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MINORITY CONTRACTING: OPPORTUNITIES AND

CHALLENGES FOR CURRENT AND FUTURE MINORITY-OWNED BUSINESSES

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

ORGANIZATION, AND PROCUREMENT

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

SECOND SESSION

SEPTEMBER 22, 2010

Serial No. 111–148

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

JUDY CHU, California

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN L. MICA, Florida

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

BLAINE LUETKEMEYER, Missouri

ANH ‘‘JOSEPH’’ CAO, Louisiana

BILL SHUSTER, Pennsylvania

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, ORGANIZATION, AND PROCUREMENT

DIANE E. WATSON, California, Chairman

PAUL E. KANJORSKI, Pennsylvania

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

HENRY CUELLAR, Texas

JACKIE SPEIER, California

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

MIKE QUIGLEY, Illinois

BRIAN P. BILBRAY, California

AARON SCHOCK, Illinois

JOHN J. DUNCAN, JR., Tennessee

JEFF FLAKE, Arizona

BLAINE LUETKEMEYER, Missouri

BERT HAMMOND, Staff Director

(III)

C O N T E N T S

Page

Hearing held on September 22, 2010 ..................................................................... 1

Statement of:

Hinson, David, Director, Minority Business Development Agency, U.S.

Department of Commerce; Marie C. Johns, Deputy Administrator, U.S.

Small Business Administration; Jiyoung Park, Associate Administrator

for Small Business Utilization, General Services Administration; Linda

Oliver, Acting Director, Office of Small Business Programs, U.S. Department of Defense; and Brandon Neal, Director, Office of Small and

Disadvantaged Business Utilization, U.S. Department of Transportation .............................................................................................................. 15

Hinson, David ............................................................................................ 15

Johns, Marie C. ......................................................................................... 27

Neal, Brandon ............................................................................................ 73

Oliver, Linda .............................................................................................. 62

Park, Jiyoung ............................................................................................. 56

Robinson, Anthony W., president, Minority Business Enterprise Legal

Defense and Education Fund; Fernando V. Galaviz, president, the

Centech Group, on behalf of the Mid-Tier Advocacy; Don O’Bannon,

chairman, Airport Minority Advisory Council; Joel Zingeser, FAIA, director of corporate development, Grunley Construction Co., Inc.; and

Michael Sumner, Discrimination Research Center, Thelton E. Henderson Center for Social Justice, UC Berkeley School of Law ....................... 93

Galaviz, Fernando V. ................................................................................ 105

O’Bannon, Don ........................................................................................... 124

Robinson, Anthony W. ............................................................................... 93

Sumner, Michael ....................................................................................... 148

Zingeser, Joel ............................................................................................. 142

Rush, Hon. Bobby L., a Representative in Congress from the State of

Illinois ............................................................................................................ 5

Letters, statements, etc., submitted for the record by:

Bilbray, Hon. Brian P., a Representative in Congress from the State

of California, prepared statement of ........................................................... 3

Connolly, Hon. Gerald E., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 166

Galaviz, Fernando V., president, the Centech Group, on behalf of the

Mid-Tier Advocacy, prepared statement of ................................................. 107

Hinson, David, Director, Minority Business Development Agency, U.S.

Department of Commerce, prepared statement of ..................................... 18

Johns, Marie C., Deputy Administrator, U.S. Small Business Administration, prepared statement of .......................................................................... 29

Neal, Brandon, Director, Office of Small and Disadvantaged Business

Utilization, U.S. Department of Transportation, prepared statement

of ..................................................................................................................... 75

O’Bannon, Don, chairman, Airport Minority Advisory Council, prepared

statement of ................................................................................................... 126

Oliver, Linda, Acting Director, Office of Small Business Programs, U.S.

Department of Defense, prepared statement of ......................................... 64

Park, Jiyoung, Associate Administrator for Small Business Utilization,

General Services Administration, prepared statement of ......................... 58

Robinson, Anthony W., president, Minority Business Enterprise Legal

Defense and Education Fund, prepared statement of ............................... 96

Rush, Hon. Bobby L., a Representative in Congress from the State of

Illinois, prepared statement of ..................................................................... 8

Page

IV

Letters, statements, etc., submitted for the record by—Continued

Sumner, Michael, Discrimination Research Center, Thelton E. Henderson

Center for Social Justice, UC Berkeley School of Law, prepared statement of ........................................................................................................... 150

Zingeser, Joel, FAIA, director of corporate development, Grunley Construction Co., Inc., prepared statement of .................................................. 144

(1)

MINORITY CONTRACTING: OPPORTUNITIES

AND CHALLENGES FOR CURRENT AND FUTURE MINORITY-OWNED BUSINESSES

WEDNESDAY, SEPTEMBER 22, 2010

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

ORGANIZATION, AND PROCUREMENT,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:07 a.m., in room

2203, Rayburn House Office Building, Hon. Diane E. Watson

(chairwoman of the subcommittee) presiding.

Present: Representatives Watson, Connolly, and Bilbray.

Also present: Representative Chu.

Staff present: Bert Hammond, staff director; Valerie Van Buren,

clerk; and Adam Bordes and Deborah Mack, professional staff

members.

Ms. WATSON. Good morning. The Subcommittee on Government

Management, Organization, and Procurement of the Committee on

Oversight and Government Reform will now come to order.

Without objection, the Chair and ranking minority member will

have 5 minutes to make opening statements, followed by opening

statements not to exceed 3 minutes by any other Member who

seeks recognition.

Without objection, Members and witnesses may have 5 legislative days to submit a written statement or extraneous materials for

the record.

Let me just read an opening statement, and then I will yield to

you, Congressman Rush.

I want to welcome all of you today to the hearing that examines

the status of Government-wide minority contracting programs and

the efforts made to date by Federal agencies to comply with requirements for minority-owned business programs. In addition, the

subcommittee will hear testimony from Congressman Bobby Rush

regarding his legislation, which is H.R. 4343, the Minority Business Development Improvement Act of 2009.

Programs to assist minority-owned businesses represent one of

the several types of programs in place to promote the growth of

small business entrepreneurs. Such programs, administered under

Section 8(a) of the Small Business Act, provide agencies the authority to set aside contracts for small disadvantaged business [SDBs],

and to make sole source awards to such firms.

