U.S. GOVERNMENT PUBLISHING OFFICE

30–318 WASHINGTON : 2019

THE IMPACT OF CATEGORY MANAGEMENT ON 

THE SMALL BUSINESS INDUSTRIAL BASE 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

JUNE 13, 2018 

Small Business Committee Document Number 115–076 

Available via the GPO Website: www.govinfo.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

TRENT KELLY, Mississippi 

ROD BLUM, Iowa 

JAMES COMER, Kentucky 

JENNIFFER GONZA ́ LEZ-COLO ́ N, Puerto Rico 

BRIAN FITZPATRICK, Pennsylvania 

ROGER MARSHALL, Kansas 

RALPH NORMAN, South Carolina 

JOHN CURTIS, Utah 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

DWIGHT EVANS, Pennsylvania 

STEPHANIE MURPHY, Florida 

AL LAWSON, JR., Florida 

YVETTE CLARK, New York 

JUDY CHU, California 

ALMA ADAMS, North Carolina 

ADRIANO ESPAILLAT, New York 

BRAD SCHNEIDER, Illinois 

VACANT 

KEVIN FITZPATRICK, Majority Staff Director 

JAN OLIVER, Majority Deputy Staff Director and Chief Counsel 

ADAM MINEHARDT, Staff Director 

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C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Steve Chabot ................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESSES 

Ms. Shirley Bailey, CEO and Managing Member, MSC Management Services, 

LLC, Oakland, MD, testifying on behalf of the HUBZone Contractors National Council ....................................................................................................... 4 

Mr. Alan Chvotkin, Executive Vice President & Counsel, Professional Services 

Council, Arlington, VA ......................................................................................... 6 

Ms. Beth Laurie Strum, Vice President of Business Development, IT WORKS, 

Washington, DC, testifying on behalf of the U.S. Women’s Chamber of 

Commerce ............................................................................................................. 7 

Ms. ML Mackey, CEO, Beacon Interactive Systems, Waltham, MA, testifying 

on behalf of the National Defense Industrial Association ................................ 9 

APPENDIX 

Prepared Statements: 

Ms. Shirley Bailey, CEO and Managing Member, MSC Management 

Services, LLC, Oakland, MD, testifying on behalf of the HUBZone 

Contractors National Council ...................................................................... 26 

Mr. Alan Chvotkin, Executive Vice President & Counsel, Professional 

Services Council, Arlington, VA ................................................................... 36 

Ms. Beth Laurie Strum, Vice President of Business Development, IT 

WORKS, Washington, DC, testifying on behalf of the U.S. Women’s 

Chamber of Commerce ................................................................................. 44 

Ms. ML Mackey, CEO, Beacon Interactive Systems, Waltham, MA, testifying on behalf of the National Defense Industrial Association ............... 49 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

None. 

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THE IMPACT OF CATEGORY MANAGEMENT 

ON THE SMALL BUSINESS INDUSTRIAL BASE 

WEDNESDAY, JUNE 13, 2018 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 11:02 a.m., in Room 

2360, Rayburn House Office Building, Hon. Steve Chabot [chairman of the Committee] presiding. 

Present: Representatives Chabot, Luetkemeyer, Knight, Blum, 

Comer, Fitzpatrick, Marshall, Vela ́zquez, Evans, Lawson, Adams, 

Espaillat, and Schneider. 

Chairman CHABOT. Good morning. The hearing will come to 

order. I want to thank our witnesses for being here. 

We are here today to continue this Committee’s longstanding 

oversight of Federal procurement initiatives impacting small businesses. This Committee has long advocated for policies that ensure 

a strong industrial base. As we all know, small businesses play a 

critical role in increasing competition, innovation, and stimulating 

our economy. 

However, the industrial base has shrunk by as much as 27 percent over the last decade, even as total dollar amounts awarded to 

small businesses remain level. Past Federal spending initiatives 

applying contract consolidation principles have contributed to this 

decline. The current Federal spending management framework, 

also known as category management, proposed by the Office of 

Management and Budget, raises some of these concerns of the past. 

While category management can be useful in tracking the Federal Government’s purchasing habits in order to identify efficiencies and keep contracting costs down, the proposed plan may 

be problematic. There is great concern among the small business 

community that recent efforts steering spending towards best-inclass contracting vehicles will restrict competition and significantly 

reduce opportunities for the majority of small businesses. Current 

category management efforts seem to benefit the few, to the detriment of many. 

In the struggle to simplify and manage Federal spending, the 

Federal Government should not lose sight of its responsibility to 

maximize opportunities for small businesses, nor should it disregard the impact that this may have on the industrial base. Merely paying lip service to the small business community is not 

enough; the Federal Government should take proactive steps to ensure the majority of small businesses can thrive in this new environment. 

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I would like to thank our witnesses for being here this morning 

and for their expert testimony that we will hear shortly. And I 

would now like to yield to the Ranking Member, Ms. Vela ́zquez, for 

her opening statement. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman, for holding this 

important hearing. 

Our committee has long acknowledged small businesses’ critical 

role in the $500-billion-a-year federal marketplace. When small 

firms are awarded federal contracts, the result is a win-win. The 

government and the taxpayer receive good value for their money, 

as small companies have the dexterity to provide high-quality supplies and services at competitive prices. 

It, therefore, comes as no surprise to those in this room that 

small businesses are at the heart of the government’s supply chain. 

Recent data demonstrate that the average contract size is increasing, meaning more revenue for small companies if they get those 

contracts. However, this trend also suggests that more contracts 

are being consolidated, resulting in fewer opportunities for small 

businesses. I am particularly interested in hearing witnesses’ perspective on this phenomenon. 

More broadly, numerous policies and protections have been implemented to ensure small firms’ continued participation in government contracting. Many of these initiatives have evolved over the 

years to reflect the changing needs of small firms. One such evolution is the adoption of strategic sourcing and category management. 

Category management is a broad concept used to optimize acquisition vehicles, processes, and knowledge available to best address 

agencies’ needs and generate savings. There are concerns that, despite any benefits, this model could result in greater consolidation 

and bundling of contracts and a reduction in the usage of the federal schedule system. 

While category management is billed as the strategy to get agencies the lowest price, our committee has heard the contrary at previous hearings. Vendors on the multiple award schedule continually provided lower prices than those offered by category management contract holders. Yet, agencies and contracting officers cannot 

take advantage of lower prices, because some category management vehicles have become mandatory by their agency. 

The current course of this administration is increasing the number of agencies heading in this direction. There is added concern 

that the best-in-class criteria poses a threat to emerging businesses 

that do not have the past performance to enter a vehicle and might 

be effectively locked out of the marketplace. 

All of this is not to say that category management is without 

merit. We certainly do not want agencies using less efficient, more 

expensive procurement processes. However, if small firms with a 

history of offering quality services are being locked out, we must 

consider if this initiative is achieving the intended result. 

During today’s hearing, I look forward to learning about challenges facing small contractors and potential solutions. Doing so is 

not only essential for small firms and our nation’s industrial base, 

but the overall economy. 

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I want to thank the witnesses for being here today. I yield the 

balance of my time. And, Mr. Chairman, I would like to say hello 

to Anastasia MacEwen, a New York University student who was 

my district intern currently in the audience. Welcome. 

[Applause.] 

Ms. VELA ́ ZQUEZ. Thank you. I yield back. 

Chairman CHABOT. Thank you. The gentlelady yields back. 

And if Committee members have an opening statement prepared, 

I ask that they be submitted for the record. 

And I will take just a moment to explain our rules here, timing 

particularly. We operate under the 5-minute rule. Each of you will 

have an opportunity to talk for 5 minutes, and there will be a light 

on there. For 4 of those minutes, it is green; it will go to yellow 

when you have 1 minute to wrap up; then the red light will come 

on. And we ask that you try to stay within those constraints if at 

all possible, and we operate the same way. There will be 5-minute 

questions, and we will stay within those parameters also. 

And I would now like to introduce our distinguished panel here 

today. Ms. Shirley Bailey is testifying in her capacity as board 

chair of the HUBZone Contractors National Council. Ms. Bailey appeared before this Committee last year, discussing legislative reforms of the HUBZone Program undertaken by this Committee, 

and we welcome you back today. 

Our second witness will be Alan Chvotkin. Am I pronouncing 

that correctly? Thank you. He is also a familiar face at the Committee, and is testifying today in his role as the Vice President and 

Counsel of the Professional Services Council, where he is responsible for legislative and regulatory policy. Mr. Chvotkin brings extensive experience on a multitude of small business contracting 

issues, and we appreciate your expertise and thank you for your 

testimony to begin shortly. 

Our third witness is Ms. Beth Laurie Strum. Ms. Strum has over 

20 years of experience advising and supporting contractors and 

government agencies on policy development and project management. She currently serves as the Vice President of the Business 

Development for Volanno. 

Ms. STRUM. Volanno. 

Chairman CHABOT. Volanno. Sorry about that. Volanno, formerly known as IT WORKS, a women-owned small business located in Washington, D.C. Volanno has successfully delivered innovative solutions to the transportation industry over the past 15 

years, and we welcome you here, also. 

And I would now yield to the Ranking Member for the purpose 

of introducing our fourth and final witness. 

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

It is my pleasure to introduce Ms. ML Mackey, CEO of Beacon 

Interactive Systems, a company she cofounded in 1994. Prior to 

starting her company, she worked as an engineer at Digital Equipment Corporation, where she was on both hardware and software 

teams. Ms. Mackey is the past chair of the NDIA National Small 

Business Conference. She is a powerful advocate for women in 

business and a winner of the Women Entrepreneurs in Science and 

Technology Leadership award. Ms. Mackey holds a BS in electrical 

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engineering from Lehigh University. Welcome, and thank you for 

being here today. 

Chairman CHABOT. Thank you, Ms. Mackey. 

And, Ms. Bailey, you are recognized for 5 minutes. 

STATEMENT OF SHIRLEY BAILEY, CEO AND MANAGING MEMBER, MSC MANAGEMENT SERVICES, LLC, TESTIFYING ON 

BEHALF OF THE HUBZONE CONTRACTORS NATIONAL COUNCIL; ALAN CHVOTKIN, EXECUTIVE VICE PRESIDENT & COUNSEL, PROFESSIONAL SERVICES Council; BETH LAURIE 

STRUM, VICE PRESIDENT OF BUSINESS DEVELOPMENT, IT 

WORKS, TESTIFYING ON BEHALF OF THE U.S. WOMEN’S 

CHAMBER OF COMMERCE; AND ML MACKEY, CEO, BEACON 

INTERACTIVE SYSTEMS, TESTIFYING ON BEHALF OF THE 

NATIONAL DEFENSE INDUSTRIAL ASSOCIATION 

STATEMENT OF SHIRLEY BAILEY 

Ms. BAILEY. Thank you. Chairman Chabot, Ranking Member 

Vela ́zquez, and members of the Committee, my name is Shirley 

Bailey and I appreciate the opportunity to be here today to provide 

testimony on behalf of the HUBZone Contractors National Council. 

I am also CEO and managing member of MSC Management Services, LLC, a women-owned HUBZone small business located in 

Garrett County, Maryland. 

Today’s topic, ‘‘The Effect of Category Management on Small 

Businesses,’’ is a policy that greatly concerns the Council. The 

cause for concern is pretty simple: small business access to contracts. But understanding category management has been difficult 

because there are so many moving parts and confusing terms. 

Category management is another iteration of the government’s 

desire to consolidate purchases to achieve cost savings. Since 1997, 

Congress and small business advocates have raised concerns about 

the effect procurement initiatives have on small businesses. In 

2005, the OMB directed agencies to use strategic sourcing and establish the Federal Strategic Sourcing Initiative Program to manage governmentwide efforts. Strategic sourcing has now morphed 

into category management. So here we are today, raising the same 

objections that these practices shut out small businesses. 

Category management breaks Federal buying into 10 categories, 

assigning different agencies the lead. The government has put contracting vehicles in four categories: Tier Zero, which are direct contracts with companies or termed local by the OMB; Tier One, agency-wide contracts; Tier Two, governmentwide contracts; Tier Three, 

best-in-class contracts. 

The President’s management agenda set two goals for Federal 

agencies in fiscal year 2018. The first, a 20-percent requirement for 

agencies to move contracts in Tier Zero to agency-wide or governmentwide contracts. The second goal is to move 35 percent of existing contracts in Tier Two and Three to best in class. 

Currently, there are 36 BIC contract vehicles identified on the GSA acquisition gateway. These vehicles totaled approximately $27 

billion in spend in fiscal year 2017. Not to be forgotten is the President’s management agenda’s goal of meeting small business goals. 

According to the PMA, achievement of category management goals 

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is not an excuse for missing an agency’s small business goal. Every 

agency is expected to work with solution providers and small business offices at the agency to meet or exceed the baseline. 

