN SCHOONER, ESQUIRE, PROFESSOR

OF LAW, GEORGE WASHINGTON UNIVERSITY LAW SCHOOL

Mr. SCHOONER. Thank you, Mr. Chairman. We appreciate the opportunity to appear for you today, and I will work on the assumption that my written comments will become part of the record. I

will try to move through the five questions that you posed as briefly as possible.

First, you had asked with regard to the current state of the law,

and I think there are a few brief points that are important. First,

as this Committee understands, the statutory requirement is only

that contracts be awarded to responsible bidders, offerors, or

sources, and as a result the contracting officer, by regulation, must

assess each contractor who is potentially to receive an award, their

abilities and resources, to determine whether they can complete a

contract on time and in a satisfactory manner.

But one of the concerns that was referred to earlier is that a

firm’s repeated failure to be found non-responsible may, at a certain point, suggest a de facto debarment. And that will become extremely important when we talk about the nexus issue in just a

moment.

It is also very important to keep in mind, because a number of

people used the term ‘‘discretion’’ earlier, that the contracting officer has significant, arguably almost unfettered discretion in determining responsibility.

But if we look at the law, not so much in terms of what the regulations say but what the courts have decided, it appears that historically if a contracting officer is to deny a contractor the opportunity for a contract, to find them non-responsible, they are entitled to a higher standard of due process if it deals specifically with

integrity. And it appears here what the regulation is primarily

speaking to is issues relating to contractor integrity.

The second question you asked was with regard——

Chairman TALENT. Is that a constitutional holding that they

have a higher—that the right to due process is greater in that instance? Is that constitutional or statutory? It is not clear.

Mr. SCHOONER. It is in the courts. I think you could make an argument that it derives from the Constitution because you are being

deprived the opportunity, your liberty interests, and the like. But

this is not something that we find in the regulations per se.

The second question that you asked is with regard to the need

for a nexus between the responsibility determination and the goods

or services that the government is actually buying. Now, if we look

at what the preaward survey is intended to do, the goal there is

to disclose whether this contractor will place the government at

risk of eventual default, late delivery, poor quality, or cost overruns.

And so, therefore, we generally do see a very specific nexus

there. And you have not heard a lot of talking today, but you have

seen in a lot of the literature this loose use of the term ‘‘blacklisting.’’ And it seems to me that if that term has any applicability

33

here, it is most applicable if the government is unable to articulate

a nexus between the contractor’s likelihood of providing the government with customer satisfaction on the one hand and the reason

upon which the contracting officer could use to deny them the opportunity to perform that contract.

And it seems to me that if the government cannot, as a matter

of regulation, establish that nexus then the regulation has failed.

The third question you asked was whether, in fact, this is an extension of already-existing law or whether it breaks new ground.

As you have heard, a fair amount of discussion earlier and I think

the FAR drafters have not been persuasive in establishing this as

a simple extension.

And I do agree with you, as I indicated in my written comments,

that this should have been deemed a significant regulatory action

pursuant to the Executive Order. It should have been deemed a

major rule. And, clearly, there is a need for regulatory flexibility

analysis.

If we simply look at the numbers under the Federal Procurement

Data System, basically, we are talking in the neighborhood of $200

billion a year being awarded in Federal Government contracts.

Small businesses are taking approximately 23 percent of those dollars. One-twentieth of one percent of those gets us over the $100

million threshold, and I think that basically makes the case thereby itself.

So I think that overall it is not very persuasive that this is basically clarifying coverage and adding examples. This is a new significant rule.

The fourth question you asked was how the rule would affect

government procurement law. And I think the main issue there is

that it shifts the underlying focus of the contracting officer’s responsibility determination from a threshold examination of a contractor’s resources and abilities and willingness to perform a contract for one purpose and one purpose only—to ensure that a chosen contractor exhibits what they have, what they need, what they

should have, to perform the contract, and whether they have sufficient integrity.

And it shifts it from that to basically demanding prospective government contractors a broader and, in my opinion, higher standard

of corporate ethics, integrity, and compliance, with a host of laws,

regulations, and norms.

And I think that the risk therein is important because, basically,

we are working with this amorphous concept of a satisfactory

record of integrity and business ethics defined solely by the use of

examples and juxtaposing that with an absence of clear thresholds

or standards, which leads me to the fifth question, which dealt

with persuasive evidence.

Your fifth question with regard to the concept of persuasive evidence—as you recognize, Mr. Chairman, this is not a commonly

recognized evidentiary standard, threshold, or burden. And it is unequivocally vague. The obvious concern here is that the only time

we see persuasive evidence is in the absence of a final adjudication

by a competent authority which would, of course, raise your antenna.

34

The confusion is unnecessary, and it will result in non-productive

and inefficient litigation. It seems to me, as a matter of law, you

can take the phrase and interpret it in one of two ways. It is susceptible to two basic interpretations. One is that what the term

‘‘persuasive evidence’’ should mean is that you need so much evidence that the contracting officer is literally bowled over by the

tsunami of evidence, indicating that we have a bad actor.

In that case, the term should be replaced with the clear and convincing standard which the legal community is familiar with. In

the alternative, it suggests an inappropriately low standard, something potentially even below a preponderance standard, which is

fundamentally ill-suited to denying a contractor an opportunity to

perform a government contract. So in my opinion, the term ‘‘persuasive evidence’’ should be replaced.