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The Federal Government offers assistance to small businesses to

make sure they get a fair proportion of Federal contracts and subcontract dollars. In fiscal year 2009, $29.3 billion, or 6.7 percent of

all Federal contracts, were awarded to minority-owned businesses

out of a total of $537 billion in goods and services purchased by

Federal agencies. A portion of this funding was allocated as part

of the American Recovery and Reinvestment Act [ARRA]. And as

of July 16, 2010, the Federal Procurement Data System reported

that about $3.6 billion, or 12.6 percent of the ARRA funds, had

been awarded to small disadvantaged businesses.

While minority contracting programs have proven rewarding to

both contractors and the U.S. Government, I am aware that significant obstacles and barriers still confront minority contracts in their

attempt to bid for and obtain Government contracts. Evidence of

ongoing and persistent discrimination against minority contractors

has been documented over the years. Structural barriers, including

access to financing, bonding, and trade union resistence, continue

to impede the performance and successful participation in minority

contractors. Moreover, recent court decisions, such as Rossi, have

impacted the scope and the purpose of minority contracting programs on a going forward basis.

I am very interested in hearing more specifics from our private

sector panelists on how documented instances of discrimination

have prevented minority firms from advancing in the marketplace,

particularly because I do understand that it is often difficult for minority contractors to speak openly about these issues out of their

fear that they will be ostracized. If Congress is to address the

shortcomings in our minority contract program, it must have a

comprehensive understanding of the problems at hand in order to

develop appropriate legislative remedies.

It is my hope that this hearing today will make a significant contribution to the development of a meaningful legislative record on

this important issue, and I welcome all the witnesses that are here

today and we all look forward to your testimony.

OK, now I will turn the mic over to our ranking minority member, Congressman Bilbray.

Mr. BILBRAY. Madam Chair, you will be pleased to hear that I

have a written statement for the record and ask for unanimous

consent it be included in the record.

Ms. WATSON. Without objection.

Mr. BILBRAY. I yield back to the Chair.

[The prepared statement of Hon. Brian P. Bilbray follows:]

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4

5

Ms. WATSON. Thank you.

Now we are honored to have our guest panelist and my good

friend, Congressman Bobby L. Rush. Congressman Rush was first

selected to the U.S. House of Representatives in 1992 and is presently in his ninth term serving the people of Illinois’ First Congressional District, and he is a senior member of the Energy and Commerce Committee, where he chairs the Subcommittee on Commerce, Trade, and Consumer Protection.

Congressman Rush is a sponsor of H.R. 4343, the Minority Business Development Improvement Act of 2009. The legislation would

establish a program providing technical assistance, loan guarantees, and contract assistance to qualifying minority businesses.

Also, the program would broadly resemble existing Small Business

Administration [SBA], programs for small businesses owned and

controlled by socially and economically disadvantaged individuals,

among others.

But it would differ in its eligibility criteria in the loan guarantees and contract assistance provided. Specific eligibility criteria

differences include, first, the size of firms allowed to participate; inclusion of certain groups presumed to be disadvantaged; three,

higher economic and network thresholds for individuals seeking to

participate; and, four, limited eligibility for group owners to participate.

Congressman Rush, you may proceed with your statement.

STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF ILLINOIS

Mr. RUSH. I want to thank you, Madam Chairperson, Madam

Chairwoman, for your leadership on this committee and, I also say,

in 1992.

Congressman Bilbray, it is so good to be with you and before you

this morning. I would also extend my note of you being one of the

most successful Members of the House of Representatives. But it

is good to see you, my friend.

To all the members of the subcommittee, I am so delighted to be

here. I want to thank you for inviting me to testify before your subcommittee on this important hearing on Minority Contracting: Opportunities and Challenges for Current and Future MinorityOwned Businesses.

During the first half of 2009, Congress took extraordinary steps

to turn the Nation’s economy around and create jobs that would

fuel our economic recovery.

Many States have already begun to distribute contracts. However, across the country, minority-owned firms are being shut out

of the process because of what I call artificial barriers that I believe

that this Congress must simply break down.

Also, on the outside of the Federal marketplace, minority-owned

firms are struggling, literally, trying to stay afloat and finding the

needed financial and technical assistance to continue their operations. In business, the metaphor of the level playing field comes

to mind. But that metaphor doesn’t quite describe the circumstances for minority-owned businesses.

Far from being on the playing field, many minority businesses

and business owners find themselves standing outside the stadium

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doors where the business games in America are being conducted,

standing on the outside of the stadium, in a crowd, trying to raise

their voices over the din and over the noise and over the clamber

that is going on of business R&D inside the stadium and playing

the American game of business. They are signaling with one voice

as loud as they can, they are saying, we are here. Look at us. Recognize us. Acknowledge us. We are here and we want to participate

in the American economy.

Madam Chair, that is why I am here, because so many of these

business persons in my community, in my district, in your district

and districts like ours, they can’t be here. Their voices won’t be

heard today, so I am here to speak for them in my own way. The

question remains to be answered, and so many others that I represent here: Why are these companies continually shut out of a

process that these men and women, who are also taxpayers, citizens of this Nation, veterans of wars of this Nation, why are they

out of the process and how can we help fund and support them?

Quite frankly, Madam Chair, I find that this situation is totally

unacceptable, and I believe that all of you join me in this.

Historically, minority-owned firms have long faced an uphill battle in gaining a foothold on the national economic scene. In 1997,

a study by the Urban Institute identified several obstacles faced by

minority-owned businesses. At the top of that list was the lack of

access to financial capital, limited access to informal business networks, lesser skilled human capital, and limited access to non-minority markets.

I am here today unequivocally saying that by building up minority firms we can begin to truly drive the economic recovery that

Congress and the Obama administration has been so diligently

working toward. I have spent some time looking for ways to assist

minority-owned firms of all sizes, including all business sectors, in

their efforts to succeed and prosper in their efforts to create jobs

in our Nation. Minority businesses and business owners employ

nearly 5 million Americans.

I looked at the Minority Business Development Agency [MBDA]

in my research. This agency is under the auspices of the Department of Commerce and it is the only Federal agency, the only one,

the only Federal agency in the last 40 years that was created specifically to help minority-owned firms. This agency was created

during the years of Richard Nixon and it has language in the Department of Commerce fighting to stay alive, really struggling

against tremendous odds, trying to help minority businesses prosper, to gain a foothold in the American economy, with little to no

help from the U.S. Congress; an ignored agency for the most part.