We are gratified that the small business goals apply to the agencies and category management. That being said, the HUBZone 

Council believes that relying on agency-wide or governmentwide 

contracts erects barriers to small businesses. We want to raise the 

following concerns: One, as the government moves away from direct contract with businesses, the Tier Zero opportunities decrease 

for smaller businesses. The vehicles used in category management 

require substantial resources to bid and to win task orders. These 

contract vehicles do not lend themselves to small businesses trying 

to enter the market. So our concern is pretty obvious: A strong industrial base requires a continuous pipeline of emerging companies 

with innovative solutions. 

Two, most big dollars go to a small share of companies, meaning 

the same ones continue on managed contracts. In fiscal year 2017, 

just 4.3 percent of BIC contract holders received 80 percent of all 

BIC dollars. Also, in fiscal year 2017, 63.5 percent of the fiscal year 

2013 incumbents received 91 percent of BIC spending. This is 

counter to other government procurement objectives that seek to 

diversify the small business base that performs in the Federal marketplace. 

Three, we are concerned that category management consolidates 

contracts into larger and longer term contracts and task orders 

with limited, if any, on-ramping provisions. If the government is 

going to issue larger and longer-term contracts and task orders, 

small business size standards and certification processes must reflect this new reality, and the contracts should provide on-ramping 

to ensure adequate competition and representation of all socioeconomic classifications within contract vehicles. 

Four, the criteria for a contract vehicle to be designated as best 

in class is unclear, and we are unsure whether or not there will 

be consistent criteria across contract vehicles. The term itself, best 

in class, also raises concern. 

Five, the Council believes the government policy of counting a 

company with more than one certification multiple times skews the 

reporting data. For example, 75 percent of all HUBZone dollars 

credited towards goals are solicited under other set-asides. We suggest Congress take a look at this policy so that the true number 

of contracts awarded to socioeconomic set-aside programs is accurate. 

In conclusion, no one would disagree with the goals of efficient 

government buying and saving the taxpayer money. However, we 

believe that category management comes at a cost. Fewer small 

business awards not only limits the supply of vendors to the government, the ripple effect limits the ability of small businesses to 

grow through Federal contracting. In our view, category management will make reaching governmentwide small business goals 

even more difficult. The utilization of HUBZone companies already 

poses a problem for the government. It has never reached the 3 

percent goal. Further limiting contract competition to utilize only 

multiple award contracts through category management will have 

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a devastating effect on small business participation in Federal contracting. 

The Council urges this Committee to exercise its authority to ensure the government’s procurement policies and implementation of 

such policies, specifically category management, utilizes small business to the maximum extent practicable rather than limiting it. 

Thank you. 

Chairman CHABOT. Thank you very much. 

Mr. Chvotkin, you are recognized for 5 minutes. 

STATEMENT OF ALAN CHVOTKIN 

Mr. CHVOTKIN. Thank you, Mr. Chairman, and thank you for 

the invitation to the Professional Services Council to testify today. 

Category management has evolved through four major phases. It 

began as a Federal initiative intended to develop and provide the 

Federal acquisition community with more efficient acquisition 

strategies, based on major categories of Federal procurement. It 

has transitioned into a combination of both management information analysis and Federal purchasing strategies. 

Last November, Mr. Chairman, you and the Ranking Member 

wrote to the Office of Management and Budget, challenging the implementation of category management and raising concerns about 

the ability of small business to fully and fairly compete for Federal 

contracts. Those concerns remain valid. 

The first phase, as I see it, of category management was the establishment of the program. It was intended to provide acquisition 

executives with better visibility into agencies’ spend, and, thereby, 

enable the Federal Government to approach the purchase of goods 

and services as if the Federal Government were a single enterprise. 

PSC has supported and continues to support these goals, even 

though the metrics for success are hard to articulate, and even 

harder to validate. 

The second phase was the determination by OMB that certain 

contract vehicles satisfy key criteria defined by OMB to earn the 

designation of best in class. As of April 23rd, 32 contracts have 

been designated as best-in-class awards. But it is also important to 

recognize that many of these best-in-class contracts have very specific scopes of work or have limited application in the Federal procurement world. 

The third phase was the imposition of agency quotas for spending through category management principles, referred to as spend 

under management. Agency contract spend through any of the 

three tiers of OMB-designated contracts counts as spend under 

management. Where agency contract dollars are obligated through 

contracts that do not fit into any of these categories, awards are 

designated as unmanaged, and the agencies are urged to do more 

to bring those opportunities under that spend under management 

concept. 

OMB, as you know, has established governmentwide targets of 

awarding 35 percent of available spend through best-in-class contracts, and decreasing the available spend categorized as 

unmanaged by 20 percent. But nothing, just to remind the Committee, nothing in the category management evolution alters the 

agencies’ responsibility to achieve their individually negotiated 

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small business contracting and subcontracting goals, pursuant to 

the Small Business Act. 

The fourth phase, and for us, the most troubling, is the requirement for the mandatory use of specifically designated best-in-class 

contracts. These vehicles are the exclusive method by which agencies must purchase goods and services. As of February, only six 

contracts across four of the 10 categories in the category management ecosystem have been designated for mandatory use. Mandatory use of certain contracts is certainly not new, but it remains 

controversial. 

With CM’s focus on lower prices, PSC is concerned that the government may begin to purchase complex services in the same manner as common office supplies, which will limit the value and reduce the innovation available to the agencies. In addition, as this 

Committee has previously addressed, these techniques may have 

the effect of limiting the number of firms, small or other than 

small, able to compete for the specific goods or services provided for 

under these mandatory use and spend under management contracts. 

Five years ago today, PSC testified before this Committee on the 

use of strategic sourcing. We stated that the government’s goal 

should be to foster an environment of robust competition, higher 

performance, agility, innovation, balanced opportunity for companies of all sizes, and accountability. 

We cautioned then, and we do so again today, that more needs 

to be done to prevent the unintended consequences on the small 

and other than smaller companies that are, or are capable of meeting the government’s needs. Particularly, as category management 

has transitioned into a procurement policy, there have been negative consequences for the supplier base and for the marketplace. 

Additionally, many of these competitions and awards for what 

are now designated as best-in-class contracts occurred before the 

best-in-class designation was even made, and certainly, in many 

cases, before any mandatory use designation was established. 

This raises two additional important questions: Are the contracts 

structured in a way to provide on-ramps for companies who are not 

currently a holder of that vehicle? And secondly, when a best-inclass contract is recompeted, will noncontract holders be able to 

successfully compete for any of the future opportunities? 

On behalf of the Professional Services Council and our members, 

I thank you for your attention in holding this hearing on this important issue. I would be happy to try to answer any questions you 

may have. 

Chairman CHABOT. Thank you very much. 

Ms. Strum, you are recognized for 5 minutes. 

STATEMENT OF BETH LAURIE STRUM 

Ms. STRUM. Chairman Chabot, Ranking Member Vela ́zquez, 

members of the House Small Business Committee, thank you for 

the opportunity to speak here today. 

To begin, I must convey to you a fervent message of concern from 

the U.S. Women’s Chamber of Commerce. We have never encountered a threat to small business’ full and fair access to Federal contracts like what is confronting us now. The anticompetitive conSBR002 with DISTILLER

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tracting practice, known as category management through best-inclass acquisition vehicles, has been quickly, summarily, and without consideration and regulatory authority, inserted in front of the 

Federal acquisition practice, seemingly as a predicate to the existing FAR and requirements of the Small Business Act. 

In its current form, the best-in-class acquisition process picks 

winners and losers without assuring full and fair competition, 

thereby locking out thousands of small businesses from the very 

contract opportunities that were guaranteed us through the Small 

Business Act. The abrupt transformation of the Federal acquisition 

process to best-in-class vehicles will have a crippling effect on small 

business’ competitive opportunities. For example, roughly 25,000 

small businesses provide IT services to the Federal Government, 

but only approximately 200 have the IT vehicles currently deemed 

best in class. 

Locking out 99 percent of small businesses from prime contractor 

competitive opportunities will have a devastating effect on the 

small business industrial base. How can the Federal Government 

possibly claim to be providing the maximum practicable opportunity for small business concerns? This new process has been 

rushed so quickly into the acquisition system, without clarity, regulations, or training, that contracting officers have not received the 

information or training they need. Many contracting officers think 

they must exclusively use vehicles designated as best in class. 

Some agency-level contract vehicles have not been named best in 

class while others have received this designation. Winners and losers are being selected without competition, adherence to the FAR 

and Small Business Act, or consideration of the nuanced needs of 

individual agencies, offices, and regions. 

If a small business is not already on one of the anointed bestin-class vehicles, they are left out, literally, of the competitive pool. 

Consequently, while large dollar amounts may end up flowing to a 

very few small businesses who are on these selected best-in-class 

vehicles, hundreds of good, viable small companies will be totally 

shut out for competing. 

For example, OASIS, one of the GSA best-in-class vehicles, has 

pools with only 40 businesses per pool. Alliant 2, which was just 

awarded, has only 80 small businesses. Some best-in-class vehicles 

are 10-year contracts. So these companies are left out from competing for 10 years. If you are not on a vehicle today, you must 

wait 5 years for the small business on-ramp to secure the right to 

compete. And some of these best-in-class vehicles don’t have an onramp. 

There are existing acquisition vehicles and methods that could 

have been used to achieve government acquisition savings while assuring maximum practicable competitive opportunities for small 

businesses. However, the rush into category management without 

assuring that Small Business Act requirements are met, without 

assuring strong and open competitive field of firms remain engaged 

with real incentives to lower prices, and without assuring that the 

needs and nuances of agencies are met through the acquisition 

process. 

Examples of good competitive methods include the GSA multiple 

schedules, but the use of these schedules has decreased by agencies 

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over the last few years. An IDIQ created for an entire department 

with more frequent on-ramps could also satisfy category management requirements. 

Small businesses need your help now to assure we secure maximum opportunities as Federal suppliers. We ask you to compel increased training from the top of acquisition leadership down to the 

front-line contracting officers, to assure they understand that category management and best-in-class vehicles do not supersede our 

existing laws and regulations. We need an easily accessible database of available vehicles so that small businesses and contracting 

officers know the full array of vehicles available to them rather 

than just best in class. 

Thank you for your support of the American small business industrial base. 

Chairman CHABOT. Thank you very much. 

Ms. Mackey, you are recognized for 5 minutes. 

STATEMENT OF ML MACKEY 

Ms. MACKEY. Chairman Chabot, Ranking Member Vela ́zquez, 

and other members of the Committee, thank you for giving me the 

opportunity today to testify before you. And I also want to thank 

you for your consistent efforts in supporting America’s small business community. 

My name is ML Mackey. I am the CEO and cofounder of Beacon 

Interactive Systems, a small business with offices in Waltham, 

Massachusetts, and Norfolk, Virginia. Beacon delivers innovative, 

efficiency improving, and cost savings technology for the Department of Defense. Today, I am representing the national small business—the national small business—the Small Business Division of 

the National Defense Industrial Association. Have you ever been so 

vain you don’t wear your reading glasses, but you really should? Is 

there any way to cut that—— 

The Small Business Division of the National Defense Industrial 

Association, with a membership of nearly 1,600 corporate and over 

80,000 individual members. 

While category management greatly impacts the full spectrum of 

the U.S. industrial supply chain, my testimony this afternoon will 

focus on the constraints that it places on small businesses trying 

to deliver innovative solutions to support the U.S. warfighter at 

home and abroad. 

The intent of making government procurement efficient, streamlined, and cost-effective is a goal with which I and my small business colleagues are aligned. Getting best-in-breed products and 

services as rapidly as possible to the men and women who protect 

us is of paramount importance. 

Unfortunately, the contract approach prescribed by category 

management will have an opposite and deleterious effect on this 

goal. It drastically reduces competition within the existing supply 

chain and creates a tremendous barrier for new contractors to participate and deliver the valuable innovations necessary. 

As battle space needs evolve even more rapidly, so, too, must acquisition processes evolve on both cost and capability vectors. Category management, by only addressing cost through contracting requirements, ignores the overwhelming need and value of innovaSBR002 with DISTILLER

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tion. Without thoughtful implementation, the acquisition of innovation is unplanned, disruptive, fluid, and, in the past, has been costly. A cost-only approach to contracting does not incentivize industry 

to explore innovation or longer term solutions, because contract requirements sacrifice taking new approaches in order to cut costs. 

As the owner of a small business that provides cutting-edge 

Internet of Things (IoT) technology to solve many of the DOD’s 

mission critical operational needs, the myopic approach of limiting 

access to contract vehicles simply is an attempt to limit cost while 

making it even more difficult for the innovation economy to participate. 

Category management, through the practice of strategic sourcing, 

would consolidate the number of contracts the Federal Government 

awards to small businesses. As an approach to cost savings, it is 

well-intentioned, but it, unfortunately, drives high-technology small 

businesses out of the Federal marketplace, resulting in reduced 

competition within the procurement process and the loss of small 

businesses who choose creating innovation over building a business 

based on cutting corners and costs. 