I would also like to echo Congressman Davis’ concerns earlier

that the proposal is fundamentally inconsistent with a lot of the

goals and, more importantly, the achievements of acquisition reform and acquisition streamlining that we have experienced in the

1990s.

Mr. Chairman, that concludes my statement. But I would like to

permit my colleague, Mr. Kovacic, Bill Kovacic, to address a couple

of related points. And, of course, we would both be pleased to answer any questions you may have.

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

Chairman TALENT. Sure. Our next witness is William Kovacic,

Esquire, also a professor of law at George Washington University

Law School.

STATEMENT OF WILLIAM KOVACIC, ESQUIRE, PROFESSOR OF

LAW, GEORGE WASHINGTON UNIVERSITY LAW SCHOOL

Mr. KOVACIC. Thank you, Mr. Chairman.

I would like to simply underscore two questions that have been

raised already by members of the Committee in the first panel session. The first is what strikes me in reading the proposed notice

and the proposed rule itself is there is absolutely no discussion of

the empirical basis for this change in the law.

The rule mentions no accumulated experience that would show

that there is a link between bad procurement outcomes and the existing FAR provision. I think the drafters should be pressed to

show in what respects the existing responsibility criteria have not

only allowed bad actors to routinely play in the process but also to

provide goods and services in ways that hurt taxpayers.

That is absolutely no proof in the record—and I noticed during

the discussions earlier today, when members of the Committee

pressed the witnesses on these points, that there were no direct answers to those questions. In short, a basic regulatory change should

not be adopted without that type of empirical basis.

My second and final point is that I think the rule, as drafted,

does create extraordinary opportunities for injecting uncertainty

into the process. And what is the cost of uncertainty? Greater cost

and compliance for affected business people and for the agencies

implementing the laws themselves.

Let me focus only on the term ‘‘substantial noncompliance,’’

which is the key ingredient of the responsibility feature.

35

One asks, ‘‘Which jurisdiction’s laws will apply? Is it simply federal law? What about state law? What about local laws?’’ To the extent that all of these, in some sense, deal with integrity, and a failure to abide by the law might be a benchmark of poor integrity.

I suspect we ought to be interested in all of them.

What types of laws should be covered? Why doesn’t the rule mention, for example, securities law? Export controls? Campaign finance? That is, why shouldn’t we go through the U.S. Code and

identify all laws to the extent that we equate a failure to abide by

the law as an indication of poor integrity?

Last, which events trigger noncompliance? Is it the mere accusation that the law has been broken? Is it the mere commencement

of an investigation? Is it the mere filing of a complaint? Is it a settlement of an existing complaint? Or is it an adjudicated violation

found by either an administrative or judicial tribunal?

Is it a complaint initiated by the government as plaintiff? Or for

most of the laws we are talking about, there are private rights of

action. Is every instance in which a private party initiatives the

private right of action a safeguard that Congress created to prevent

default by federal enforcement officials? Or are all private rights of

action exercised through complaints also triggering events?

In short, when I read the rule and listen to the comments this

morning, I have the image of a contracting officer who is going to

be compelled in order to comply fully with the spirit of this measure, to do a comprehensive audit of the firm’s recent legal history,

that identifies all violations, identifies all complaints, potentially

all accusations, all settlements, and develops from that a composite

picture of what kind of legal citizen the firm has been.

If they are not going to do this, what is the point of this measure? The danger to some is that this means greater costs. And if

there has been any major theme of modern procurement reform in

this decade, it is that a failure to take account of those costs can

lead to an increase in barriers to entry into the market. It is the

lack of firms coming into the market and competing aggressively

that ultimately is the biggest threat to taxpayer interest.

This measure at best is an early first draft and would require

considerable refinement in order to be suitable for adoption, if at

all.

Thank you.

Chairman TALENT. Thank you, Mr. Kovacic.

I look at it from the standpoint—and I think it is quite appropriate to look at it from the standpoint of the taxpayer or the procurement officer. I am looking at it from the standpoint of the average small business person who is considering whether to bid and

has yet another series of uncertainties, or perhaps may confront an

audit of everything like this, and it might deter them from bidding

in the first place.

We have witnesses here who can testify on that issue, and two

witnesses with whom the Committee is very familiar and to whom

the Committee is grateful for their input over the years and their

advocacy on behalf of, on the one hand, the Black Chamber, and

on the other hand NAWBO.

36

So our first witness here is Mr. Harry C. Alford, who is the President of the National Black Chamber of Commerce. Harry, thank

you for coming.

STATEMENT OF HARRY C. ALFORD, PRESIDENT, NATIONAL

BLACK CHAMBER OF COMMERCE

Mr. ALFORD. Thank you very much, Mr. Chairman, honorable

members of the Committee.

Thank you for giving the National Black Chamber of Commerce

the opportunity voice our opinion on the important topic of rule

changes to Part 9 of the Federal Acquisition Regulation, a.k.a.

blacklisting.

As we understand it, under the proposed changes a contracting

officer must consider a contractor’s overall compliance with a wide

variety of federal laws unrelated to government procurement, including, but not limited to, tax, environmental, worker safety, antitrust, and consumer protection.

A contracting officer that is found in substantial compliance with

any of these laws, or similar federal legal requirements, would be

required to find the prospective contractor non-responsible. As we

understand it, allegations can be filed against an employee without

their knowledge and the ability for them to refute or appeal the

contracting officer’s initial decision to blacklist the contractor.