Unfortunately, even today, it still currently lacks the resources

it truly needs to bring about significant change, particularly in today’s tough economic climate. If there ever was a time when this

agency, given its mission of 40 years ago, needs to be strengthened,

I say the time is now. There is no better time than now. Now is

the time.

To that end, I introduced my bill, H.R. 4343, the Minority Business Development Improvement Act of 2009. If adopted, this bill

will establish a Minority Business Development Program to assist

qualified minority businesses by providing technical assistance,

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loan guarantees, and contracting procurement assistance. The bill

authorizes the director of the MBDA to certify any entity as a

qualified minority business that satisfies each of the eight criteria

outlined in the bill. The bill authorizes $200 million to the director

to carry out the technical assistance program and $500 million for

loan guarantees. The bill would also allow firms participating in

the program to bid on select set-aside contracts for goods and services.

Ladies and gentlemen, brothers and sisters of this committee, I

believe that it is time to bring the Minority Business Development

Agency to the forefront of our Nation’s economic recovery, and I am

sure that other witnesses at today’s hearing will concur with me.

I am also sure that each one of you have felt, in your own way,

the desire to turn things around and to regain our economic footing

for the people in our local communities and throughout the Nation.

Madam Chair, I urge the members of this subcommittee to join

me in an effort to create a viable platform for minority-owned business development. Again, I thank you for giving me this opportunity to address this auspicious and this very important committee of the U.S. House of Representatives, and I thank you again.

I am available for any questions that you may have.

[The prepared statement of Hon. Bobby L. Rush follows:]

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Ms. WATSON. We want to thank you too for bringing this issue,

being persistent on this issue over a period of time, to our attention. It is right for us to have a hearing and bring all the facts as

we know them to the table so that we can start discussing how we

can do remedies, as I said before.

Based on the information from your constituents, and I know

that you have a history of always being tuned in to the people in

your constituency, and even out of your constituency, or whatever

sources you might have been talking with, how has the recent recession affected the minority-owned firms seeking to obtain Government financing or Federal contracts?

Mr. RUSH. Madam Chair, thank you for that great question. As

I expressed before, there are still great disparities.

Ms. WATSON. Do you have kind of a percentage? Let’s just stick

within your district. What would you say the percentages would be

in terms of those receiving contracts?

Mr. RUSH. Well, it is very paltry. I say that during this era, the

Recovery Act, less than 3 percent of the minority-owned businesses

in my district have been affected, although we took initial steps.

We had a number of seminars and forums; we brought Government

officials out early on, when this was first proposed. We tried to get

ahead of the tide, ahead of the program. We wanted to be associated with the mostest.

However, as we see how these programs and these dollars are

being spent, they have very little effect on my district. And one of

the reasons why they have very little effect on my district is that

there is not a singular entity that really can help address and deal

with some of the difficulties that minority businesses have historically affected, and that is why I focus on, again, the President

Nixon created program, Minority Business Development Agency.

I looked at and said, well, this is what is sorely needed at this

time. If we want to increase from 3 percent to 10 percent to 25 percent to 30 percent, then we have to have an advocate, a well

armed, well financed, well intentioned focused advocate that will

help minority businesses in my district and provide assistance.

Madam Chair, I am astounded and I am ashamed to say this,

but MBDA right now is the smallest Federal agency within the

Federal Government. It has been flatlined in terms of its budget

for over 40 years. Flatlined. Everything else has taken off, has

soared. But the one agency that can make a significant difference

in my community, other minority communities, the one agency

whose mission it is to help engage my constituents, your constituents, in a robust manner in this Congress, that agency is moribund

almost because of the lack of funding and resources that it has.

Ms. WATSON. Let me just say this. We are all, in this Congress,

focusing on jobs, jobs, jobs.

Mr. RUSH. Yes.

Ms. WATSON. And when we cannot focus or train our awards to

these companies, there are a great number of people without jobs,

laid off. That is correct. What is the jobless rate, percentage-wise,

in your constituency?

Mr. RUSH. Madam Chair, I thank you for that question. Let me

just say the published rate is about 16 percent. That is the published rate. Now, the real rates are more like about 30, 35 percent.

11

And that is just the ones who are considered unemployed and the

ones who might be eligible for unemployment benefits. Those who

have dropped out of the job market, I mean totally dropped out,

then you would probably say it is somewhere around about 45 percent. If you want to include young people, then it is over 50 percent.

So, I mean, if you are talking about a depression, I am not sure

how the economists, how they identify employment of a depression,

but I would just say that most of my district is beneath whatever

the parameters in my district.

Ms. WATSON. These are depressed areas.

Mr. RUSH. Yes.

Ms. WATSON. In listening very closely to what you see as a remedy, I think it goes to the basis that the agency that was established to see that we had eligibility requirements that could be met

by minority businesses is underfunded.

Mr. RUSH. Absolutely underfunded. And that is the foundation

for the problem, that it is underfunded.

Ms. WATSON. So it really becomes a fiscal problem for us to see

that we share with this agency a justifiable amount so that we can

increase minority contract and put the people back to work. Is that

a statement that would be verified by your bill?

Mr. RUSH. Madam Chairman, yes, it would be. It would be. And

if we just want to look at, if we just extrapolate for one moment,

if we invest in the beginning, at the outset, if we invest in minority

businesses, invest in this agency, then the same—American taxpayer on the other end would mean 100 times greater, because if

you invest in creating businesses, in creating jobs, and then your

investment in the social program and the citizens.

That investment on the back end would be less if we invest in

a robust minority business program in order to help create jobs. By

definition, jobs is still the standard for being productive in this society. Jobs are still the creator of the American dream and of the

American economy. The real stimulus program that I think we

need now is to disseminate minority businesses so that minority

businesses can do its rightful and natural function of creating jobs

for the American people.

Ms. WATSON. Thank you.

I will now yield to Mr. Bilbray.

Mr. BILBRAY. Congressman, thank you for your kind words. Let

me just say, as somebody who was born and raised in a working

class neighborhood, one of the things that has frustrated me so

often is, first of all, a lot of people come into our communities that

are distressed and see the unemployment, see the redlining.