An additional impact of category management is that small businesses must align themselves with current contractors on a cost 

basis, as opposed to value or capability, to even be able to engage 

with the government. Small businesses must be recognized as more 

than just a reliable supply chain for larger companies to utilize in 

their own cost savings approaches. The small business community 

represents the valuable marketplace of ideas and innovation. 

Category management, like Lowest Price Technically Acceptable 

(LPTA) methods, when applied to broad acquisition, does not consider that innovation is an aberration to standard government contracting requirements, yet provides incredible value. 

One of the stated laudable intents of category management is to 

accomplish a streamlined best-of-breed acquisition practice. The 

Small Business Innovation Research (SBIR) and the Small Business Technology Transfer Programs are examples of where the 

small business community delivers directly on this intent. Technology acquired from the SBIR program is an example of accessing 

best-of-breed solutions in a streamlined manner. During the development phases of the SBIR investment—SBIR investment, I 

shouldn’t speak slang—SBIR investment, Phases I and II, the 

needs of the warfighter are explicitly addressed with new and innovative approaches. Furthermore, acquisition of the resulting SBIR 

Phase III goods and services is streamlined, as the competitive 

threshold has already been met in the highly competitive Phase I 

and Phase II processes. Instead of helping, category management 

will impinge on the ability of the U.S. Government to acquire these 

results by limiting access to contract vehicles. 

Across the board, my small business colleagues are overwhelmingly opposed to the category management approach. Anything that 

winnows down the ability to compete on a fair and level playing 

field across the industrial base makes it especially difficult for 

small businesses. 

We have a couple recommendations that we think might actually 

address some of the intent of the category management approach. 

We have three, in fact. One is, support the contracting community 

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with increased funding in order to provide the resources necessary 

to enable innovation and widespread small business participation 

within the contracting process. 

Two, reevaluate LPTA with an eye towards focusing on how to 

best procure what will meet the evolving needs of the warfighter. 

Focus on what is the best value, not what is the least expensive 

acquisition. 

Third, develop and deliver best-of-breed innovative goods and 

services in a streamlined acquisition process by implementing a 

pilot program at the DOD for SBIR Phase III transitions, as described in Section 1710 of the 2018 NDAA. 

Chairman Chabot, Ranking Member Vela ́zquez, and members of 

the Committee, thank you for the opportunity to appear before you 

this morning, and thank you for your continued efforts in supporting the small business community. I look forward to answering 

any questions you may have. 

Chairman CHABOT. Thank you very much. 

And I will now recognize myself for 5 minutes. And, Ms. Bailey, 

I will start with you. Could you describe the impact that these category management 20 percent and 35 percent goals might have on 

emerging small businesses? 

Ms. BAILEY. Yes, thank you. I think that with the idea that you 

are going to be transitioning to these more sophisticated contracts, 

where they have more increased requirements and performance, 

past performance requirements, emerging small businesses won’t 

tend to have that type of experience, and you are going to leave out 

those innovative solutions into those contract vehicles and their opportunity to compete. 

Chairman CHABOT. Thank you very much. 

Mr. Chvotkin, I will go to you next. It seems that the spend 

under management and mandatory best-in-class approach may require more nuance than is currently being applied. For example, as 

you mentioned, it makes little sense to procure complex weapon 

systems the same way one would buy office supplies. What can 

Congress and this Committee specifically do to help bring about a 

more tailored approach to best-in-class use? 

Mr. CHVOTKIN. Mr. Chairman, thank you. There is a number 

of techniques and approaches you can have. Some of them are 

through the oversight such as you are doing. 

You have also initiated a number of pilot programs. We talked 

earlier about some of the burdens in past performance, and this 

Committee was a lead in enacting a provision for a pilot program 

on small business past performance reporting and capabilities 

through the SBA. They just issued some preliminary information 

on that. 

So I think addressing these symptoms is not enough. I think the 

core here is whether the mandatory use makes sense as a Federal 

Government, even across the limited number of companies, and 

will the contracts provide continuing opportunities for new and 

emerging firms to join in. I think those on-ramps are very, very important, and many of the emerging contracts do not have that capability today. 

Chairman CHABOT. Thank you very much. 

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Ms. Strum, I will go to you next. You mentioned that there are 

alternative contracting vehicles and methods that can be used to 

achieve cost savings while protecting opportunities for small businesses. Can you provide some examples and describe how they are 

more advantageous than the current policy? 

Ms. STRUM. So, for example, GSA has schedules. So you have 

got IT 70, which is an IT schedule. When you are on the schedule, 

you are supposed to have provided your best price to GSA. Also, 

GSA has 874, which is a professional services schedule. What is the 

conflict between OASIS, which is a professional services best-inclass vehicle, and 874, which is a professional services schedule? 

Why buy through OASIS versus buy through the GSA schedule? 

Chairman CHABOT. Thank you very much. 

Ms. STRUM. Sure. 

Chairman CHABOT. Ms. Mackey, given your experience with 

past Federal initiatives such as strategic sourcing, how does this 

current category management strategy compare with past initiatives? 

Ms. MACKEY. Unfortunately, it is very familiar. So I have been 

running and working in the legislative affairs policy area for NDIA 

Small Business Division for the last 9 or 10 years, and it has come 

through once or twice. And I can’t convey to you enough the people 

that worked through the FSSI challenges before who either sent 

me emails or came and talked to me with the slumped shoulders 

of here we go again kind of thing. It has really got a dramatic effect 

on small business. 

And one of the things that we need to keep in mind when we 

think about small business is, you know, that joke about deep pockets are short pockets. It is important to think that small businesses 

have short pockets. It is really hard for us to weather protracted 

delays. It is really hard to build up again and be able to move it 

forward. And just with a little bit of compassion for the owners of 

small businesses, often we manage those dips and valleys on our 

own personal expense. And if we are Federal contractors, they are 

not things that are allowable expenses then when we get back on 

track. 

So there is just this large attenuation at the end of the whip that 

is really, really hard for the small business part of the industrial 

base to recover from. 

Chairman CHABOT. Thank you very much. 

I will yield back my time. 

And the Ranking Member, the gentlelady from New York, is recognized for 5 minutes. 

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

Ms. Mackey, the contribution of small businesses to R&D and innovation as a whole has long been recognized as critical to our 

economy and national security. Yet, it has been noted that contracting in the sphere of the DOD is on the decline, along with a 

general underutilization of the SBIR/STTR programs. Can you explain what this trend means for the industrial base, and what implementing category management means for innovative companies 

like your own? 

Ms. MACKEY. So the strain on the industrial base, the defense 

industrial base, the Federal marketplace, is that my colleagues in 

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Boston, my friends in San Francisco that work in well-known innovation areas, they don’t participate, because it is too hard, it is too 

difficult. 

It is not too difficult sometimes to get started, you know, with 

some of the on-ramps for small business and R&D, some of the initial, maybe, SBIR Phase I awards that you get. It is really hard 

to move beyond that to market launch, either within the Federal 

space, or many of them will take investment from SBIR and move 

back into the private sector. 

So I personally would like to see SBIR and small business R&D 

used for what it was intended for, to funnel innovation to our Federal customers as well as leverage into the economy. So that is the 

impact on the industrial base of category management is difficult 

in that it keeps people from wanting to play. That is the first question I think you asked me. 

Ms. VELA ́ ZQUEZ. Yes. And how can we reverse this trend? 

What can we do here? What type of recommendations could you 

offer? 

Ms. MACKEY. So, from our personal experience, we have been 

able to take SBIR investments and translate them through to Navy 

defense business systems. So it is a market launch in the Department of Defense. We are working with private sector and taking it 

there. 

I can tell you from our experience, the most difficult thing, the 

thing that you could do to mitigate for others is make contracting 

easier. It is the exact opposite of category management. So I can 

share from our personal experience, if you are interested, I could 

give you just a quick couple of examples. 

We go and talk to contracting officers when program officers 

want our technology, when fleet wants our technology. We work a 

lot with the U.S. Navy. When directives come out that say, If only 

we had this capability, and the SBIR pipeline says, Great, we have 

developed this for you, and they can’t get us under contract. And 

when I go and say, It should be easy, it is follow-on work for SBIR, 

they have no idea how to act on that. 

So I think one of the things—I have two concrete suggestions, if 

I could. One is, let’s make Centers of Excellence around SBIR follow-on contracting, so that we don’t put the contracting officers at 

risk to do something new and different when they are the people 

that are supposed to be careful of not new and different so that bad 

things don’t happen. 

The second is, I think it might be really interesting to understand that SBIR technology, goods and services can be offered as 

government-furnished equipment, GFE, on the larger proposals, so 

they don’t necessarily—you can put the acquisition program out, 

but you say this piece will be GFE, and understand that is an 

SBIR follow-on. 

I am hoping those two suggestions might be helpful. 

Ms. VELA ́ ZQUEZ. Thank you. Thank you. 

Ms. Strum, despite the numerous safeguards in place, we continue to see bundling and consolidation of contracts. In your opinion, is the consolidation or bundling of contracts under category 

management being used to ease administrative burdens in the procurement process? 

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Ms. STRUM. I think that that is okay, though. I think having 

these large IDIQ, or indefinite delivery/indefinite quantity contracts and then having task orders under them is okay. I think 

having them agency-wide or department-wide is okay, and I think 

you can achieve the efficiencies and the cost savings through them 

that the government is looking for. And as a taxpayer, I am all 

about, you know, cost savings, right? 

But I think when you have them as these best-in-class with 10- 

year contracts with no on-ramps, and you are really keeping the 

small businesses out of it, I think that is when you start having 

the issues. 

Ms. VELA ́ ZQUEZ. Ms. Bailey, enforcement actions are rare, and 

there is a need for defining realistic enforcement triggers. I would 

like to hear if you have any recommendation to be a sufficient trigger. What would you recommend? 

Ms. BAILEY. As a sufficient trigger for the enforcement of this, 

I think that, you know, you are putting a lot of those processes in 

place right now with the reporting of subcontract type of activities. 

I think we need more enforcement on the large businesses to encourage the small business participation. 

But also, I think that from the agency perspectives on these contracts, we really need to start looking below the layers of just the 

small business goaling, and to look to make sure that we are hitting all of the socioeconomic, you know, goals, you know. 

And also, from the aspect of us using these multiple certifications 

to obtain these goals, I think we are skewing that even further, because you are seeing that, you know, fewer companies are able to 

participate. So you may see that all of the goals are met, but if 

they are met by one company achieving all three certifications or 

four certifications, it is doing a disservice as well. So I think we 

need to start layering back and looking at that detail as well. 

Ms. VELA ́ ZQUEZ. Any short brief comment on that same question? 

Mr. CHVOTKIN. On the enforcement question? 

Ms. VELA ́ ZQUEZ. Yes. 

Mr. CHVOTKIN. Yes, ma’am. I think it is important that we 

look at holding the agencies accountable. The challenge here is that 

the agencies are losing the flexibility on their own when the bestin-class contracts and objectives, top-down objectives are set. 

So I think the key is, as you suggest, and I don’t have a ready 

answer for what the enforcement actions are to be, but I believe 

that the agencies do not have enough responsibility for meeting the 

small business objectives that they have. 

Chairman CHABOT. The gentlelady’s time has expired. 

Mr. CHVOTKIN. I would work on that with you. 

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

Chairman CHABOT. The gentleman from Missouri, Mr. 

Luetkemeyer, who is Vice Chairman of this Committee, is recognized for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman, and thank you 

all of you for being here today. 

I am kind of curious. Is there an ability by small businesses to 

partner with a larger entity to be sort of a subcontractor on the 

main contract? Ms. Strum? 

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Ms. STRUM. If I may. There is always an ability to do that. 

What that does is it decreases our revenue. It decreases the ability 

to go after prime contracts and be a prime contractor. And on the 

best-in-class contracts, the only way to get on them is to have 

prime contract past performance. 

Mr. LUETKEMEYER. Okay. Is there an ability of a number of 

small businesses to sort of work together, to partner together to be 

able to get a bigger contract? 

Mr. CHVOTKIN. There is. Congress has given the authority to 

the agencies for companies that are, quote/unquote, ‘‘similarly situated.’’ If four women-owned small businesses were to come together, the statutory authority gives them the ability to bid as one, 

bringing the capabilities together. 

Mr. LUETKEMEYER. Do they do that? 

Mr. CHVOTKIN. I am sorry? 

Mr. LUETKEMEYER. Do they do it? Do they take advantage of 

that provision? 

Mr. CHVOTKIN. Well, the Small Business Administration has 

issued the regulations for that. The Federal Acquisition Regulation, 

which is what the contracting community reads, has not yet been 

issued. So we are waiting 3 years, 3-1/2 years, I think, since the 

law has been passed to see the Federal Acquisition Regulation 

issued. So some agencies are testing that on their own, most are 

not. 

And there is also, this Committee was very actively involved in 

creating the Mentor-Prote ́ge Program, the all agency MentorProte ́ge Program. That is another way that large businesses and 

small businesses can come together and essentially share in that 

prime contract responsibility. 