This highly subjective responsibility determination, based on the

vague nature of the proposed standards, would effectively deny contractors due process by making any bid protest to the determination impractical, if not impossible.

The terms ‘‘integrity’’ and ‘‘business ethics’’ seem to come into

play in this matter. These terms are purely subjective and are in

the eyes of the beholder. What we have here is the possibility of

allegation and subjectivity replacing fact and objective measurement in the future of a company doing business with the Federal

Government.

Certainly, we believe that anyone doing business with the Federal Government should abide by the existing laws and perform

due diligence. We also believe that the FAR provides such guidelines and ensures that business is done with a standard of high integrity and business ethics. The proposed changes open the door to

more abuse and increase the chances for successful ill-advised actions and manipulation of contractual outcomes.

In essence, it may allow reckless behavior by the contracting officer and releases him or her from any control or non-biased judgment. There is already enough abuse in the system. We use the

term ‘‘constructive debarment,’’ which is a process that contracting

officers use to prevent certain contractors, for whatever reason,

from doing business with the Federal Government.

If the contracting officer is adverse to the involvement of a contractor, protests are raised and eventual COCs—Certificates of

Competency—are processed in the attempt to block the contractor

or to make his or her efforts in doing business with the Federal

Government very costly and excruciating.

There are contracting officers who use the current system to

block contractors from doing legal and ethical business. The proposed changes could turn the current road of abuse into a freeway

37

of abuse. We say enough of the abuse. We will contest the protest

and eventually will through the COC process.

The proposed changes would allow a permanent ban on participating in the federal procurement process without recourse. We

have enough problems with bias in the procurement process, but at

least there is still recourse. The proposed changes amount to a silver bullet to the business, regardless of guilt or innocence.

There is also a question of a double standard. While it would be

simple to evoke such penalties on small businesses, how could punishment be met on larger contractors? For example, McDonnellDouglas, now owned by Boeing, has recently been indicted. Should

this giant be permanently barred from federal procurement? Of

course not. Such a debarment would negatively affect our national

security.

What about the recently convicted Archer Midland Daniels,

ADM? Should they now be barred forever? We doubt if this would

become a fact?

Chairman TALENT. Harry, will you suspend for a minute? You

know, you make a really good point. The only ones they could afford to debar would be the smaller businesses because they don’t—

McDonnell-Douglas, whom I am pleased to represent, by the

way——

Mr. ALFORD. Yes, sir. [Laughter.]

Chairman TALENT. And I am certain that they are innocent of

these charges.

Mr. ALFORD. I am sure, too.

Chairman TALENT. But in any event, they make the tactical aircraft for the Navy.

Mr. ALFORD. That is right.

Chairman TALENT. If you debar them, the Navy has no tac air.

Mr. ALFORD. Would we go to Brazil?

Chairman TALENT. That is right. On the other hand, if you were

doing business with them, your contract is going to be small

enough that, well, somebody else can pick that up and do it. I

hadn’t even thought of that aspect of it.

Mr. ALFORD. They were gone.

The small businesses cannot show such indispensability. Also,

other giant mainstays as IBM, AT&T, Lockheed, etcetera, will also

have the luxury of the exemption from effective expulsion per national security as opposed to small businesses.

A recent example of abuse of the present system that would be

accelerated by the proposed changes can be found in Indianapolis.

A member of ours was awarded a HUD procurement and elected

to comply with Section 3 of the HUD Act, which allows a contractor

to contract up to 30 percent HUD-funded jobs to people living in

public housing and under the poverty level.

This perfect welfare-to-work law has been on the books since

1968, but it meets strong resistance from labor unions. Unfortunately, because of the resistance, only eight cities in this nation

abide by this law.

Our member was very successful to the disdain of local unions,

and put many people into the workforce for the first time. Meddling from union activists led to our member being officially cited

by HUD for employing too many unskilled workers. That was all

38

right, in that we could take the bad publicity for being cited, and

challenge the unfair accusations. Under the proposed changes,

however, this admirable contractor would face debarment from federal work forever.

Again, we say that the proposed changes allow too much judgment to the eyes of the beholder. The term ‘‘integrity and business

ethics’’ are too debatable and too indefinite. Any fifth grader can

reasonably debate that our current Commander in Chief is void of

integrity and business ethics.

On another front, our admiration and former Senator Honorable

Carolyn Mosley-Braun is having her ambassador appointment

being held up because of an applicable Committee member’s attack

on her ethics. Subjectivity has no place here, and certainly not in

the federal procurement.

We see the changes promoting union activity, which all correlation indicates would be detrimental to the utilization of small businesses. Also, such activity would have great negative affect on the

utilization of minority businesses, and, even more so, minority

workers.

Thank you very much for this opportunity. We hope the current

legislation is vigorously enforced and the proposed changes

quashed from further progress.

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

Chairman TALENT. Thank you, Harry, for your comments.

And our next witness is Phyllis Hill Slater, of Hill Slater, Inc.,

who is testifying on behalf of the National Association of Women

Business Owners.

Phyllis, again, we are grateful to you for taking time out to come

down here and testify to us. Thank you.

STATEMENT OF PHYLLIS HILL SLATER, HILL SLATER, INC.,

NATIONAL ASSOCIATION OF WOMEN BUSINESS OWNERS

Ms. SLATER. Thank you.