I still remember this one company, this one bank that I caught

when I was mayor of a small town and said that the 7-Eleven

being built in my community, built at half the revenue and be

twice as expensive as the same 7-Eleven being built in another

community. Now, I can understand half the revenue or reduced

revenue because of our economic situation, but twice as expensive?

So that tricky little game you get into.

So I have seen that and I am concerned that we approach, many

times, what we think is the problem is a symptom of deeper probVerDate 11-MAY-2000 14:50 Jun 17, 2011 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65561.TXT KATIE PsN: KATIE
12

lems, and we see things in isolation; we go in and say this unemployment is the problem, but in reality there is a bigger problem.

One thing that I really want us to concentrate on is that the minority community does not operate in the business community in

isolation; it is part of a broader network. Wouldn’t you agree that

if you were breaking down the businesses into three categories,

large, medium, and small, there are very few minority-owned businesses in the large category? Big business tends to be exclusive.

Medium you have some, but not much.

But the overwhelming majority of minority-owned and disadvantaged is in the small category. And I think we have to understand

that a lot of these barriers appear to be just race-based or socialeconomic, but, in reality, because of the way systems, especially in

the Government, is operated, we favor the big guy so much that indirectly there is a discrimination that not only is based on the color

of your skin but, more importantly, by the volume of your pocketbook And it happens that the minority and disadvantaged community tends to fall into that category, along with other groups.

Have you looked at the fact that one of the biggest problems we

have with this program is we tend to put the weight on that middle

ground? That if you want to qualify, you must qualify to be one of

those medium sized businesses, the initial hit. But if you are one

of the smaller guys, you are not big enough to compete for those

contracts; you are not able to fulfill those requirements; and the

system tends to say, we don’t care, medium guy, if all of your subcontractors are disadvantaged, we want you to be disadvantaged.

So you don’t have the incubator process.

I mean, let’s face it, the great majority of these non-minority

businesses were not born big, were not born even medium; they

grew from the small. But the incubator concept tends to be stifled

right now when I look at Federal contracting.

In fact, one of the biggest problems we have, I think, with fraud

in the system is that a lot of middle and big business are creating

the fraud to get this advantage, where the true disadvantaged business people are not gaining access because they are too small to

compete in the existing Federal program, they are not big enough

to be able to play the game and, thus, they de facto are cut out not

because of who they are, but because of the size they are. But the

result is the same, exactly the same.

Mr. RUSH. Mr. Bilbray, let me just say this. It seems to me that

the problem that you are addressing, first of all, small businesses

employ the majority of the American people across the board.

Firms that employ less than 500 people are the main employers of

the American people; not major corporations, it is the small businesses. And what I think, I do think that there is a fallacy and

there is a fault line with, Federal Government, because they do

favor large corporations.

And I think that addresses why there is such a need for the

MBDA, because we have to change the thinking pattern, the mindset of the Federal procurement community so that they will go out

of their way, rather than discriminating against small businesses,

that they will switch the paradigm and—that small businesses

should be a premium, should be the priority for Federal procurement.

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Now, it might be cumbersome in one extent, maybe in terms of

the bureaucracy or paperwork, but in this age of computerization

and technological innovation, I think that we are living in a new

world, and I don’t think the same competitiveness that existed 10,

20 years ago exists now in terms of how you manage having more

contracts broken down, you know, smaller contracts, and thereby

inviting more and more businesses.

Mr. BILBRAY. Let me kind of reinforce. One of the problems we

have now is that if you have that middle business size, put a bid

in, they do not get credit for the fact that all of their subcontractors, or a large percentage of the subcontractors, may be disadvantaged businesses.

So what happens is there is not the incentive to help incubate

and grow the small into the medium to where you have the ability

to compete in there. It is like we look at whoever is the bidder and

we don’t look at where their supply chain is. And you and I know,

from the employment point of view, just from the workers in your

district, if they are hired by a subcontractor who is doing the Government project, that is just as good a job as if they are hired by

the guy who got the contract originally.

But we are not, right now, giving any credit to those middlemen,

the guys who are getting the bid, of literally incorporating the

small guy into it and making a special effort to go out and get

those disadvantaged businesses into their proposal; and I really

think that there is a real missing link to build this foundation.

This kind of economic prosperity doesn’t happen overnight. It is

not just a political and a Government thing, it is a cultural thing

of people getting in the habit of giving people a chance to bid and

compete, and rewarding them for taking the effort to go do that.

Right now I run into situations of frustration where a lot of guys

are telling me I don’t even get credit if I go out and recruit this

on a lot of these contracts, and I think that is one of the things

we have to be frank and open about.

Just because it appears that we are playing a game by setting

aside, the outcome doesn’t reflect reality, and the outcome proves

to us what we have been doing traditionally is not doing it right.

And I think we should be willing to shake it up a little bit and try

these new things of saying if you have a contractor who has done

that outreach into the minority community and got subcontractors,

he should get credit and be reflected in a benefit to him for going

out and recruiting and incorporating and integrating those subcontractors into the process and empowering the disadvantaged

businesses to start growing. And I think that is a critical component. I know it sounds like an abstract, but if we are going to create the jobs, you have to change the system.

Mr. RUSH. Mr. Bilbray, let’s shake, rattle, and roll.

Ms. WATSON. I would like to introduce one of our colleagues,

Judy Chu, of California, for sitting in with us this morning. You

probably didn’t hear the opening statement, but I know that you

understand the subject matter. Would you like to make a comment?

Ms. CHU. I am just happy to be here to pursue the issue of improving our minority contracting opportunities, and I am glad to

14

hear the testimony, and I certainly support Congressmember

Rush’s efforts in doing so.

Ms. WATSON. Thank you so much for joining us this morning.

And thank you, Bobby Rush, for being consistent and staying on

us until we had this hearing. We appreciate it so much.

Mr. RUSH. Thank you very much.

Ms. WATSON. This will conclude the testimony for Congressman

Rush. Thank you again.

Mr. RUSH. Thank you so much.

Ms. WATSON. I would like to invite our second panel. But before

you come up will staff bring the chairs back? We will call up the

second panel that is composed of David Hinson, the Honorable

Marie C. Johns, Mr. Jiyoung Park, Linda Oliver, and Brandon

Neal.

[Pause.]

Ms. WATSON. It is the policy of the Committee on Oversight and

Government Reform to swear in all witnesses before you testify,

and I would like to ask you to please stand and raise your right

hands.

[Witnesses sworn.]