Mr. LUETKEMEYER. Each of you is not too happy with the 

process. I understand and I agree with you. Is there a way for contract management to coexist with small business access to government contracts? Is there a way to get that done? Ms. Bailey? 

Ms. BAILEY. Yes. I think that if we look at increasing the number of set-aside vehicles within these vehicles, so that you have the 

small business set-aside programs being represented adequately 

through separate vehicles within each one of these best-in-class 

contract vehicles; and also, to reduce the restrictions for initial 

entry into these, so that you can get the emerging contractors in 

there and have more on-ramping and more frequent on-ramping, to 

enable the newer companies to get in there in a timely manner. 

Mr. LUETKEMEYER. Have you seen, with implementation of 

this, that there has been a disruption of the supply pipeline for different businesses to the government, because of the inability of a 

contractor to do what you are trying to do, or it is all going to one 

or the small guys can’t get there? Have you seen a disruption of 

the—— 

Ms. STRUM. So there is definitely a disruption. So you will see 

a lot of the work that you are trying to go after, you will be talking 

to different agencies and they will say, Yeah, we are going to put 

this RFP on the street. And then it goes on, you know, one of the 

best-in-class vehicles that you are not on. 

So the disruption happens where you are not on a vehicle, and 

you are looking then for a partner that is on that vehicle so then 

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you can sub to them, and sometimes that doesn’t work out. And so 

you lose out on business that you know about, that you are talking 

to the client about, that you are trying to capture, and then it goes 

on these vehicles that you are not able to bid on. 

Mr. LUETKEMEYER. Have you seen where the government is 

trying to get these contracts issued and request for different supplies and product? Have you seen them not be able to get as much 

stuff as they want or to have a competitive bid? Yes, Ms. Mackey. 

Ms. MACKEY. So we deliver the operational energy management 

system for shipboard Navy use. And they are ready for it. We deliver the safety system for the Navy. And the contracting delays 

and the process that we have to get through holds our—I can give 

you our example—holds our technology up from getting to them. 

And the fleet has expressed frustration about not being able to get 

to it quickly. 

I can also share some of my colleagues’ experience at NDIA, 

where they are not able to deliver on their products. We can get 

you more information if you would like on that, if that would be 

helpful. 

Mr. LUETKEMEYER. Fantastic. 

Mr. CHVOTKIN. If I could just add one item. 

Mr. LUETKEMEYER. Yes, sir. 

Mr. CHVOTKIN. The biggest challenge we have right now is in 

the transition, the designation of best-in-class contracts has come 

after the awards and the determination for mandatory use has 

been after the contracts have already been awarded. So we are in 

that interesting transition period of the evolution of category management. 

I think if the OMB, and they are well aware of the need, if they 

could designate those contracts in advance of the solicitation, then 

agencies—then companies would know where to bid or that this 

contract is a best in class. Today, those companies had no knowledge that the contract was going to be designated or the agencies 

would be using it in that manner. 

Mr. LUETKEMEYER. Thank you very much. My time is expired. 

Chairman CHABOT. Thank you. The gentleman’s time has expired. 

The gentleman from Pennsylvania, Mr. Evans, who is the Ranking Member of the Subcommittee on Economic Growth, Tax and 

Capital Access, is recognized for 5 minutes. 

Mr. EVANS. Thank you, Mr. Chairman. 

I want this question probably to go to every person. I will start 

out with Ms. Strum. And this is what I have heard. If you wanted 

to secure the industrial base, what changes should be made when 

using category management? I have kind of heard that. Can you 

speak to that? 

Ms. STRUM. Do you mean what do I recommend as changes? 

Mr. EVANS. Yes, yes. 

Ms. STRUM. I think, for example, I have been working with 

NOAA, for example, on an IDIQ that they have been trying to put 

out for small business to replace an IDIQ that they currently have 

out. And rumor has it that GSA is pushing them to use OASIS for 

it. They feel compelled to use OASIS. It seems to them to be mandatory, and they may not end up putting out their own IDIQ. 

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The changes that I believe need to be put in place is education 

to the contracting officers so that they understand that these bestin-class vehicles are not mandatory, that they can put out their 

own vehicles. Now, for category management purposes, that vehicle 

should be able to be used for all of NOAA, for maybe even all of 

commerce; and it is an IT vehicle, and why not let all of commerce 

use it, and that satisfies the category management requirement. 

Does that answer your question? 

Mr. EVANS. Yes. Others want to respond? 

Ms. MACKEY. So one way to think of changing category management is to maybe look at Section 1710 of the NDAA last year 

that said, let’s pilot a contract vehicle, perhaps in one of these Centers of Excellence, that is already best of breed in a way that has 

a fluid on-ramp to it, that just by completing your Phase II, you 

can become part of that contracting opportunity. 

So I think combining some of the best of things that have gone 

before, CPORTI (ph) has the ability to on-ramp frequently and has 

wide openings to it, putting that with a best of breed contract. I 

also think that category management is just difficult. I think we 

are missing the point of we really need to be supporting the contracting offices with enough resources to be able to effectively meet 

the requirements levied on them for a diverse inclusion over the industrial base. Forgive me for editorializing. 

Mr. EVANS. Yes. 

Ms. BAILEY. I think, to follow on with them then as well is, if 

you look at the categories that we have in category management, 

maybe one of the things is to break those things down to the subcategories, and look at issuing vehicles at those subcategory levels, 

which would enable more small businesses to be able to participate, 

rather than looking at the whole entire category as a whole. 

Mr. EVANS. Yes. Thoughts? 

Mr. CHVOTKIN. Thank you, Mr. Evans. You know, the industrial base in quotes, and that includes both the services and the 

products, is changing so rapidly. One of the issues in category management is it freezes the contract and the scope of work. And so 

we ought to, instead of focusing in on achieving arbitrary goals, one 

of the burdens is that it freezes out—it locks the agencies into longterm solutions. 

So I just think there ought to be greater flexibility and certainly 

staying away from mandatory use, because the agencies’ needs are 

going to rapidly change, and we are pushing them into unique and 

maybe inappropriate vehicles to achieve the solutions they are trying to accomplish. 

Mr. EVANS. Thank you, Mr. Chairman. I yield back the balance 

of my time. 

Chairman CHABOT. The gentleman yields back. Thank you very 

much. 

The gentleman from Kentucky, Mr. Comer, is recognized for 5 

minutes. 

Mr. COMER. Thank you, Mr. Chairman. 

My first question is for Ms. Strum. What options does a small 

business have if it does not hold a spot on a best-in-class contract? 

Are subcontracting opportunities or teaming opportunities available for such companies? 

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Ms. STRUM. Yes. I mean, you can find large businesses and 

small businesses that are on the contract that you can team with. 

You also can talk to the agencies and make friends with the customers and try to get the work on other vehicles, direct contracts, 

use the GSA schedules if you have a GSA schedule—if you are a 

GSA schedule holder. Sorry, that is the proper term. There are 

other avenues to contracting. 

Mr. COMER. How difficult is it for someone to get their foot in 

the door to have a subcontracting or a teaming opportunity? 

Ms. STRUM. It is a matter of networking. Difficulty is in the eye 

of the beholder. 

Mr. COMER. Right. 

Ms. Bailey, let me ask you a question. Given the Federal Government has never met its 3 percent HUBZone goal, and I am a big 

proponent of HUBZone, do you think category management will 

make it even more difficult for agencies to achieve this goal? 

Ms. BAILEY. Yes, absolutely. One of the major recommendations 

I have is that if you are going to continue along this line is to have 

specific set-asides for HUBZone firms and to make sure that there 

are adequate competition and number of firms in those HUBZone 

set-asides. 

With the HUBZone, compliance is also an issue. And if you don’t 

have a HUBZone prime contract, then you don’t have the benefit 

of attempt to maintain in order to maintain compliance and allow 

you to get back up to compliance when you do have an award. 

So—— 

Mr. COMER. While we have heard of the many dangers category 

management potentially imposes on small businesses, can you 

think of any benefits this strategy might have for small businesses? 

I am switching gears here. 

Ms. BAILEY. Well, I think that from the education, if the education gets out and all of the information of pricing of the goods 

and materials, and individuals have access to that information, it 

may help small businesses strategize on where to go and which vehicles and the cost patterns that they have got to get into. 

The problem with entering into the Federal marketplace is if you 

don’t have past performance—and in most cases, as a prime, we 

are seeing more and more requirements as a prime requirement for 

past performance—it is very difficult to enter into the market. 

Mr. COMER. So one quick question—I have a little over 2 minutes remaining—for all the witnesses. Briefly answer, if you can. 

What can this Committee do? What can we do to improve the situation? 

Ms. BAILEY. I think that the one thing is to really seriously look 

at making sure that we have adequate on-ramping, frequent onramping, that all the socioeconomic categories are represented, and 

that you have vehicles that are specific for those. 

Mr. CHVOTKIN. I would recommend that OMB look very carefully at its future awards. Restack whether the current list of bestin-class contracts has sufficient opportunity for small business participation, and then make sure that future awards both have broad 

enough scope of work to keep technology refreshed, as well as to 

bring on future companies through that on-ramp process. Not everyone does that today. 

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Ms. STRUM. So my recommendation would be to have contracting officers trained in what vehicles are available to them besides the best-in-class vehicles, and possibly even have a database 

created so that they know what other contracts are out there that 

they can use to put RFPs on, so whether it is within their own 

agency or outside their agency, if it is using a GSA schedule, et 

cetera. 

But then I would also question how best in class is awarded, and 

look at whether or not it is really following the FAR, and if it is, 

you know, the on-ramping issues and some of the other issues just 

in how they are competed. 

Ms. MACKEY. So I have three quick suggestions, two technical, 

one strategic. The first is Centers of Excellence for contracting, so 

that people know that are trained, that are together and can reinforce their learning around different types of contracting. 

The second is contract vehicles, making sure they are available. 

Speaking as an innovator who, therefore, has not planned for necessarily, the ability to have the frequent on-ramps, as mentioned, 

are really important on those contract vehicles. 

And the third piece that you asked in terms of what can Congress do, I think making sure that program officers and contracting 

officers raise the visibility of the successful small business contracts that have happened, how they have happened, and that you 

are happy that they happened. Help us mitigate the risk by raising 

visibility to the successful engagements. 

Mr. COMER. Well, thank you all very much. Appreciate your testimony. 

Mr. Chairman, I yield back. 

Chairman CHABOT. Thank you very much. The gentleman 

yields back. 

The gentleman from Florida, Mr. Lawson, who is the Ranking 

Member of the Subcommittee on Health and Technology, is recognized for 5 minutes. 

Mr. LAWSON. Thank you, Mr. Chairman. 

Welcome to the Committee. Several years ago, the Federal Government set aside a percentage of contracts that small business 

should receive, somewhere in the neighborhood, according to the 

text here, around 23 percent, as compared to the larger firms. Are 

we able to reach that 23-percent goal, based on all of the testimony 

that I have heard here this morning? Can you all elaborate on 

that? Are we capable, under the circumstances we have, to reach 

those goals or have we already reached them? 

Ms. BAILEY. No, we definitely already reached them. And under 

category management, and you look at total of dollars, we have exceeded it. The problem is, is when you start peeling back and looking at how many contractors are receiving that to achieve those 

goals is the issue. 

So, for instance, you know, DHS has a First Source contract, and 

they have hit all of their goals. You know, they have done really, 

really well. But when you look at the number of companies that 

they had involved in that, for instance, with HUBZone, it is six 

companies. They had $842 million spread across six companies. 

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So that is what the real issue is is when you start looking at the 

socioeconomic classifications underneath the small business numbers. 

Mr. LAWSON. Does anyone else care to respond? Because that 

is very interesting. I mean, that is hard to believe, really. 

Ms. MACKEY. So I would respond with adding onto the socioeconomic classes that you look at, because it is important to understand whether you meet goals or not, are you meeting them in the 

diversified approach that set-asides intend for, so that there are 

launching points for us to do further into the marketplace. 

I would say you should look also at what types of work they are 

doing. Are we pulling across the industrial base? Are we giving 

them on-ramps, if you will, into the market from which they can 

build? And that is our goal, right, is to have a healthy industrial 

base across small and large geographically, socioeconomically. So I 

think looking at the spread of who is doing what and where is important. 

Mr. LAWSON. Anyone else care to respond? 

Mr. CHVOTKIN. I would suggest that this Committee really 

ought to take a look at the larger purpose of the small business 

programs. Today, the agencies look at those objectives or those 

goals as once they achieve it, they stop the awards. And if they 

achieve it in one area, they are happy as long as—it is a numerics 

game only. And category management is getting in that same position. 

I think we need to look at how we grow small businesses and 

how we take advantage of the programs as a growth orientation 

and not as a limitation. And I think that is a larger conversation 

for another day, but I think I am concerned that the category management is going to fall into the same trap of numerical goals only, 

without regard to the who or the what. 

Mr. LAWSON. Okay. Ms. Strum. 

Ms. STRUM. If I may, just one quick comment. In 2017, we 

missed our women-owned small business goal by $1.28 billion. 