It is no longer good morning but good afternoon to all of the

members of the Committee. I thank you for this opportunity to appear before you today——

Chairman TALENT. Make sure the mike is close to you, Phyllis,

so we can hear you.

Ms. SLATER [continuing]. To discuss the proposed rule to expand

the scope of the responsibility determination of contracting officers.

My name is Phyllis Hill Slater, and I am President of Hill Slater,

Inc., an engineering and architectural firm located in Great Neck,

New York. I am also past president of the National Association of

Women Business Owners, NAWBO, the only nationwide organization representing the interests of women-owned businesses.

NAWBO currently has nearly 80 chapters across the U.S., representing 7,000 members, many of which are classified as small

business.

This year we are celebrating our 25th anniversary. The inclusion

of women- and minority-owned businesses in the federal procurement process has been a major focus of our organization since its

inception. As of this year, there are a total of 9.1 million women

business owners in the U.S., generated $3.6 trillion in sales. This

group employs over 27.5 million people.

39

In 1997, however, only 5,622 women-owned businesses were involved in federal procurement contract actions, amounting to $3.3

billion or 2.1 percent of contract awards—a figure that is still far—

too far below the five percent goal established by the Federal Acquisition Streamlining Act of 1994.

I will speak more about this goal and how we might achieve success at the conclusion of my remarks here today.

It is NAWBO’s position that the proposed rule to expand the

scope of the responsibility determination of contracting officers to

consider compliance of federal, statutory, and regulatory requirements, constitutes a substantial change in government procurement policy and could impose a great burden on women-owned

businesses.

We believe this proposed rule would, number one, increase the

cost of doing business with the Federal Government. It is our concern that small businesses may be required to provide assurances

and evidence of compliance and responsibility on a broad range of

federal policy issues that may not pertain to their business at all.

Many small businesses do not have the financial or legal resources to provide that evidence. Not only would proof of compliance cost more than most companies could afford, the time necessary to research, confirm, document, and whatever else may be

required would be an unfair burden on small business.

In addition, the amount of paperwork required to document total

responsibility and compliance would be enormous and in direct conflict with NAWBO’s position on the Federal Paperwork Reduction

Act. Not only would small business be affected, we believe the proposed regulation would impose a tremendously increased burden on

the Small Business Administration to provide Certificates of Competency for small businesses for every federal regulation.

Number two, women-owned businesses are frequently included in

the proposals submitted by prime contractors to help meet the

prime’s need to include women and minority firms. However, the

women-owned company is often eliminated from the procurement

once the contract is let. This is a whole other story.

This proposed rule could create an environment where womenowned firms would be required by prime contractors to provide

proof of responsibility or compliance, that they might even be able

to afford, but could also require disclosure of proprietary information that would, in fact, diminish the firm’s competitiveness in the

marketplace.

Number three, the proposed rule, we believe, expands the capability of federal contracting offices to ultimately decide, capriciously

and arbitrarily, the future of small business. I want to read to you

a quote from a recent testimony given by Karen Hastie Williams,

Esquire, who was with the Office of Federal Procurement Policy

during the Carter administration.

‘‘The proposed regulations are inconsistent and affirmatively

harmful to the procurement reform trends of the last decade.’’

In conclusion, I want to emphasize that we believe the interests

of women-owned businesses and the Federal Government would be

much better served if contract offices and procurement officials

were held accountable for their role in increasing the access to procurement opportunities for women.

40

We would like more emphasis on concrete solutions to meeting

the five percent goal, rather than devising new layers of costly bureaucratic procedures to further discourage women-owned businesses from participating in government contracting.

Thank you.

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

Chairman TALENT. Thank you, Phyllis. And, I should have said

this to Ms. Lee when she was here. There does seem to be a trend

on when they do the streamlining, why that tends to hurt small

business. And then when they add new requirements, that tends

to hurt small business as well.

I haven’t been as big a fan of the streamlining as some other people here. That, as you said, Phyllis, is another issue.

I am going to ask one question and then defer to Ms. Tubbs

Jones for her questions. And let me play a little bit—I don’t want

to say the devil’s advocate—but I see a clue of what they are aiming at here, assuming that they are aiming at what it appears they

are aiming at. There is no ulterior agenda here. And I think I agree

with that, and I want you to tell me whether I am right or wrong

in agreeing with it.

I don’t have a problem. In fact, I kind of want the government,

in determining the integrity of the people it is doing business with,

to be a little broader than my understanding is that they have been

today. So, in other words, just—right now it seems that they say,

‘‘Look, if you are not an embezzler, or you haven’t made a false

statement on the bid, then we are only going to look at any violations that are in the context of this contract that we are awarding.’’

So we don’t care if you have been a felon in a tax case or something.

First of all, is that true? This is just for the professors. And to

what extent do they look beyond those kind of narrow considerations? And would you have a problem with a narrowly written

rule that said, ‘‘Look, if you have a pattern of adjudicated violations of a serious and substantial nature in certain areas, we are

going to declare you non-responsible’’? Tell me what you think

about that.

Of course, the other two witnesses can comment if they want.

Mr. SCHOONER. Mr. Chairman, first let me say that in the discussion earlier and the questions that went to Ms. Lee and Ms.

Spector, I believe that given the breadth of the questions they may

not have been as accurate in their responses in the context that

you actually are referring to.

First, when we talk about that absence or the concern with regard to business integrity and ethics, it is not just that you have

to have been convicted of a fraud related to the bid. The nexus that

we are looking for is generally related business ethics.