Ms. WATSON. With that, you may be seated, and let the record

reflect that the witnesses answered in the affirmative.

I will now introduce each one of you.

Mr. David Hinson is the Director of the Minority Business Development Agency at the Department of Commerce. Mr. Hinson oversees five regional offices and a network of 48 minority business

centers that provide services to promote the growth and competitiveness of minority businesses. Prior to this position, Mr. Hinson

was president and CEO of the Wealth Management Network, Inc.,

a multimillion dollar independent financial advisory boutique. He

also managed a 10-State sales region as director of advisory services for Investnet Asset Management, a $70 billion financial advisory firm.

Ms. Marie Johns serves as the Deputy Administrator of the

Small Business Administration. Prior to her appointment, Ms.

Johns was the managing member of L&L Consulting, LLC, and she

is also past president of Verizon in Washington, DC. At Verizon,

Ms. Johns was responsible for 2,000 employees and over 800 customers, including many of the small businesses.

Ms. Jiyoung Park serves as the Associate Administrator for

Small Business Utilization at the General Services Administration,

where she oversees the agency’s small business policies and programs. Previously, Ms. Park worked at Touchstone Consulting,

where she managed communications strategy and program management efforts for the U.S. Agency for International Development

and National Science Foundation and the Small Business Administration.

Ms. Linda Oliver is the Acting Director of the Office of Small

Business Programs at the Department of Defense, where she implements DOD policies that encourage the Department to provide

opportunities for small businesses to successfully compete for small

business contracts.

And, finally, Mr. Brandon Neal is the Director of the Office of

Small and Disadvantaged Business Utilization at the Department

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of Transportation, where he advises the Secretary of Transportation on opportunities for small and disadvantaged businesses to

participate in the Department’s contracting process. Prior to this

position, Mr. Neal worked as a financial director for African-American affairs with Obama for America, and he also worked for the

Democratic Governors Association as deputy political director and

later as director of extended affairs.

I ask that each one of the witnesses of the panel now give a brief

summary of their testimony and keep their summary under 5 minutes in duration, and I know you can do that, because your complete written statement will be included in the hearing record. So

I would like to start with Mr. Hinson. Please proceed.

STATEMENTS OF DAVID HINSON, DIRECTOR, MINORITY BUSINESS DEVELOPMENT AGENCY, U.S. DEPARTMENT OF COMMERCE; MARIE C. JOHNS, DEPUTY ADMINISTRATOR, U.S.

SMALL BUSINESS ADMINISTRATION; JIYOUNG PARK, ASSOCIATE ADMINISTRATOR FOR SMALL BUSINESS UTILIZATION,

GENERAL SERVICES ADMINISTRATION; LINDA OLIVER, ACTING DIRECTOR, OFFICE OF SMALL BUSINESS PROGRAMS,

U.S. DEPARTMENT OF DEFENSE; AND BRANDON NEAL, DIRECTOR, OFFICE OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION, U.S. DEPARTMENT OF TRANSPORTATION

STATEMENT OF DAVID HINSON

Mr. HINSON. Chairwoman Watson, Member Bilbray, and members of the subcommittee, thank you for inviting the Minority Business Development Agency to appear before this subcommittee. I request that my entire written statement, including attachments, be

entered into the official hearing record.

For over 40 years, MBDA has been working aggressively to expand the economic footprint of minority business enterprises

[MBEs]. At the time of the Agency’s creation in 1969, there were

approximately 322,000 MBEs that generated $10.6 billion in annual gross receipts. Today, according to the recently released numbers by the U.S. Census Bureau, the number of MBEs stands at

5.8 million, generating $1 trillion in gross receipts. However, while

the recent numbers are encouraging, there is still work left to be

done.

Discriminatory barriers continue to persist which impede the

ability of MBEs to access the Federal marketplace on an equal footing with non-minority-owned and operated businesses. I am submitting for the record as Attachment A to my testimony a document entitled The Compelling Interest for Race and Gender Conscious Federal Contracting Programs, which details these barriers,

as well as a number of disparity studies. MBDA is working to

eliminate these barriers, acting as both an advocate and facilitator

for minority-owned firms seeking to gain greater access to the marketplace, including, but not limited to, procurement opportunities

with the Federal Government.

A great deal of work takes place in MBDA business centers located across the country and in Puerto Rico. The centers provide

technical assistance to improve MBE competitiveness at securing

both public and private contracts, in addition to promoting joint

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ventures and teaming arrangements as we recognize some contracts are too large for one firm to compete for alone. In fiscal year

2009, MBDA helped generate $2.2 billion in contracts and helped

create 3,858 new jobs. This exceeds the Agency’s fiscal year 2009

goals of $900 million in contracts and 3,000 new jobs. We expect

to surpass our 2009 performance in fiscal year 2010.

MBDA also works to match MBEs with contracting opportunities

that fit each firm’s profile and capabilities. Two of the more prominent methods are our business-to-business linkage form and the

Phoenix-Opportunity Data base. MBDA hosts B2Bs throughout the

year, matching MBEs with the public and private contracts ready

to be let. During the B2B, MBEs have an opportunity to meet oneon-one with interested contract officers from all levels of the Government and the private sector to examine the possibility of doing

business together. For example, at this year’s National Minority

Enterprise Development Week Conference, MBDA presented more

than $30 billion in public and private sector forecasted contract opportunities.

The Phoenix-Opportunity Data base, which is linked to

FedBizOpps, helps to connect MBEs with available contracting opportunities. Using this system, MBEs input their profiles into the

system accessible on the MBDA Web site. Contracting officers

throughout the Federal, State, and local government can use this

system to upload notices of their Federal contracts into the MBDA

Opportunity data base. The system then matches each opportunity

with MBEs meeting the requirements of the solicitation.

The lack of access to capital has often inhibited the ability of

MBEs to compete for Federal contracts. In January 2010, MBDA

released a report titled Disparities in Capital Access Between Minority and Non-Minority-Owned Businesses: The Troubling Reality

of Capital Limitations Faced by MBEs. This report, which examines the issue of capital access, accompanies my testimony as Attachment B.

Capital, in the form of surety bonds, is required for Federal construction contracts. However, as credit markets tighten, obtaining

bonding has become even more difficult. MBDA is working on a

Surety Bonding Initiative to alleviate this problem and help MBEs

secure the bonding needed to meet the requirements of Federal

contracts.