Mr. LAWSON. That is incredible. And one other thing you said 

earlier when you were talking about networking, does that contribute a great deal to a lack of participation when you have such 

a small group that are getting all of the resources? 

Ms. STRUM. Definitely. Right. So, I mean, a big part of our jobs 

every day is to go out and talk with companies and meet with companies and do business with other companies. And so, some of the 

gentlemen asked about, you know, can you work with other companies and, you know, sub to other companies as small businesses. 

Can you, you know, do subcontracting. And, of course, we can do 

subcontracting. 

But in order to bid on contracts, you need to have prime past 

performances. So a lot of what we do, again, is to make the connections and do the networking. But we also, you know, in order to 

make money for our companies, you know, we want to have that 

prime contracting goals. 

Mr. LAWSON. Right. And back in Florida, being in a government town like I am, oftentimes I hear from African American 

firms who say that they can’t break in, you know, because of the 

way things are set up. 

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And I know I don’t have enough time to probably go into that 

today, but just listening to what you all are facing as women, the 

Chamber of Commerce and so forth, I can understand what obstacles they are faced with. And there shouldn’t be any reason to have 

these obstacles placed for those firms who are trying to break in, 

are capable of doing good governmental work. 

But the way it is set up, Mr. Chairman, and eventually we might 

look at it again, that is what is happening to a lot of them, why 

a lot of them are complaining. It is simply the way the process is 

set up. 

And with that, Mr. Chairman, I yield back. 

Chairman CHABOT. Thank you very much. The gentleman 

yields back. 

And the gentleman from Kansas, Dr. Marshall, is recognized for 

5 minutes. 

Mr. MARSHALL. Good afternoon, everybody. My first question is 

for Ms. Strum. I am not sure we will get past my first question. 

Ms. Strum, I have been an OB/GYN for 25 years. I have been 

a man in a women’s world. I found myself advocating to make sure 

that mammograms and pap smears were covered by insurance 

companies, making sure that women had access to family planning. 

And now as a Congressman, it seems like I continue to focus on 

a lot of the women issues. 

Just to kind of briefly describe, what are two or three other, the 

major barriers, the challenges that female businesses have? And if 

you were in Congress, what would you do about it? If you were 

Queen, what would you do about it? Give me, you know, a specific 

solution. So I am just kind of teeing this up and go ahead and 

knock it out of the park. 

Ms. STRUM. Wow. If I was Queen. Fun. 

Mr. MARSHALL. We got to dream big and think outside the box 

sometimes. 

Ms. STRUM. So I think the challenges are probably similar to 

what a lot of other small businesses find, whether you are an 

SDVOSB, a small disabled veteran-owned business, or if you are a 

HUBZone business. I think we all face a lot of similar challenges. 

We look specifically for set-asides for women-owned small businesses. 

That being said, I don’t think that the women-owned—the setasides for women businesses—I am not saying this correctly—are 

not coming around as often as maybe they used to be. And some 

of the ones that are coming around, so my personal experience— 

my company is a software development company. We do data analytics, and we are not seeing those coming around as often. 

I am constantly checking different websites of the different contracts that we are on, and we are not seeing—I will tell you, we 

see like janitorial services. We do a lot of work with the FAA, and 

we will see things like building a tower, or replacing carpets, and 

that is just not the stuff that we do. We do software development. 

I want to see stuff for, you know, they need people that do Java 

or, you know, things like that. 

So we are just not seeing the requests for work for the things 

that we do, and so that has been our biggest struggle as of late. 

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22 

We are trying to break into new places in the market, into other 

agencies. And that in itself is the same struggle that anybody 

would have trying to break into new places in the market. You 

know, you have to meet new people, make new networks, that type 

of thing. 

I am not sure if I answered your question fully. 

Mr. MARSHALL. Is there anything else you wanted to add to 

just like plain and simple solutions to the problem before us today, 

this Federal procurement system, anything else that you think is 

very women-specific that you didn’t get to share yet, or you want 

to really emphasize? 

Ms. STRUM. I mean, of course, I would like to see more womenowned set-asides, women-owned business set-asides. But I think 

when you do these large procurements, these large IDIQ procurements, it is always great to see the small business set-asides. And 

when you have the small business set-asides to have specific ones 

for women-owned small business, for the HUBZones, for the 

SDVOSB, et cetera. I think that would really help push our numbers and make it to, you know, that 23 percent that we have been, 

you know, looking to achieve. 

But I think that also helps our numbers in terms of making sure 

it is not six companies getting, you know—I forget what number 

Ms. Bailey used before in terms of the dollar amounts. But I am 

not surprised to hear that, because it is not the first time I have 

heard that. 

Mr. MARSHALL. Thanks, Mr. Chairman. I yield back. 

Chairman CHABOT. Thank you very much. The gentleman 

yields back. 

The gentlelady from North Carolina, Ms. Adams, who is the 

Ranking Member of the Subcommittee on Investigations, Oversight 

and Regulations, is recognized for 5 minutes. 

Ms. ADAMS. Thank you, Mr. Chairman. 

And thank you all for your testimony. I want to follow up on that 

six companies. I am curious about were there African American 

companies involved there? 

Ms. BAILEY. Those were all HUBZones. I didn’t get down to 

whether or not that they were. But even further on that DHS First 

Source is you have several of those companies. Although you may 

have several, they are accounting for several of the certifications. 

So they could very well have had several companies that were hitting the 8A, hitting the women-owned, hitting SDVOSB and 

HUBZone. 

So actually, the total number of companies that you look at for 

the diverse thing is a lot smaller than looking at the total number 

of contracts issued. 

Ms. ADAMS. Yeah, we got to do better. 

So, Ms. Strum, one of the policies that helps to ensure that small 

businesses receive their fair share was establishing the governmentwide 23 percent goal. And I think we have had some discussion about it, but it also includes the small disadvantaged women 

and veteran-owned businesses. So how are these businesses, business contractors impacted by this decrease in the contracts? 

Ms. STRUM. I am not sure I understand the question. 

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23 

Ms. ADAMS. Well, the contracts have been decreased. Is that 

correct? 

Ms. STRUM. That is correct. 

Ms. ADAMS. What is the impact, in your opinion? 

Ms. STRUM. So what I have seen happen is we have larger dollar amounts and smaller contracts. Is that what you are—— 

Ms. ADAMS. Yes. 

Ms. STRUM. Okay. So how has that impacted us? In terms of 

dollars of revenue per company, it is harder to grow your company, 

right, because you have got fewer contracts to go after and bid on, 

and thereby win or lose, and, therefore, even though the contracts 

have more money. 

So you are seeing yourself making that 23—when I say seeing 

yourself, the Federal Government might be making the 23 percent 

in total dollars, but there are fewer contracts for the small businesses to go after and, therefore, fewer companies are actually 

helping to achieve that 23 percent. 

Ms. ADAMS. Thank you, ma’am. 

Let’s see. Ms. Mackey, small businesses are innovative and nimble, which is why it is vitally important that the Federal Government ensure that small businesses are able to compete fully in the 

category management contracting approach. So how can we work 

to ensure that the category management approach is ensuring the 

successful participation of these companies like your own? 

Ms. MACKEY. So first, the problem with that is that innovation 

is, by its nature, unplanned and disruptive. And category management is a planned approach and a structured approach to contracting that says, At this point we will need this much. But with 

innovation, you have a different cycle. 

So I think, to try to directly answer your question, the idea of 

what we can do with category management, if there was a way to 

broaden the best-of-breed definition to include maybe as a first 

pass just the SBIR technologies, goods and services, that we are allowed to do follow-on contracting, because the competition barrier 

has already been crossed, perhaps adding sort of a first pass onramp that is flexible in its timing nature to the best-of-breed concept of category management. 

I am making this up on the fly. I hope it makes sense. But that 

concept of bringing the nimble and the fluid to what is structured, 

you know. 

Ms. ADAMS. Okay. So insight from each of you or anyone that 

wants to answer. Low Federal funding for Small Businesses Administration has an impact on the amount of aid and technical assistance they can provide small business owners. 

So are you seeing an impact on the number of small businesses 

that are able to compete for contracts due to these effects and, if 

so, what type? So anybody can answer. We have got like 53 seconds. 

Ms. MACKEY. So I will tell you that at the SBA, I would love 

to see more funding going to the Office of Innovation. I can’t give 

you the numbers on the impact, but I can give you the impact. I 

am not seeing as much outreach to the innovation economy from 

them, that I would just love to see more of that. 

Ms. ADAMS. Okay. Ms. Strum. 

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24 

Ms. STRUM. I yield. 

Ms. BAILEY. Especially from the HUBZone program office, I 

think that more funding from the HUBZone program office to really help companies understand and to educate the contracting 

groups on the HUBZone program and the benefits of the HUBZone 

program, and to encourage firms to be able to issue more HUBZone 

set-asides. If there are more HUBZone set-asides, there are more 

companies that are going to enter the market. 

Ms. ADAMS. Very good. Thanks very much. 

Mr. Chair, I yield back. 

Chairman CHABOT. Thank you very much. The gentlelady’s 

time has expired. 

The gentleman from New York, Mr. Espaillat, is recognized for 

5 minutes. 

Mr. ESPAILLAT. Thank you, Mr. Chairman. 

Thank you all for your testimony. My question is to Mr. Alan 

Chvotkin. Did I pronounce that right? 

Looking at some of the most recent data available from the past 

two fiscal years, there has been a significant decrease in small 

businesses’ contracting actions. This means, on the whole, that 

small businesses are either being priced out beyond their capacity, 

right, on what they can meet, what they are able to meet as small 

businesses, or that the market in which they operate may no longer 

be viable for them. 

Is this a trend that you believe is due to a demand for goods and 

services beyond what small businesses can offer, or have larger 

companies started to dilute and take away avenues for small businesses in the industry space? 

Mr. CHVOTKIN. That is a great question. The answer is more 

complicated. Certainly, small businesses have the capabilities, and 

what we see in the aggregation of contracts into larger and larger 

dollar value means that it puts a greater burden on those companies. There are also some significant rules changes that have an 

impact on the companies, a shift in how much they can subcontract, a limitation on subcontracting. 

I don’t think there are segments of the marketplace that have 

been excluded, but what we see in the evolution of the procurement 

process, whether it be strategic sourcing or mandatory use, is that 

larger and larger segments of Federal spending are being taken off 

the marketplace. And because it is an objective to achieve a dollar 

value only, without regard to how many companies participate, 

many of the agencies are using that as a way to simply achieve 

their numerical goals and declare victory. 

Mr. ESPAILLAT. I see. My next question is first a statement. We 

want to support new entrants and the 10-point criteria in category 

management in a spirit meant to be a tool for greater inclusion of 

industrial base entrants. 

My first question is, with the use of contracting and bundling to 

meet the minimum benchmark, is it worth revisiting the standard? 

Any of you. 

Ms. BAILEY. Yes. I really think that that is a huge concern, because the larger these contracts are, the smaller companies are not 

going to have the past performance requirements in order to enter 

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25 

ness has to have two or three $100 million contracts in order to be 

able to be qualified to participate in a bid. Not too many small 

businesses have those, especially in the NAICS codes that a lot of 

the small businesses have in professional services and those like. 

So, I mean, as you bundle and make these larger and make them 

more restrictive, it is going to only allow the larger small businesses or those who have, you know, significant other past performance to participate. 

Mr. ESPAILLAT. So what would be the best help for small businesses in this aspect to become more competitive? What should 

they be doing? What should we be doing for them to make them 

more competitive then? 

Ms. BAILEY. I think that one of the things as far as with the 

category management, like I said before, is look at breaking down 

these vehicles into smaller components, where they are more specific, where smaller businesses can have past performance to participate in those areas. And by looking at those subcategories, that 

might enable more of these set-aside vehicles to be used at those 

levels and be able to participate from all of the socioeconomic classifications. 

Mr. ESPAILLAT. Thank you, Mr. Chairman. I yield back the balance my time. Thank you. 

Chairman CHABOT. Thank you very much. The gentleman 

yields back. 

I think that is all the questioners we have this morning and now 

into this afternoon. And we want to thank our witnesses, our very 

distinguished panel for all their testimony today. 

As we have heard the testimony, category management may 

have vast implications for small businesses and the industrial base 

that must be monitored closely. We need to continue working together in a bipartisan manner, as this Committee virtually always 

does, to ensure that the Federal Government acts swiftly and diligently to make sure these outcomes do not occur. 

And I want to, again, thank the panel for really shedding a lot 

of light that will help folks on both sides of the aisle on this very 

important issue. 

And I would ask unanimous consent that members have 5 legislative days to submit statements and supporting materials for the 

record. Without objection, so ordered. 

And if there is no further business to come before this Committee, we are adjourned. Thank you very much. 

[Whereupon, at 12:17 p.m., the Committee was adjourned.] 