So, for example, if you have a history of basically business-related ethical-type problems, that is enough. And those are the kind

of things that come up all the time. So, for example, particularly

with concern to the small business community, there are former

federal contractors in the federal penitentiary today who had improperly certified their small business size status.

There are other firms who had had numerous problems with regard to be they defective products, product substitution, false

41

claims, improper certifications, representations. The question generally, though, is: does this regulation bring into the mix relevant

issues of business ethics?

And I think the point that concerns me—and it also is the point

that my colleague Professor Kovacic spoke to—is given the small

number of examples they gave, they haven’t given us a very good

box to work with, and they haven’t demonstrated a nexus that

those actual items or laws or norms or regulations are the kind of

things we need to focus on in determining who is a proper business

partner for the government.

Chairman TALENT. Okay. Well, let me throw the eggs in the fire.

I am basically in agreement with what you all have been saying.

But let us suppose somebody applied for a contract, let us say with

the Department of Defense. And they had been adjudicated and

maybe in civil actions, over a period of years, of a number, a pattern of violations, let us say, of Title VII.

So they were just found to have been—they had a policy of just

saying, ‘‘Well, I don’t think there are a lot of these firms out there,

but there are some. We just don’t like hiring women. And we have

got this old boy network, and we are not comfortable with women.

We don’t think they can act professionally, and we don’t hire

them.’’

And there is a lot of adjudicated civil violations of that. I don’t

have a problem with the government saying, ‘‘You know, we would

really—if you are going to be that flagrant in terms of your violation of an important public policy, we don’t want to do business

with you.’’

And I talked to Ms. Lee afterwards, and she said, ‘‘Well, yeah,

but they may be able to remedy that by getting rid of the HR vice

president who was in charge of that policy and getting somebody

new,’’ and so on. We can do that, can’t we, without opening up all

of these uncertainties in these other areas?

Mr. SCHOONER. I think that the other blurring that took place in

the questions going back and forth is there a distinction today between individual responsibility determinations and what leads to

suspensions and debarments. Repeated violations, as you indicate,

in which we have final adjudications that demonstrate problems

are the kind of things that would lead a contractor to eventually

be suspended or debarred.

The concern here is that with no nexus to how we perform or

whether you are actually a good citizen, I believe was the term

used earlier, you may have a number of allegations where it has

been suggested that you have problems, but they haven’t reached

the final adjudications.

I suggest to you, under the regulatory and statutory scheme

today any contractor who has repeatedly been nailed in final adjudications by competent authorities, they will show up on the

debarred and suspended list today.

Chairman TALENT. Today. Is that your feeling, Mr. Kovacic?

Mr. KOVACIC. I agree, and I think that the circumstance that you

described before, Mr. Chairman, in fact, gets picked up today in existing practice. And the concern that I would have with the measure as presented now is that it sweeps in a host of activities that

fall well short of that adjudicated violation by an administrative

42

authority or a judicial authority, that it picks up all kinds of events

that aren’t necessarily good proxies for a lack of integrity.

Chairman TALENT. Yes. And see, I agree very much with what

Harry said, and I think Phyllis was saying also. And you all may

want to comment on this. I believe that there is, in a lot of agencies, an established network, and they just typically give the contracts to the same set of people. And they resist anybody breaking

into that.

Now, whether that network exists because of just that is the way

they have always done it, or whether it is just because of some bias

that is a little bit less defensible, or both, I think it does exist in

a lot of agencies. And this really would be, wouldn’t it, Harry, another excuse for them to use in keeping out the people that they

don’t want to let in for other reasons?

Mr. ALFORD. Sir, let me first say that the National Black Chamber of Commerce has a very good relationship with Boeing and

with Texaco. They have had some serious Title VII problems. Still,

we stand by them, and they have taken care of their Title VII problems at great expense.

There is one member of ours—Pyrocap—that is a fire suppressant, trying to sell to the Department of Interior for use in forests.

The career path of buyers in the Department of Interior is that

they retire and then go to work for Monsanto, the chief competitor

of Pyrocap. Even though they are superior in tests and lower in

price, Pyrocap cannot sell to the Department. Guess why? It is

there. So this would be another reason that it could find out where

Pyrocap did not cross a T or dot an I. Get rid of them.

Chairman TALENT. Yes. Monsanto is another fine company

headquartered in my district. [Laughter.]

But, Harry, I don’t know if you are doing this deliberately, but—

[laughter]—the point is very well taken. I am on the Armed Services Committee, and I have seen this—when they leave the service

and then they retire and they become a consultant for, and then

the company they become a consultant for gets a lot of the business. I am not even saying that is necessarily wrong.

But the problem that—what I really want to drive home to him,

the way I think your testimony has done, is that she is not going

to be supervising each one of these contract awards. They are going

to be made by people who have complex sets of reasons for doing

what they are going to do. And it is fine to say, ‘‘Oh, yes, we are

just going to root out all of these bad actors,’’ but you can also use

it to say, ‘‘Oh, we really question that person’s ethnics.’’

One of the things I really like about small business, small business is a way—one of the few ways left for people who maybe have

had some problems in their background but have that old entrepreneurial spirit to turn things around and get their lives going. But

they have got a few things in their background that you could use

if you wanted to in denying them contracts.

Mr. ALFORD. Sure.