On April 26th of this year, President Obama established the

Interagency Task Force on Federal Contracting Opportunities for

Small Businesses, of which MBDA was a member. The Task Force

was charged with providing recommendations to the President to

help ensure that small businesses, including minority-owned businesses, have fair access to Federal contracting dollars. These recommendations include addressing the issue of contract bundling,

subcontract planning, and identifying ways to increase small business utilization in prime contracting. MBDA was honored to serve

on this Task Force and work with our colleagues to implement the

recommendations put forth.

So in conclusion, MBDA will continue to take an active role in

eliminating barriers faced by MBEs in our Federal marketplace.

MBDA is creating a Government Contracting Unit under our Office

of Business Development. This Unit will be comprised of experts foVerDate 11-MAY-2000 14:50 Jun 17, 2011 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65561.TXT KATIE PsN: KATIE
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cusing on assisting minority-owned firms in accessing contracting

opportunities. We anticipate having this Unit operational in the

near future.

Also, the Agency is working closely with Secretary Locke in establishing a National Advisory Council on Minority Business Enterprise to advise the administration on issues pertaining to the

growth in minority-owned firms, including access to Federal contracts.

MBEs are a critical part of this country’s economic infrastructure, and it in Federal contracting that many will find avenues for

growth. MBDA looks forward to working with Congress to help create more entry points into the Federal marketplace for MBEs.

Thank you, and I look forward to your questions.

[The prepared statement of Mr. Hinson follows:]

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Ms. WATSON. Thank you so much, Mr. Hinson.

Ms. Johns, you may proceed.

STATEMENT OF MARIE C. JOHNS

Ms. JOHNS. Thank you, Chairwoman Watson, Ranking Member

Bilbray, members of the subcommittee. I am honored to testify on

this very important topic and I am honored to be in my role for a

little over 21⁄2 months now as the Deputy Administrator at the

Small Business Administration.

Minority business is something that I care deeply about, and it

goes back to my family roots. My grandfather was a pioneering

small business person in my home State of Indiana, my father, uncles have been in small business ownership as well, so I have seen

firsthand the hard work, the commitment that it takes to own a

business, and how important business ownership is to minority

communities. So I am eager to work with you all and this subcommittee to hear your questions and to discuss how we best support minority small businesses.

In these tough economic times, minority-owned small businesses

have been especially hard hit. According to a study by the SBA’s

Office of Advocacy, on average, minority-owned firms have lower

receipts and fewer employees, and are less likely to have access to

capital than non-minority-owned firms. Minorities are 32 percent of

the population, but make up 18 percent of business ownership.

Meanwhile, for every dollar earned by a white-owned firm, Pacific Islander-owned firms made about 59 cents; Hispanic, Native

American, and Asian firms made about 56 cents; and AfricanAmerican-owned businesses made 43 cents. And, finally, survival

rates of minority firms are significantly lower than those of white

firms.

Knowing this, it is clear that we must do all we can to support

minority-owned businesses in a comprehensive way. Certainly,

Federal procurement is a part of that, but also through increased

access to capital and increased opportunities for technical assistance and counseling as well.

As you know, Congress sets the goal of awarding 23 percent of

all Federal contracting dollars to small businesses. Congress also

created goals for women-owned business, service disabled veteranowned small business, businesses in HUBZones, and socially and

economically disadvantaged businesses [SDBs], which includes

many of our minority firms. These goals, especially the SDB goal,

reflect the capacity of minority-owned small businesses and help

the Government to ensure that these companies have the opportunity to compete for and to win Federal contracts.

We are proud that in fiscal year 2009, 71⁄2 percent of contracts,

or over $7 billion, went to SDBs. The 71⁄2 percent exceeds the statutory goal of 5 percent. SDBs have also been successful in winning

Recovery Act contracts. So far, nearly 12 percent of Recovery Act

contracts, or $3.7 billion, has gone to SDBs.

Moreover, SBA has programs in place that expand businesses’

capacity, including minority-owned businesses, so that they can

compete for and win Government contracts, and chief among these

are the 8(a) program. The 8(a) program is a 9-year business development program for socially and economically disadvantaged busiVerDate 11-MAY-2000 14:50 Jun 17, 2011 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65561.TXT KATIE PsN: KATIE
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nesses, the majority of which are minority owned. Participants receive business development, technical assistance, and the chance to

work alongside larger firms in a mentor-protege relationship.

The 8(a) program has helped thousands of businesses across the

country. I would like to cite a couple of examples. In Jacksonville,

Florida, A. Harold and Associates provides training, tech support,

and project management for clients across the country. Owner,

Andy Harold, created 24 new jobs after enrolling in the 8(a) program.

In Los Angeles, J&P Construction saw their sales increase tenfold since entering the 8(a) program. The company recently graduated from the program and has agreed to come back as a mentor

for new 8(a) firms.

But, of course, despite the success of the 8(a) program, we have

more work to do. Recently, our agency undertook the first ever

comprehensive review of the 8(a) program, strengthening the rules

to ensure that the benefits of the program flow to the businesses

that need them, and we are very close to implementing these recommendations.

Furthermore, SBA has made strong, robust oversight a top priority. We are working to root out fraud, waste, and abuse in our certification program for the three-step process: improving certification, strengthening our monitoring and oversight, and increasing

enforcement.

In addition, the President’s Task Force on Government Contracting came back with a number of concrete actionable recommendations to address the challenges and barriers to success for small

businesses seeking Federal contracts, and many of my colleagues

on this morning’s panel lent their expertise to that very important

effort. I want to thank my colleagues, Director Hinson, Associate

Administrator Park, Acting Director Oliver, and Director Neal, all

of whom were involved in that very important effort.

It is clear that this commitment to small business contracting

spans the entire Federal Government. The Task Force identified

three main areas of focus: to develop clearer and more comprehensive policies, provide a better trained Federal contracting work

force, and to improve and better leverage technology. And this fall

the SBA will be announcing its Advisory Council on Underserved

Communities. I am excited to be leading this effort and our purpose will be working to develop strategies to promote business

growth and entrepreneurship in traditionally underserved areas.

Finally, minority contractors will be helped by resolving the issue

of parity. A current court decision would give HUBZone businesses

preferences above other set-aside programs, potentially redirecting

millions of dollars away from 8(a) businesses.