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A P P E N D I X 

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HUBZone 

Contractors National Council 

Written Testimony of 

Shirley Bailey 

CEO and Managing Member 

MSC Management Services, LLC 

Mt. Lake Park, MD 

On Behalf of 

HUBZone Contractors National Council 

Before the 

House Small Business Committee 

"The Impact of Category Management on the Small Business 

Industrial Base" 

June 13, 2018 

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Chairman Chabot and Ranking Member Velazquez, and Members of the Committee, my name is 

Shirley Bailey and I appreciate the opportunity to be here today to provide testimony on behalf 

of the HUBZone Contractors National Council. I am also CEO and Managing Member of MSC 

Management Services, LLC, a HUBZone company located in Mt. Lake Park, Maryland. 

The HUBZone Contractors National Council (Council) is a non-profit trade association providing 

information and support for companies and professionals interested in Small Business 

Administration's (SBA) HUBZone program. We would like to thank the Committee for their 

commitment to small businesses and for advancing small businesses in the federal marketplace. 

The HUBZone Council has existed since January 2000 and strives to contribute to the economic 

development of disadvantaged communities by reducing unemployment and homelessness by 

strengthening, improving, and promoting the HUBZone Program and by helping HUBZonecertified companies maximize their success in earning federal contracts. 

The Council's membership includes HUBZone-certified small businesses, other small businesses, 

prime contractors, and organizations interested in the HUBZone Contracting Program. In 

addition, the HUBZone Council is an advocate as it relates to procurement and entrepreneurial 

policy, and continues to seek needed modernization of the program from the Congress and Small 

Business Administration (SBA). 

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Today's topic, the effect of category management on small businesses, is a government buying 

strategy that greatly concerns the Council. The cause for concern is pretty simple: small business 

access to contracts. However, understanding category management has been difficult because 

there are so many moving parts and confusing terms. I can only imagine the difficulty a small 

business has understanding how this government buying strategy affects them. 

Category management is not just a federal buying strategy, it is also a commercial practice started 

by a few professors in the late 1980s. The idea behind the concept was to encourage 

collaboration between the retailer and the supplier. In the federal world, the collaboration is 

done between agencies rather than vendors. Cross agency teams of experts study the market 

for goods and services and share market intelligence with other agencies through the GSA's 

Acquisition Gateway. 

According to the General Services Administration (GSA), Category Management (CM) is a 

strategic and systemic approach, widely used in the private sector, that the federal government 

is adopting to buy smarter and more like a single enterprise. CM enables the government to 

eliminate redundancies, increase efficiency, and deliver more value and savings from the 

government's acquisition programs. It involves: 

o Identifying core areas of spend; 

o Collectively developing heightened levels of expertise; 

o leveraging shared best practices; and 

o Providing acquisition, supply and demand management solutions. 

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Category management breaks federal buying into these 10 categories: Facilities & Construction; 

Professional Services; Information Technology; Medical; Transportation & Logistics; Industrial 

Products & Services; Travel; Security & Protection; Human Capital; and Office Management. 

Current spend for common goods and services is approximately $303 billion. 

The government has given different agencies the lead on these categories. GSA leads five of these 

categories: Facilities & Construction; Professional Services; IT Industrial Products & Services, 

travel and Office Management. DOD leads Transportation & Logistics; DHS leads the security & 

protection category; OPM leads the Human Capital category and Medical is co-led by DOD and 

VA. 

To put this in perspective, the government has put contracting vehicles in four categories: Tier 

Zero (direct contracts with companies- or termed "local" by the OMB); Tier One (agency-wide 

contracts); Tier Two (Government-wide contracts); Tier Three (Best in Class contracts (BIC)). The 

President's Management Agenda set two goals for federal agencies in FY18. The first- a 20% 

requirement for agencies to move contracts in Tier Zero to agency-wide and government-wide 

contracts. The second goal is to move 35% of existing contracts in Tier Two and Three to Best in 

Class. Best in Class contracts are contracts that have met rigorous requirements and planning 

processes. They must demonstrate data driven strategies to change buying behavior and reflect 

competitive pricing strategies. According to OFPP, there are currently 26 BIC contract vehicles in 

place totaling $22 billion in spend. These numbers reflect a 5 year high. 1 

1 Paul Murphy, Bloomberg Government Best-in-Class (BIC) Contract Report 2 (2018). 

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Not to be forgotten is the President's Management Agenda's (PMA) objective of meeting small 

business goals. According to the PMA, achievement of category management goals is not an 

excuse for missing an agency's small business goal. Every agency is expected to work with 

solution providers and small business offices at the agency to meet or exceed the baseline. We 

are gratified that the small business goals apply to the agencies and category management. 

That being said, the HUBZone Council believes that relying on agency-wide, government-wide or 

agency wide contracts erects barriers for small businesses. We want to raise the following 

concerns: 

1. As the government moves away from direct contracts with businesses (Tier Zero), 

opportunities decrease for smaller businesses. The vehicles used in category 

management (agency-wide, government-wide or BICs) require substantial resources to 

bid and substantial resources to win task orders. For example, past contract 

requirements have been structured to keep small businesses from bidding or winning by 

including stringent past performance and other requirements a small business cannot 

meet. One such example was a requirement that a business had to have three past 

performances on contracts totaling $100 million each. The highest small business size 

standard is $38.5 million, so clearly small businesses did not qualify. 

These contract vehicles do not lend themselves to small businesses trying to enter the 

market. Our concern is pretty obvious- a strong industrial base requires a pipeline of 

emerging companies with innovative solutions. 

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2. According to the Office of Procurement Policy (OFPP), the percentage of BIC spending 

that went to small businesses in FY17 was 43%. 2 Bloomberg Government estimates this 

number to be lower at 36.62%3 This compares to the overall small business spend 

government-wide of all vehicles at 23.2%. At first glance, this appears to be a good 

strategy to increase small business spending. But according to Bloomberg Government, 

most BIC dollars go to a small share of companies. In 2017, just 4.3% of BIC contract 

holders received 80% of BIC dollars. So, these dollars do not go to a diverse set of firms, 

rather the same ones continue on the managed contracts. In other words, a relatively 

small group of vendors continue to perform the work. Over the period of FY13- FY17, 

there was only a 36.5% "churn" on BICs. This flies in the face of other government 

procurement objectives that seek to diversify the small business base that perform 

government contracting. 

3. Contract management consolidates contracts into larger contracts and larger task orders. 

Yet, the Small Business Administration's size standards have not adapted to this new 

marketplace. In fact, an average BIC task order is now worth an average of $610,000, up 

147% over S years 4 This growth is reflected in most category management markets. 

Winning a slot on an agency-wide or government-wide contract can quickly bust a small 

business out of its small business eligibility. If the government is going to issue larger 

contracts/task orders, small business size standards must reflect this new reality. 

2 Office of Federal Procurement Policy, Harmonizing Category Management and Small Business Goals 10 (2018). 

3 Government Wide Performance FY17 Small Business Procurement Scorecard (2018). 

'ld. at 14. 

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4. It is unclear what the criteria is for a contract vehicle to be designated as a "best in class" 

and whether or not there will be consistent criteria across contract vehicles. It seems 

that the GSA schedules are in fact issued along category management lines and have a 

continuous on-ramping of contractors to enable greater access into the federal 

marketplace whereas current BIC contracts have a small number of contractors and 

limited if any on-ramping options. 

S. The government policy of counting a company with more than one certification multiple 

times skews reporting data. We suggest Congress take a look at this policy so that the 

true number of contracts awarded to socio-economic set-aside programs is accurate. 

The Office of Federal Procurement Policy (OFPP), based in the Office of Management and Budget, 

has yet to issue a directive on the execution of category management, adding to the confusion 

of small businesses on how to operate in this environment. Strategies that have been suggested 

by the OFPP are: (1) guidance for agencies; (2) tools to support data-driven decision-making and 

(3) increasing small business participation on BIC and other government wide solutions. 

The question remains as to strategies the federal government will employ to increase small 

business participation. One suggestion has been to have "on-ramps" recently used by GSA to 

increase participation in its OASIS contract. GSA explains on-ramps this way in a blog5 : 

"As you probably know, the OASIS contracts contain provisions allowing GSA to execute onramps, which add new industry partners to the competitive pools. These can be done by Pool or 

5 Oasis Blogger, GSA Interact, available at https://interact.gsa.gov/blog/ramps (2018). 

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Sub-Pool on each contract. We included on-ramps in the contracts to ensure that we maintain a 

healthy competitive environment. We made approximately 40 awards in each competitive Pool 

because we believe that this will result in approximately 3 to 5 bids per task order. That's a 

healthy level of competition which will ensure innovation and competitive pricing without 

overwhelming contracting officers. As OASIS and OASIS Small Business mature and increasing 

numbers of task orders are issued and awarded, we will be monitoring the numbers of bids 

received. If we do not achieve the desired level of competition, we will execute on-ramps to 

refresh the group of industry partners in a particular PooL We fully expect to execute on-ramps 

as the initial contract period expires in 2019 and many of our successful OASIS SB small businesses 

are positioned to migrate to the OASIS contract. 

When we decide to execute an on-ramp, we will advertise it on the FedBizOpps website 

(www.fbo.gov) to ensure that all potential offerors are aware of the opportunity. We will also 

use this Interact site to announce on-ramps." The Council thinks this is not just a good idea, but 

should be part of all large contract vehicles, giving small businesses more opportunities to 

compete for this work. 

Another suggestion has been to increase the use of Government Wide Acquisition Contracts 

(GWAC)s administered by the GSA, such as a Women-Owned GWAC or HUBZone GWAC, similar 

to the veterans GWAC We agree, but do not think this takes the place of direct contracts with 

small businesses. We are aware the women's business community has requested GSA look into 

the possibility of doing a WOSB GWAC and support any opportunity to expand the pool of eligible 

businesses into the federal marketplace. 

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Lastly, another suggestion has been to issue a small business contracting vehicle in parallel with 

an unrestricted contract, such as Alliant and OASIS. We agree this approach will help mitigate 

the number of vendors that will be reduced with the FY18 20% and 35% reductions in direct 

contracts. 

We understand the government expects to issue a small business dashboard in June, a BIC finder 

tool and additional training for agency staff with respect to category management-but that is 

not enough. While we appreciate the input of SBA and the OSDBU community into the 

interagency process, we believe the government should be engaging small businesses in the 

conversation. Government acquisition policies of this size should engage its industry partners, 

especially the small business vendor community. 

In conclusion, no one would disagree with the goals of efficient government buying and saving 

the taxpayer money. However, we believe category management comes at a cost. Fewer small 

business awards not only limits the supply of vendors to the government, the ripple effect limits 

the ability of small businesses to grow through federal contracting. In our view, category 

management does not achieve the law's stated goal of utilizing small businesses to the 

"maximum practicable extent possible," and will make reaching government-wide small business 

goals even more difficult. The utilization of HUBZone companies already poses a problem for the 

government- it has never reached the 3% goal. Further limiting contract competition to utilize 

only multiple award contracts will have a devastating effect on small business participation in 

federal contracting. The Council urges this Committee to exercise its authority to ensure the 

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government's procurement policies, specifically category management, utilizes small businesses 

rather than limiting them. 

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P.~cc l'ROfi:SSIONI\1 SFRVIUS COUNCIL 

J! The Voice of the -----rlflllll Government Services Industry 

Statement of Alan Chvotkin 

Executive Vice President & Counsel 

Professional Services Council 

"The Impact of Category Management on the 

Small Business Industrial Base" 

Committee on Small Business 

U.S. House of Representatives 

June 13, 2018 
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Introduction 

Chairman Chabot, Ranking Member Vehizquez, and Members of the Committee, thank you for 

the invitation to testify on behalf of the Professional Services Council's (PSC) nearly 400 

member companies and their hundreds of thousands of employees across the nation. I appreciate 

the opportunity to discuss with you Category Management's evolution and impact on the small 

business industrial base. 

For over 45 years, PSC has been the leading national trade association of the government 

technology and professional services industry. PSC's member companies represent small, 

medium, and large businesses that provide federal agencies with services of all kinds, including 

information technology, engineering, logistics, facilities management, operations and 

maintenance, consulting, intemational development, scientific, social, environmental services, 

and more. Together, the association's members employ hundreds of thousands of Americans in 

all 50 states in support of virtually every federal agency and perform work in all ten categories. 

The diversity of functions performed and the business size of PSC members gives us a unique 

perspective on the objectives and evolution of Category Management within the Executive 

Branch. 

Today, I will offer some considerations and criteria that PSC urges you to take into account as 

your Committee evaluates the impact of Category Management and potential changes to the 

current process, both in this hearing and in your future efforts. They include: 

• How has Category Management impacted the ability of federal agencies to meet their 

mission needs? 

• Are there sufficient safeguards to ensure competition in the marketplace for small 

business participants, both now and in the future? 

• Does Category Management meet the government's objectives of assisting small 

businesses? 