Chairman TALENT. Do you know what I mean? I mean, what else

are they going to do? If you have got some problems in your background, maybe a suspended sentence for something—when you

were a kid, for drug use or you went joyriding with a car, you are

43

not going to get into MIT and get a Ph.D. Do you know what I

mean?

But you can start a small business and become successful, and

then apply to the government. And all of a sudden, you don’t have

the integrity now to do the contract. And I just don’t think they are

sensitive enough to the fact that that is going to happen out there.

Or if the government doesn’t do it, the prime uses it as the excuse

for never using the woman contractor that they listed in order to

get the contract in the first place.

Mr. ALFORD. One of our biggest fan clubs are people who are incarcerated, and we get letters daily from various correctional facilities, people saying, ‘‘I am going to get out, and the only thing I can

do with my life is become an entrepreneur. I can’t find a job. Help

me become an entrepreneur.’’ We are developing a division for exoffenders.

Chairman TALENT. Yes. Phyllis, please, go ahead.

Ms. SLATER. Yes. I just wanted to—Deidre Lee kept talking

about the fact that she is going to have this hearing; she is waiting

for the comments. I would like—I don’t know whether it is possible

or not, but I would like the testimony here today, and all of the

comments made today, be made part of the comments for her hearing because I would hate for any of them not to get on part of the

record. I don’t know if that is possible.

Chairman TALENT. That is a good suggestion. I was going to talk

to Ms. Vela ́zquez about trying to submit a joint letter with some

comments from members of the Committee who wish to sign on

about our concerns in this regard. I think she got the message. I

want to work with her on it.

And as I said, I think there is some room—a real desire to clarify

the existing system, which is certainly not a model of clarity, is

probably a good idea. But I don’t know when she has gone too far.

Mrs. Tubbs Jones, I took longer than I wanted to. I want to recognize you.

Mrs. JONES. Thank you, Mr. Chairman.

Professor Schooner, are you suggesting that integrity and ethics

is not already in the regulation currently for someone who provides

review—a contract compliance person to consider?

Mr. SCHOONER. Let me——

Mrs. JONES. Yes or no.

Mr. SCHOONER. I am not sure I understood exactly what you

were saying, but let me——

Mrs. JONES. Then let me ask it again, so we can be specific as

to what I am asking you. I am asking you, is the term ‘‘integrity

and ethics’’ as a requirement used by contract compliance persons

to determine whether someone can be compliant for purposes of

government contracts?

Mr. SCHOONER. Yes. The correct term in the regulation today is

satisfactory record of integrity and business ethnics.

Mrs. JONES. Thank you. So that is there.

Mr. SCHOONER. Right. And let me also say——

Mrs. JONES. Let me take to the next question, and then you can

say whatever else you want to say, because what I am trying to

suggest to you and Mr. Kovacic and Mr. Alford and Ms. Hill Slater,

not necessarily that this piece is the best piece of change in regulaVerDate 11-MAY-2000 14:48 Aug 30, 2000 Jkt 061742 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 E:\HEARINGS\60970 pfrm07 PsN: 60970
44

tion, but that currently you have contract officers who review and

consider integrity and business ethics without anything to help

them make the determination of what integrity and business ethics

are.

So, therefore, before you just throw the baby out with the bath

water, that you should also consider whether or not there is room

for trying to be clearer to the people who you vest with this discretion. And it is all subjective. I don’t care what anybody in this room

says. If you put a person and you give them something to say,

something to review, whatever, there is subjectivity that comes into

the process. That there may be room at least for some consideration.

Now you can tell me what you wanted to say.

Mr. SCHOONER. I just want to be unequivocally clear, to the extent that we are on the record, that I——

Mrs. JONES. We are on the record.

Mr. SCHOONER. I believe that integrity is one of the single most

important and defining characteristics of the United States federal

procurement system. I have spoken to dignitaries in foreign countries, and I have represented the United States outside of the country in talking about the federal procurement system.

And let me also mention that if you speak to any of my students

in my classes, they will tell you that I say that our entire system

runs on three basic bulwarks. First, there is——

Mrs. JONES. Well, define ‘‘integrity.’’

Mr. SCHOONER. Wait. First is competition, second is transparency, and third is integrity.

Mrs. JONES. Define ‘‘integrity.’’

Mr. SCHOONER. Integrity, as it affects us in our federal procurement system, there is a front end and a back end. In terms of the

front end, it is a fundamental threshold with regard to the contracting officer through a preaward survey’s determination of

whether this contractor will basically fulfill the promise in which

they enter into.

But more importantly, what is very important to keep in mind

in our procurement system, our procurement system is layered very

deeply with a staggering array of statutory and regulatory requirements that define what integrity means. It is compliance with a

host of specific regulations, some of which are mentioned here,

some of which are not, some of which are more important and some

of which are less important.

But just so you know, in government contracts today, every

major government contractor in the country has a compliance program. And people like ourselves go into these companies to train

them what compliance means. And so let there be no doubt in your

mind that government contractors do have an idea as to what integrity means in terms of compliance with the appropriate laws

and rules. The——

Mrs. JONES. There is no doubt in my mind.

Mr. SCHOONER. Okay.

Mrs. JONES. What I am suggesting to you, sir, is that because integrity and ethics may not be any more specifically delineated, in

some instances it leaves opportunity for the compliance officer to

consider whatever he or she would want to consider in the deterVerDate 11-MAY-2000 14:48 Aug 30, 2000 Jkt 061742 PO 00000 Frm 00048 Fmt 6633 Sfmt 6602 E:\HEARINGS\60970 pfrm07 PsN: 60970
45

mination. And that perhaps it may not be a bad idea to delineate

a little more. Do you disagree with that statement?