In closing, let me assure you that everyone at SBA is aware of

the need to support minority businesses. We are proud of the programs we have in place, but we must work diligently and continue

to improve. And I am looking forward to working with this committee and with Congress as a whole in partnership to enhance the

tools that we provide currently and to continue to develop new ones

as we go forward. Thank you.

[The prepared statement of Ms. Johns follows:]

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Ms. WATSON. Thank you, Ms. Johns.

Ms. Park, you may proceed.

STATEMENT OF JIYOUNG PARK

Ms. PARK. Good morning and thank you for the opportunity to

appear before you. I am Jiyoung Park, Associate Administrator of

the Office of Small Business Utilization with the U.S. General

Services Administration.

Minority business ownership is something I feel strongly about.

Several family members, including my father, have owned local

small businesses. I have seen how business ownership and hard

work can lead to economic independence and prosperity among minority communities and among their broader communities. I look

forward to hearing your questions today and discussing how we all

can better support minority business success in Federal contracting.

As Director Hinson referenced with the statistics, minority firms,

without question, will continue to play a pivotal role in our economy, and we at GSA continue to support this ever-growing group

of businesses, and we partner closely with the MBDA, SBA, and

other agencies to do this.

The Honorable Ms. Johns mentioned small business and small

disadvantaged business goals Government-wide. GSA consistently

exceeds these goals for our agency. To date, in 2010, we have

awarded nearly $1.9 billion to small businesses, which is 28.7 percent of the eligible contract spending. We have awarded $829 million to small disadvantaged businesses, which represents 12.7 percent of our contracting so far this year.

This achievement illustrates GSA’s dedication to creating opportunities for minority businesses. More importantly, these numbers

are a testament to the great achievement of minority businesses

themselves.

In 2009, GSA received $5.85 billion through the American Recovery and Reinvestment Act to convert Federal buildings into highperforming green spaces and to green the Federal fleet. This portfolio includes many large capital construction projects that were

not best suited for small businesses. Despite this challenge, we are

committed to minority businesses at both the prime and subcontract level.

To date, GSA has awarded $452 million directly to minority

firms of Recovery Act funds. One such recipient is Rios Associates,

a Los Angeles-based Hispanic-owned firm who won $300,000 to develop sustainable landscapes for GSA buildings. OKE Thomas and

Associates, an African-American-owned Missouri-based company,

won $16 million for multiple GSA projects across the Midwest,

ranging from carpet installation to roof upgrades using Energy

Star materials. Finally, Epsalon System Solutions, an Asian-American firm in San Diego, won $350,000 to provide technical expertise

for various GSA recovery projects. The list goes on.

Awards like these across the country are helping minority firms

make payroll, grow their business, contribute to the greening of our

Federal buildings, and create green jobs for the future.

The Recovery Act is only one part of GSA’s overall portfolio. In

a given year, nearly 17 percent of Federal contract dollars flow

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through GSA. We are fully committed to stewarding these funds to

maximize small and minority business opportunities. One of the

best ways we do this is through GSA’s Multiple Award Schedules

Program. Currently, 19,000 scheduled contracts are in place, of

which nearly 15,000 are held by small businesses; 2,300 are held

by small disadvantaged businesses. This fiscal year, as of the end

of August, small disadvantaged businesses have received $2.8 billion through the Schedules Program, or 7.3 percent of program

sales totaling $40 billion.

Another way we level the playing field is GSA’s Governmentwide Acquisition Contracts that has been set aside exclusively for

participants in SBA’s 8(a) program. This contract is called 8(a)

STARS. Nearly 200 8(a) firms participate in GSA’s STARS, and

since 2004 these firms have received $2.7 billion in orders.

In addition to our contract vehicles, GSA provides a wealth of

outreach and education to minority businesses. Last October, GSA

launched a Mentor-Protege Program to help small and minority

firms team subcontracts to other firms and compete on their own.

To date, our Mentor-Protege Program has established 40 mentoring

relationships, a third of which include small disadvantaged businesses. This program is just one of many resources that GSA has

to help minority firms. We also host and participate in hundreds

of outreach events across the country each year, including those

listed by the SBA, MBDA and other Federal agencies. And we also

work side-by-side with procurement teams to help create opportunities for minority businesses on from inside.

In closing, we at GSA have a strong record with minority businesses. We are committed to increasing minority firms’ access to

contract opportunities and to building their capacity to succeed,

while at the same time bringing the most innovative ideas and best

industry expertise to the Government.

I would be happy to answer any questions and provide any other

information at the subcommittee’s request. Thank you for your

time.

[The prepared statement of Ms. Park follows:]

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Ms. WATSON. Thank you, Ms. Park, for your testimony.

Ms. Oliver, you may proceed.

STATEMENT OF LINDA OLIVER

Ms. OLIVER. Thank you, Chairwoman Watson, Ranking Member

Bilbray, Mr. Connolly, Ms. Chu. It is nice to be here, but I have

deadly boring testimony. It is all about numbers, so I will really

summarize what the numbers tell us, and I will begin with a digression.

Last night I had a telephone call from somebody who in theory

was calling me because he wanted to know something about small

businesses. This was a man in Los Angeles. I found out, as I talked

to him, that the real reason he was calling me was because he

thought I should take this chance to mention publicly, from many

constituents, as I understand it, how much they have appreciated

Ambassador, as he called her, Ambassador Watson’s work. So I

pass that along to you.

Ms. WATSON. It wasn’t my brother, was it? [Laughter.]

[Remarks made off mic.]

Ms. OLIVER. In developing testimony, we looked at the numbers

in a general way and then in more specific ways, so it is a series

of charts. The first chart tries to look at small disadvantaged businesses that do contracting with the Department of Defense. We

looked at it over a 9-year period, and I am pleased to say that we

have consistently, our contracting dollars that go to small disadvantaged businesses has consistently increased; and, in general,

we have increased the percentages. In 2001 we were at 5.6 percent,

which exceeds the goal, and in 2009 figures show that we are at

6.9 percent. So I am so happy to be talking about this area because

this is an area where we are doing well.

We also looked in more detail at the numbers for the last 3

years, 2007, 2008, and 2009, and I am pleased to say again that

whether we break it down by 8(a) companies or by the small disadvantaged businesses that are not 8(a) companies, in both cases

the Department of Defense shows an upward trend in dollars contracted, in numbers of contracts with small disadvantaged businesses, both categories, and we are very pleased by that.