Contractors Provide Significant Value to the Government 

The contractor community plays a vital role in assisting the government in providing services to 

the American people. Contractors' contributions are necessary to maintaining government 

operations. Many of the capabilities that contractors provide do not exist, or are insufficiently 

available, within the government, and contractors can quickly expand or adjust capacity to meet 

changing mission needs. Contractors of all sizes are a strong, diversified national interest 

business base that support current and emerging requirements for every agency of the 

government. 

In fiscal year 2017. the U.S. government spent more than $308 billion to acquire services from 

federal contractors. Government-wide, services spending accounts for roughly 60% of contract 

awards, and that has grown over the last two years. These numbers highlight the importance of 

ensuring that any federal procurement initiative, including Category Management, is designed, 

implemented, and overseen in the most effective manner. 

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Category Management's Evolution 

Category Management (CM) began as a federal initiative intended to develop and provide the 

federal acquisition community with more efficient acquisition strategies based on major 

categories of federal procurement by capitalizing on subject matter expertise and lessons learned 

across the government. The CM approach includes "strategic sourcing, but also a broader set of 

strategies to drive performance, like developing common standards in practices and contracts, 

driving greater transparency in acquisition performance, improving data analysis, and more 

frequently using private sector (as well as government) best practiccs." 1 

The ten categories that comprise the CM initiative are: 

I) Information Technology 

2) Professional Services 

3) Security and Protection 

4) Facilities and Construction 

5) Industrial Products and Services 

6) Office Management 

7) Transportation and Logistics Services 

8) Travel and Lodging 

9) Human Capital 

10) Medical 

Each category is led by a senior government executive (Category Manager) designated as an 

expert in that category. That executive is also charged with implementing a government-wide 

strategy to drive improved performance. The Office of Federal Procurement Policy (OFPP) 

announced the initial 10 government-wide Category Managers on February 10,2016.2 While the 

ten categories have not changed since that time, many of the categories have new leaders. Many 

agencies have also designated managers who are responsible for each category of spend at the 

agency level. 

Since its inception in 2014, I believe that CM has evolved through four major phases and, in 

doing so, has transitioned from what began as a management technique for collecting and 

analyzing federal spending into an integrated combination of both management information 

analysis and federal purchasing strategies. 

Last November, the Chairman and Ranking Member of this Committee wrote to the Office of 

Management and Budget (OMB) challenging the implementation ofCM and raised the concern 

1 OFPP Administrator Anne Rung Dec. 4, 2014 Memorandum: Transforming the Marketplace: Simplifying Federal 

Procurement to Improve Performance, Drive Innovation, and Increase Savings. Available at: 

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/procurement/memo/simplifying-federalprocurement-to~improve-p-erformance-drive-innovation-increase-savings.pdf 

1"A Major Step Forward in Category Management: Announcing New Government-wide Category Leaders." Feb. 25, 

2016. Available at: https://obamawhitehouse.archives.gov/blog/2016/02/24/major-step-forward-categorymanagement-announcing-new-government-wide-category 

Page I 3 
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about the ability of small businesses to fully and fairly compete for federal contracts. 3 It remains 

a valid concern. 

The four phases of CM that I have observed are as follows: 

First Phase: Establishment and Spending Analvsis 

The first phase was the establishment of Category Management. When CM was initiated, it was 

intended to provide acquisition executives-both within each purchasing organization and across 

the "category''-with better visibility into agencies' spending per category and thereby enable 

the federal government to approach the government's purchase of goods and services as if it 

were a single enterprise. 

The approach also provided for the collection of government-wide buying data tor each category 

and enhanced the ability of government to track spending trends over time. It provided the 

foundation for the government to find efficiencies, reduce unnecessary duplication or 

inconsistencies in both the purchasing decisions and the acquisition vehicles, and enhance value 

tor agencies when purchasing such goods and services. Additionally, through the designation of 

Category Managers, CM helped to meaningfully improve the skills and expertise of the federal 

acquisition workforce. PSC has supported, and continues to support these goals, even though the 

metrics for success are hard to articulate and even harder to validate. 

Second Phase: Designation of"Best-ln-Class" Contract Vehicles 

The second phase in the evolution of the CM was the determination by OMB that certain 

contract vehicles satisfy key criteria defined by OMB and earned the designation of"Bcst-InCiass" (B-l-C).4 As of April23, 2018, thirty-two contracts have been designated by OMB as "B1-C" awards;5 OMB will update that listing periodically. 

But it is also important to recognize that many of the B-1-C designations have very specific 

scopes of work or have limited application in the federal purchasing world. For example, under 

the Medical category, the two B-1-C contracts are lor Veterans Affairs (VA) hearing aids and the 

Department of Defense/V A national contracts for generic pharmaceuticals. In Travel and 

Lodging, one B-1-C is for the U.S. Government's rental car program and another is for civilian 

employee relocation. 

Third Phase: Institution of "Spend Under Management" Tiers and Targets 

The third phase in the evolution of CM was the imposition of agency quotas for spending 

through category management principles, referred to as "spend under management." Under 

OMB's three-tier system for evaluating qualifying spending, the highest tier for applying 

approved category management principles is dollars obligated on "Best-In-Class" contracts. 

3 "Chabot, Velazquez Challenge OMB on Procurement Policy." House Small Business Committee press release, Nov. 

10, 2016. Available at: https://smallbusiness.house.gov/news/documentsingle.aspx?DocumentiD=399375 

4 Category Management Policy 15-1: Improving the Acquisition and Management of Common Information 

Technology: Laptops and Desktops. Oct. 16, 201S. Available at: 

httos://obamawhitehouse.archives.gov/sites/default/files/omb/memoranda/2016/m-16-02.pdf 

5 Best-in-Class Solutions (as of April 23, 2018). Available at: https://hallways.cap.gsa.gov/app/#/gateway/categorymanagement/6243/best-in-class-bic-consolidated-list 

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However, agency spend through any of the three tiers ofOMB-designated contracts counts as 

"spending under management." Where agency contract dollars are obligated through contracts 

that do not fit into any of those tiers, awards are designated as "unmanaged contracts" and 

agencies are urged to do further analysis of their spend to "find opportunities" for shifting to 

solutions that qualify as "spend under management.''6 

It is my understanding that OMB has established government-wide targets of making 35 percent 

of available spend through B-1-C awards and decreasing the available spend categorized as 

"unmanaged" by 20 percent. Agencies are held accountable for meeting B-1-C and spend under 

management targets. 

In addition, each category has a unique set of key performance targets for fiscal years 2018 and 

2019, including spend under management, savings and/or cost reductions, reduction in contract 

duplication, and achieving percentages of awards to small businesses. Nothing in the CM 

evolution detracts from the additional responsibility on agencies to achieve their individually 

negotiated small business contracting and subcontracting goals pursuant to the Small Business 

Act. 

Category Management is also an important component of the March 2018 President's 

Management Agenda. Cross-agency goal #7 establishes as an objective "leveraging common 

contracts and best practices to drive savings and efficiencies." ln addition, this cross-agency 

agenda sets a goal that "by the end of FY 2020, the Government will achieve $18 billion in 

savings for taxpayers by applying category management principals [ sic]-{)r smart decisionmaking where agencies buy the same kinds of goods and services through best value contract 

solutions-to 60% of common spend. In addition, the Government will reduce duplicative 

contracts by 50,000, potentially reducing administrative costs by hundreds of millions of 

dollars."7 

Fourth Phase: Mandatory Use ''Best-in-Class" Contracts 

The final phase ofCM in place today is the requirement for the mandatory use of specifically 

designed B-I-C awards. These vehicles are the exclusive method by which agencies must 

purchase covered goods and services. As of February 5, 2018, six contracts across four of the ten 

categories have been designated as "mandatory use" for the agencies 8 

Mandatory use of certain contracts is not new, but it remains controversial. Many may recall the 

so-called "Brooks Act" that required the mandatory use of the GSA schedules for what was then 

called automated data processing without a specific delegation of procurement authority from 

GSA. More recently, the government implemented mandatory use policies when OFPP 

prohibited agencies from issuing new solicitations for laptops and desktops and required the use 

6 Best-In-Class & Spend Under Management, Feb. 5, 2018. Available at: 

https://www.gsa.gov/cdnstatic/BIC %26 SUM One-pager 252018.pdf 

7 "The President's Management Agenda: Modernizing Government for the 21st Century." Mar. 20, 2018. Available 

at: https://www.whitehouse.gov/wp-content/uploads/2018/03/Presidents-Management-Agenda.pdf 

8 Best-In-Class & Spend Under Management, Feb. 5, 2018. Available at: 

https://www.gsa.gov/cdnstatic/BIC %26 SUM One-pager 252018.pdf 

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of specific contract vehicles for any future purchase.9 It has also been applied more broadly to 

the so-called Federal Strategic Sourcing Initiative (FSSI), the precursor to CM. 

Distinction between Products and Services 

There is a significant difference between the way the government buys basic products verses 

how it buys services-pmiicularly IT and complex knowledge-based services. For pure 

commodities, procurement policies can be fairly simple and straightforward; for more complex 

needs, particularly higher-end services, the challenges and complexities grow substantially. 

Commodities tend to be more widely available and the barriers to market entry are typically 

more modest. But such differences become far more pronounced when the services being 

procured are complex or highly technical, involve capabilities and skills that are in short supply 

across the economy, and for which opportunities outside of government are plentiful. With 

commodities, in many cases basic quality may be adequate and price becomes the principal 

driver. With services, quality and innovation are often, appropriately, of greater importance than 

price. 

With CM's focus on lowering prices, PSC is concerned that the government may begin to 

purchase complex cybersecurity services in the same manner as common office supplies-which 

will limit value and reduce innovation. In addition, as this Committee has addressed previously, 

these techniques may have the effect of limiting the number of firms-small or other-thansmall-able to compete for the specific goods or services provided for under these "spend under 

management" contracts. 

Issues for Congress 

Five years ago today, PSC testified before this Committee on the use of Strategic Sourcing and 

stated that "the government's goal should be to foster an environment of robust competition, 

high performance, agility, innovation, balanced opportunities for companies of all sizes, and 

accountability." 10 A copy of that statement is attached as an appendix to this testimony. 

PSC cautioned then, and we do so again today, that more needs to be done to prevent unintended 

consequences on the small and other-than-small companies that arc-or that are capable ofmeeting the government's needs. Since then, and particularly as CM has transitioned from what 

9 Category Management Policy 15-1: Improving the Acquisition and Management of Common Information 

Technology: Laptops and Desktops. Oct. 16, 2015. Available at: 

https ://ob a mawh iteho use. arch ives.gov /sites/d efa u lt/fil es/om b/m emo ran da/20 16/m -16-02. pd I 10 Testimony of PSC president Stan Soloway, June 13, 2013, before the Committee on Small Business, U.S. House of 

Representatives, titled "Putting the Strategy in Sourcing: Challenges and Opportunities for Small Business 

ContractorS. 11 Available at: 

https://www.pscouncil.org/ Issue Areas/SmaiiBusiness/Resources/SmaiiBusiness/Testimony on Small Busine 

ss Impact of Strategic Sourcing.aspx 

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began as a management technique into a procurement policy, there have been negative 

consequences for the supplier base and for the marketplace. These include: 

Implementation of a One-Size-Fits-All Approach Across Government: 

The goa! of any procurement policy, whether established by the Executive Branch or directed by 

Congress, must be to foster a competitive environment where agencies can contract in a manner 

to meet their mission needs. Category Management, however, can potentially limit an agency's 

ability to do so if the agency is required to usc certain acquisition vehicles, and therefore only the 

contractors on those vehicles, for certain goods and services. This strategy could further limit 

access to innovative technologies and processes from companies that arc not current contract 

holders. 

Limiting the Flexibility (Jf Agencies to Pursue Unique Solutions: 

Restricting the access to only certain contract awards-whether through the designation of 

"mandatory use" or through setting goals for "spend under management" --could restrict 

individual agencies' flexibility when pursuing agency-unique initiatives. 

Narrowing Competition in the Marketplace: 

The government benefits when it fosters an environment for robust competition in the federal 

marketplace. The mandatory use of Best-In-Class vehicles does not simply drive changes in the 

market; the vehicle becomes the market. As a result, companies that are not B-1-C contract 

holders could be excluded from certain federal contracting opportunities tor the duration of the 

period of performance of the B-1-C contract designation. 

Currently, there is a broad array of suppliers participating in the federal marketplace that can be 

easily accessed by any government customer. For mandatory use contracts, the number of 

suppliers is limited (and we should acknowledge, though we do not have to accept, that the 

available contracting opportunities are also limited). As this Committee has asked previously, 

does it meet the government's objective to have fewer small businesses receiving a higher 

volume of government work, or should a larger number of small businesses compete for a 

smaller share of the volume~ 

Additionally, many of the competitions and awards for what are now designated as "Best-InClass'' occurred before the B-1-C designation (and any mandatory use designation) was 

established. This raises two additional issues: 

The ability of small businesses (or any business) to become a B-1-C contract holder after 

a contract award. Are the B-1-C contracts structured in a way that provide on-ramps for 

companies currently not a holder of the vehicle? 