Mr. SCHOONER. I believe that I do not disagree with you that integrity is something important for the contracting officer to determine when awarding a contract. The only concern that I have tried

to voice with regard to the proposed regulation is that it is vague.

For example, I would sense that——

Mrs. JONES. Is it any more vague than what it already is,

though?

Mr. SCHOONER. Much more vague, ma’am. I believe that you

might——

Mrs. JONES. If you don’t define ‘‘integrity and ethics,’’ how could

integrity and ethics be more vague than when it is defined?

Mr. SCHOONER. When I speak to the vagueness, what I specifically refer to, for example, is we were talking earlier—I believe

that a final adjudication by a competent authority is a very good

benchmark as to whether someone has broken the law; whereas, I

personally believe, as a matter of law, that an allegation by a competitor is not. And I believe that is where the vagueness——

Mrs. JONES. And you think that because it goes on to speak to—

and I don’t have the language in front of me—that that includes

an allegation and that a compliance officer with good experience

would include just the allegation? Where is my piece of paper?

Mr. SCHOONER. Specifically, as I suggested in my testimony, the

main concern that I have is that they distinguish in the supplemental information, they say that, normally, the contracting officer

should base adverse responsibility determinations involving violations of law or regulation upon a final adjudication by a competent

authority concerning the underlying charge. And I agree with that.

My concern begins when they go on to say, ‘‘However, in some

circumstances, it may be appropriate for the contracting officer to

base an adverse responsibility determination upon persuasive evidence, which is meaningless, of substantial noncompliance, which

is meaningless, with the law or regulation.’’ And then they go on

to say here, but not in the regulation, that it can’t be isolated or

trivial. That is where my concerns with regard to the vagueness of

this regulation lies.

Mrs. JONES. And I want to back up and say that right now you

don’t believe that compliance officers do that without it being delineated.

Mr. SCHOONER. Under the standards today, they cannot basically

just pick something out of the air, because there are due process

rights. If, in fact, you——

Mrs. JONES. You are still in a classroom, if you don’t believe it

happens. And that is why these two people seated here, Mr. Alford

and Ms. Slater, are suggesting that the issue be—or pushing the

issue as well is because based on their experience of being women

and African-American doing business with the country that has

happened. And they still insist, you can’t—it is——

Mr. SCHOONER. I believe I am agreeing with you, ma’am, but I

guess the point that I am trying to make—as I said at the beginning, the contracting officer has a staggering amount of discretion

to, if they want to, take advantage of a contractor based on these

allegations.

46

Mrs. JONES. No question.

Mr. SCHOONER. This broadens the contracting officer’s right to

disenfranchise a small business, a small disadvantaged business, or

someone else——

Mrs. JONES. I suppose we disagree on whether or not when you

give a compliance officer greater—more instruction, it expands or

detracts. I think it distracts from their ability—you have so much

discretion versus expands. But I guess that is why we are disagreeing on this point.

Let me hear from Mr. Alford and Ms. Slater real quickly, and

then—because Mr. Kovacic is your colleague, and I have been having someone sit in my office for an hour and 15 minutes because

it was so important for me to be here that I am going to run out—

Mr. Alford, Ms. Slater, actually, I am speaking to the Chamber in

Las Vegas in a couple of weeks.

Mr. ALFORD. Good.

Mrs. JONES. Yes. Go ahead.

Mr. ALFORD. I will make sure they treat you right.

Mrs. JONES. I would appreciate it, because I don’t have Monsanto

or any of these other places in Cleveland, Ohio. [Laughter.]

Chairman TALENT. Next time you meet in Las Vegas you may

want to consider asking the Chairman to accompany you. [Laughter.]

Mr. ALFORD. We have a convention there in June, sir, and perhaps you can——

Chairman TALENT. Thank you. [Laughter.]

If I can stay away from the tables, I will be fine.

Mrs. JONES. Okay. Go ahead. I want to give you a chance to comment or—and my legal background forces me to cross examine. My

husband says I cross examine. But anyway—son says it, too. Any

commentary you want to add or comment that you haven’t already

made before I leave—I hate I have to leave, but at least I did stay.

Everybody else left. Okay. Go ahead.

Mr. ALFORD. Well, ma’am, it is certainly a struggle out there,

and your predecessor has stepped in on behalf of these constituents

in a very admirable way. I think Congressman Stokes was basically

one of the founders of the National Association of Minority Contractors.

Mrs. JONES. I was at your event where you gave an award last

year, I think.

Mr. ALFORD. And Dominick Ozanne, when he had contractors.

And Dominick would tell you that it is just literally hell for a small

business to do work with the Federal Government on a consistent

basis.

Now, one thing I am finding out as we try to branch out internationally, that when we take our businesses to Brazil, to Ghana,

to other places, one comment I constantly hear is that, ‘‘Hey, if I

am qualified and capable, I am going to get this job.’’ What a concept. It is different. And I think the racial animus and the way we

do business in this country still exists. And having instruments

that could be misused in that animus is very dangerous for us.

Mrs. JONES. And so the bottom line is you say, no matter what,

you believe this empowers a contract compliance officer to misuse

it more than it does to require him to set forth or have identifiable

47

means of either saying you comply or don’t comply, if I have said

that question right.

Mr. ALFORD. It takes him to want to be very powerful, to want

to be——

Mrs. JONES. More powerful than he or she already is?

Mr. ALFORD. Yes, ma’am. Lord and God. You have got—I have

got a contractor in Jersey with $3 million in bondable—bondable

$3 million, $11⁄2 million cash money in the bank, 20 years track

record outstanding work, and he has to go through the COC process for a $100,000 job, to do a little roof at a naval installation.

Mrs. JONES. But this is in—the COC is in place with regard to—

regardless of this regulation.

Mr. ALFORD. He can always come back and win his case through

the COC process. Once he is debarred forever, it is over.

Mrs. JONES. Okay.

Mr. ALFORD. There is no recourse.

Ms. SLATER. I agree also that there is always—the weakest link

in the whole procurement chain is personal bias, and we are under

that gun all the time. I think that this just gives more ammunition,

just different ways to get at whomever they want to get at. And

it is very costly for the small business person to have to be able

to comply with some of the things that they will be asking for.

At best now, the whole procurement process is not set up for—

to be user-friendly to women, minorities, or a small business in

general. I think it is just—it is just going to be even more onerous

with the rules as it states.

The other thing I wanted to talk about was the SBREFA. I have

been on SBREFA Enforcement Board now since they first put people out there. It is about two years now I think I have been serving

on the SBREFA Board for Region 2. And what I don’t understand

is how things like this get this far with SBREFA in place. I

thought that we are supposed to have some kind of a watchdog——

Chairman TALENT. If the gentlelady—I am sorry.

Ms. SLATER. Well, no. I was going to say I can’t answer the question.

Chairman TALENT. If the gentlelady would yield, they get—the

enforcement mechanism of SBREFA is ultimately—the real hammer is an appeal in court from the final regulation. And then, of

course, such oversight as we provide here, which really is a nicer

word for ‘‘harassment,’’ that we provide here, to try and make sure

that they do what they are supposed to be doing.

So at this proposed stage, they get around having to conduct the

analysis of the impact on small business by certifying up front, as

they have done here. They just certify it is not going to have a substantial impact on small business. So if you certify that, then you

don’t have to go through the analysis.

Now, that makes the whole rule very vulnerable in court. In my

judgment, if they went ahead and promulgated this, apart from the

Administrative Procedure Act challenges, which the professors

know more than I—this thing is just dead in court because a judge

is going to look at this and say, ‘‘What do you mean it doesn’t have

a substantial impact?’’

So that is one of the reasons I make this point to the agencies.

You are going to get this thing knocked out eventually. But in the

48

meantime, we all go through this, which we could avoid if they

would just do the analysis in the first place and hear these concerns.

And so the short of it is, yes, this process—I think there is a good

chance that they will pull this thing and redo it. I don’t want to

put words in her mouth, but I hope that they do, and largely because—in part, because of SBREFA. So it is out there and it is

helping, but it would help more if they would follow it. I mean, it

really would.

Mrs. JONES. Mr. Kovacic, before I run out the door, I don’t want

to think——

Mr. KOVACIC. Yes, ma’am.

Mrs. JONES [continuing]. Want you to think that I didn’t give you

a chance to tell me whatever you wanted to tell me. I saw you hurriedly making notes or whatever, so please be heard.

Mr. KOVACIC. I would just echo Steve’s comment that I do believe

that this, rather than providing guidance, adds murk. And my concern would be that, in particular, by potentially widening the orbit

of events that could trigger a disqualification, it increases discretion rather than limits it. But I would completely share your suggestion that clarifying regulatory provisions is generally a desirable

end. My fear is that this one doesn’t do it.

Mrs. JONES. Let me ask you, if this were—this regulation specifically was a clarifier and did not lead to the disbarment or whatever

else, would it be something that you could be—what would be a

guide for the officer? Would you have——

Mr. KOVACIC. A true clarification, I think, would be helpful,

though I would, as a couple of your colleagues were asking before—

and I don’t recall her name, but your——

Mrs. JONES. Juanita Millender-McDonald.

Mr. KOVACIC. As your colleague put it so well, I think; that is,

what was the inspiration for this? Is OFPP actually getting feedback from its contracting officers who say, ‘‘We are adrift’’? And I

would like to know how often, how frequently, they have gotten

that. And my intuition in listening to the previous panel is that

kind of feedback hasn’t been received.

Mrs. JONES. I want to, Mr. Chairman, thank you very much for

the opportunity to be a part of this discussion and to each of you,

Professor, Professor—I used to be afraid of professors when I was

in law school. It is good not to be afraid of——

[Laughter.]

Mr. SCHOONER. We are friendly.

Mrs. JONES. I am kidding. Mr. Alford, Ms. Slater, thank you very

much for the opportunity to——

Chairman TALENT. Mrs. Tubbs Jones, I am sure the professors

find it hard to believe that you were ever afraid of anybody.

Mrs. JONES. Oh, I was. I was. [Laughter.]

Chairman TALENT. I thank you for sticking around and for your

comments. I was looking forward to them. I think they were really

good.

Unless anybody else has anything to add, I think we have vetted

the issue pretty well. I am going to, without objection, have the

record left open for 10 days for written questions that members of

49

the Committee may wish to make, and I want to thank everybody

for their attendance and their comments.

The hearing is adjourned.

[Whereupon, at 2:08 p.m., the Committee was adjourned.]

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