• The advantage given to incumbency. When the B-1-C contracts are recompeted, will noncontract holder offerors be able to successfully compete for future opportunities? 

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Focuses Too Heavi~v on Low Price: 

Small businesses-particularly those who provide knowledge-based or professional services to 

the federal government-are disproportionately impacted by shortsighted efforts to drive down 

prices. This often manifests itself in solicitation evaluations know as Lowest-Price Technically 

Acceptable or ·'LPT A." 

Focuses Too Heavily on Inputs, not Outcomes: 

The 8-1-C contracts are approved by OMB based on favorable terms and conditions and 

reporting requirements, not on the outcomes to be achieved for the agency or the past or 

expected performance by the vendors on those contracts. Achieving the government's desired 

outcomes should be the most important objective of any acquisition strategy. 

Conclusion 

On behalf ofPSC and our members, I thank you for your attention to this important issue. As 

always, PSC is available at your convenience to address any questions or concerns the committee 

has, now and in the future. I will try to answer any questions you may have. 

-0-

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U.S. Women's Chamber of Commerce 

uswcc.org 

Testimony of 

Ms. Beth Laurie Strum 

Vice President of Business Development 

IT WORKS 

Washington, DC 

Before the 

House Small Business Committee 

"The Impact of Category Management on the 

Small Business Industrial Base" 

ll:OOA.M. on Wednesday, June 13,2018 

Room 2360 of the Rayburn House Office Building. 

U.S. Women's Chamber of Commerce' 1 700 12th Street, NW, Suite 700, Washington, D.C. 20005 I (202) 607-2488 

www.uswcc.org 
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I JNU L.,' .s·. H·(Jmnl \ Chamber 

\J)' ~ o( Commerce 

Chairman Chabot, Ranking Member Velazquez, Members of the House 

Small Business Committee, thank you for the opportunity to speak today. 

To begin, I must convey to you a fervent message of concern from the 

U.S. Women's Chamber of Commerce: We have never encountered a threat 

to small business' full and fair access to federal contracts like what is 

confronting us now. 

The anti-competitive contracting practice known as Category 

Management through Best-in-Class acquisition vehicles has been quickly, 

summarily and without thorough consideration and regulatory authorityinserted in front of the federal acquisition process seemingly as a predicate 

to the existing Federal Acquisition Regulations (FAR) and the requirements of 

the Small Business Act. In its current form, the Best-in-Class acquisition 

process picks winners and losers without assuring full and fair competition, 

thereby locking out thousands of small businesses from the very contract 

opportunities that were guaranteed to us in 1978 through Public Law 95-507 

"Amendments to the Small Business InvestmentAct." 1 This law states, "No 

contract shall be awarded to any offeror unless the procurement authority 

determines that the plan to be negotiated by the offeror pursuant to this 

paragraph provides the maximum practicable opportunity for small business 

concerns ... "2 

1 Public Law 95-507, Amendments to the Small Business Investment Act of 1958: 

https ://www.gpo.gov /fdsys/pkg/STA TUTE-92/pdf /STATUTE-92-Pg17 57 .pdf (October 24, 1978) 2 Small Business Act: https:/iwww.sba.gov/sites/default/1ilcs1Small Business Act. pdf 

U.S. Women's Chamber of Commerce' 1 700 12th Street, NW, Suite 700, Washington, D.C. 20005 1 (202) 607-2488 

www.uswcc.org 
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The abrupt transformation of the federal acquisition process to Best-inClass vehicles will have a crippling effect on small business competitive 

opportunities. For example, roughly 25,000 small businesses provide IT 

services to the federal government, but only approximately 200 have the IT 

vehicles currently deemed Best-in-Class. Locking out ninety-nine percent of 

small businesses from prime contractor competitive opportunities will have a 

devastating effect on the small business industrial base. Even before Category 

Management, the number of federal small business suppliers dropped 

twenty-seven percent over the last ten years. 3 How can the federal 

government possibly claim to be providing the "maximum practicable 

opportunity for small business concerns?" 

This new process has been rushed so quickly into the acquisition 

system -without requisite clarity, regulations, or training- that contracting 

officers have not received the information or training they need. Many 

contracting officers think they must exclusively use vehicles designated as 

Best-in-Class such as GSA Oasis or Alliant. Some agency-level contract 

vehicles have not been named Best-in-Class while other existing vehicles 

have received this designation. Consequently, winners and losers are being 

selected without competition, without adherence to the FAR or Small 

Business Act, and without consideration of the nuanced needs of individual 

agencies, offices and regions. 

If a small business is not already on one of the anointed Best-in-Class 

vehicles, they are left out -literally restricted from the competitive pool. 

3 U.S. Women's Chamber of Commerce, "Small Business Meets Category Management,": 

https://www.dropbox.com/s/oyy8dsla66psmnx/small-biz-meets-category-management.pdf?dlol (May 24, 2018) 

U.S. Women's Chamber of Commerce• I 700 12th Street, NW, Suite 700, Washington, D.C. 20005 I (202) 607-2488 

www.uswcc.org 
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I~ U.S: l\-'fmwn \ Cluanlu:r 

~ ~ t~F Cmnmercc 

Consequently, while large dollar amounts may end up flowing to a very few 

small businesses who are already on the selected Best-in-Class vehicles, 

hundreds of good, viable small businesses will be totally shut out from 

competing. For example, OASIS has pools with only 40 businesses per pool. 

Many of these businesses are in multiple pools. Alliant2 has only 80 small 

business. 

Also, some Best-in-Class vehicles are 10-year contracts. For Some BestIn-Class vehicles, if you are not on the vehicle today, you must wait 5 years 

for the small business on-ramp to secure the right to compete. For the GSA 

OASIS contract, GSA has announced that the on-ramp will only fill the 

missing spaces. We don't know ifthe spaces opened up will be one year, ten 

years, or more. And, GSA will fill these spaces based on small business 

certifications to make sure they have at least three WOSB, SDVOSB, 

HUBZone, etc. per pool. If they already have those certifications in the pool 

they will not add any additional businesses. 

Some Best-in-Class vehicles have no stated on-ramp at all. It's 

impossible to know when spaces might become available. For example, right 

now I am unaware of any on-ramp being prepared for Alliant 2 SB; this is a 

ten-year vehicle with no on-ramp planned at all-leaving small businesses 

with no foreseeable future to on-ramp to this vehicle. 

There are existing acquisition vehicles and methods that could and 

have been used to achieve government acquisition savings while assuring 

maximum practicable competitive opportunities for small businesses. 

However, the rush into Category Management without assuring the Small 

Business Act requirements are met, without assuring a strong and open 

U.S. Women's Chamber of Commerce· I 700 12th Street, NW, Suite 700, Washington, D.C. 20005 I (202) 607-2488 

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competitive field of firms remain engaged with real incentives to lower 

prices, and without assuring that the needs and nuances of agencies are met 

through the acquisition process, will thrust irreversible damage on the small 

business industrial base. 

Examples of good, competitive methods include GSA multiple 

schedules that qualify as Category Management such as PSS and IT70. The 

use of these schedules has decreased by agencies over the last few years. Also, 

an IDIQ created for an entire department with more frequent on-ramps 

could satisfy Category Management requirements. 

Members of Congress, small business needs your help now to assure 

that small business continues to secure maximum practicable opportunities 

as federal suppliers. We need you to step in and assure our existing federal 

acquisition regulations and the Small Business Act are being followed. Given 

the requirements of this Act, why aren't all interested small businesses simply 

accepted as competitors on all Best-in-Class vehicles? 

We ask you to compel increased training from the top of acquisition 

leadership down to front line contracting officers to assure they understand 

they must comply with the FAR and the Small Business Act- that Category 

Management and Best-in-Class vehicles do not supersede our existing laws 

and regulations. 

We need an easily accessible database of available vehicles so that small 

businesses and contracting officers know the full array of vehicles available to 

them rather than just Best-in-Class. 

Thank you for your support of American small business and protection 

of our industrial base. 

u.s. Women's Chamber of Commerce 1 700 12th Street, NW, Suite 700, Washington, D.C. 20005 I (202) 607-2488 

www.uswcc.org 
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51:- 1S2n • !711.; f -"::2-ll'i-l" !·XX 

\.D!\01\<i 

"The Impact of Category Management on the Small Business Industrial Base" 

Testimony before the Committee on Small Business 

United States House of Representatives 

1151

h Congress 

MLMackey 

CEO & Co-Founder 

Beacon Interactive Systems 

Legislative Affairs & Policy Committee Chair, Small Business Division 

National Defense Industrial Association (NDIA) 

11:00 AM 

Wednesday, June 13, 2018 

Rayburn House Office Building, Room 2360 

Ranking Member Vehlzquez, and Members of the Committee, thank you 

uu1uu••wmv to testify here today, and for your consistent efforts in supporting America's 

community. 

name is ML Mackey, and I am the CEO and Co-Founder of Beacon Interactive Systems, 

business with offices in Waltham, Massachusetts and Norfolk, Virginia. Beacon 

:innovative, efficiency improving, and cost-savings technology to the Department of 

h"oday I am representing the Small Business Division of the National Defense 

!Association (NDIA), the nation's oldest and largest defense industry association, comprised 

lnearly 1,600 corporate and over 80,000 individual members. While Category Management 

!impacts the full spectrum of the U.S. industrial supply chain that provides goods and services to 

ithe DoD, my testimony this afternoon will focus on the constraints that it places on small 

!businesses trying to deliver innovative solutions to support the U.S. warfighter at home and abroad. 

i 

iThe intent of making government procurement efficient, stream lined and cost effective is a goal 

,with which I, and my small business colleagues, are aligned. Getting best in breed products 

!services as rapidly as possible to the men and women who protect us is of paramount lmjportance.j 

!unfortunately, the contract approach prescribed by Category Management will have 

land deleterious effect on this goal. It drastically reduces competition within the 

!chain and creates a tremendous barrier for new contractors to participate and deliver the 

!innovations necessary for staying one step ahead. 

! 

/As battlespace needs evolve ever-more rapidly, so too must acquisition practices evolve on 

!cost and capability vectors. Category Management, by only addressing cost through cnn,tr~.etin,o' 

!requirements ignores the overwhelming need and value of innovation. Without tho,uglhtfill! 

!implementation, the acquisition of innovation is unplanned, disruptive, fluid, and in the past 

I 

~---------------____ I:!_SBC Testim()flyofML Mac~y_l, 
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been costly. A cost-only approach does not incentivize industry to explore innovative or longerterm solutions because contract requirements sacrifice taking new approaches in order to cut costs. 

As the owner of a small business that provides Internet of Things (loT) technology to solve many 

of the DoD's mission critical operational needs, the myopic approach oflimiting access to contract 

vehicles simply as an attempt to limit cost will make it even more difficult for the innovation 

economy to participate in helping the warfighter. 

Implications of Category Management to Small Business Innovation 

Category Management, through the practice of Strategic Sourcing, would consolidate the number 

of contracts the Federal Government awards to small businesses for a single or multiple goods and 

services delivery. As an approach to cost savings, it is well intentioned, but it unfortunately drives 

high technology small businesses out of the defense marketplace resulting in reduced competition 

within the procurement process and the loss of small businesses who choose creating innovation 

over building a business based on cutting corners and costs. 

An impact of Category Management is that small businesses must align themselves with Prime 

Contractors on a cost basis (as opposed to value or capability) to even be able to engage with the 

Government. Small businesses must be recognized as more than just a reliable supply chain for 

larger companies to utilize in their own cost savings approaches. The small business community 

represents the valuable marketplace of ideas and innovation. Category Management, like Lowest 

Price Technically Acceptable (LPTA) methods when applied to broad acquisitions, does not 

consider that innovation is an aberration to standard government contracting requirements yet 

provides incredible value. The bottom line is that industry is concerned that the Federal 

Government is mistaking lowest cost for best value in how they spend taxpayer's money, creating 

requirements that eliminate the ability to access the best options from industry. 

One of the stated laudable intents of Category Management is to accomplish a streamlined bestof-breed acquisition practice. The Small Business Innovation Research Program (SBIR) and the 

Small Business Technology Transfer Program (STTR) are examples of where the small business 

community delivers directly on this intent. Technology acquired from the SBIR Program is an 

example of accessing best of breed solutions in a streamlined manner. During the development 

phases of the SBIR investment (Phases I & II) the needs of the warfighter are explicitly addressed 

with new and innovative approaches. Acquisition is streamlined as the competitive threshold has 

already been met in the highly competitive Phase I and Phase II processes. Instead of helping, 

Category Management will impinge on the ability of the US Government to acquire these results 

by reducing access to contract vehicles. 

Many of my small business colleagues have spoken with me directly in terms of the Category 

Management approach as well as previous strategic sourcing initiatives .. Across the board, they 

are overwhelmingly opposed. Anything that winnows down the ability to compete on a fair and 

level playing field is challenging across the industrial base. 

Recommendations 

HSBC Testimony ofML Mackey 2 
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