We have also been happy with our Recovery Act numbers. The

Department of Defense received $7.4 billion under the Recovery

Act, which actually is not very much for the Department of Defense.

Ms. WATSON. Let me just interrupt you for a moment.

Ms. OLIVER. Sure.

Ms. WATSON. The charts that Ms. Oliver is referring to, I understand, are in your statement on the table.

Ms. OLIVER. Yes, ma’am.

Ms. WATSON. Great. So that you can pick them up on your way

out.

Ms. OLIVER. Yes.

Ms. WATSON. Thank you.

Ms. OLIVER. You bet.

Where Recovery Act is concerned, right now approximately half

of all our Recovery Act dollars are going to small businesses and

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34.9 percent of our ARRA dollars are going to small disadvantaged

businesses.

Now, I am realistic enough to know that there are going to be

some big purchases down the road that are planned, and those

numbers will go down, but we are very pleased with where our

numbers are.

Finally, we took a look at the source of things that the small

businesses and small disadvantaged businesses with whom we contract, with what they purchase, because we think that might help

us in our plans. But there are four main areas that small disadvantaged businesses contract with us: manufacturing; construction;

professional, scientific, and technical services; and administration

and support accounts for 89, almost 90 percent of our small disadvantaged business contracts.

Well, there is my quick summary. I have appreciated being able

to come and tell you that Department of Defense is very happy

with what we have done with small disadvantaged businesses, and

through analysis we hope to continue on in this upward pattern.

[The prepared statement of Ms. Oliver follows:]

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Ms. WATSON. Thank you so much. I am sure there will be questions.

Mr. Connolly, I know that you are concerned about the DOD, so

we will get to questions in just a few minutes.

You may proceed, Mr. Neal.

STATEMENT OF BRANDON NEAL

Mr. NEAL. Good morning, Chairwoman Watson and Ranking

Member Bilbray, and members of the committee. Thank you for inviting the U.S. Department of Transportation to discuss our efforts

to comply with Government-wide contracting requirements for minority-owned businesses. My name is Brandon Neal, and I am the

Director of the Office of Small and Disadvantaged Business Utilization.

Under the leadership of Secretary Ray LaHood, DOT has been a

strong advocate for ensuring the participation of small businesses

and ensuring that opportunities created by our Nation’s investments are shared by all Americans. DOT small business contracting opportunities are available through our direct Federal contracting program and through recipients of DOT financial assistance via

the Disadvantaged Business Program [DBE].

In fiscal year 2009, DOT received an A scorecard rating from the

U.S. Small Business Administration for meeting its direct contracting small business procurement goals. In fiscal year 2009, $752

million was awarded to small and disadvantaged businesses.

The DBE Program is designed as a vehicle to increase the participation of DBEs in State and local procurements through our

Federal Highway Administration, our Federal Transit Administration, and our Federal Aviation Administration. These are the three

DOT operating administrations involved in the DOT program.

The Department created a high level task force to take a look at

the DBE program and develop a long- and short-term recommendation process to improve the administration of the DBE program.

The task force is chaired by yours truly, and it is also comprised

of the senior leadership of each operating administration. The Secretary and the Deputy Secretary have personally participated in

many of the task force meetings.

Secretary LaHood sent a letter to each Governor and State DOT

administration indicating the Department’s commitment to work

together to provide small and disadvantaged businesses with an opportunity to participate in transportation projects. In a May 2010

Notice of Proposed Rulemaking, we proposed several important improvements to the DBE program: one, accountability for State DOT

recipients; two, adjusting the personal net worth threshold; and,

three, improvements with post-award oversight. We anticipate a

final issuing within the next few months of the rulemaking.

DOT quickly disbursed contracts funded through the Recovery

Act and the projects are still continuing to provide contracting opportunities. Additionally, projects are now in the stage of providing

subcontracting opportunities for small businesses. Our most recent

data indicates we have awarded $24.9 billion in ARRA contracts,

of which $2.08 billion have been awarded to DBEs.

Additionally, we implemented a Bonding Education Program in

collaboration with The Surety Fidelity Association of American to

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get small businesses bond ready. Becoming bondable is a major obstacle for many DBEs, and this pilot program aims to address the

issue and help those businesses grow by becoming bond ready and

to compete for larger contracts.

Some examples of our outreach include over 180 outreach activities across this country this past year. The participation in the

White House Interagency Task Force on Federal contracting opportunities for small businesses; in March 2010, DOT hosted the inaugural Small Business Summit entitled The Road to Recovery, attended by more than 700 small business leaders from across the

country. Plans are currently underway for the second summit in

2011.

Our short-term lending program continues to help small businesses gain access to financing. We have implemented a Pilot Entrepreneurial Training and Technical Assistance Women and Girls

Program with Spelman College in Atlanta, Georgia. This program

is a part of the broader effort led by the White House Council on

Women and Girls. Last month, Secretary LaHood announced the

award of $11.6 million in grants for minority- and women-owned

businesses to provide Federal aid to State DOTs for DBE firms to

improve their ability to compete for and fulfill Federal highway

contracts.

As demonstrated in the testimony of the Department and other

witnesses on this subject before the House Transportation and Infrastructure Committee, the Department of Justice’s compelling

interracial narrative and the Department’s own experience, raceconscious programs by the DBE program continue to be needed to

address discrimination and its continuing efforts in transportation

contracting. DOT is continuously looking for ways to increase small

and minority business contracting.

Thank you again for the opportunity to be here.

[The prepared statement of Mr. Neal follows:]

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Ms. WATSON. Thank you so much, Mr. Neal. I would like to start

the questioning now, and I am going to go quickly so I can get to

our ranking member, and then I will get to you, Mr. Connolly.

Mr. Hinson, given that the Minority Business Development

Agency now assists minority businesses of all sizes with their efforts to secure financing and other public and private sector contracts, what has your agency discovered regarding the issues confronting minority-owned businesses?

Mr. HINSON. Thank you for that question. Certainly we have discovered, as was outlined in the testimony and in our reports, that

minority firms suffer tremendously from a lack of access to capital.

Our studies and our research has shown that they suffer from a

lack of access to contracts and they suffer from access to new market opportunities. So those are the three areas where we found

that minority-owned firms are, and continue to be, challenged.

Ms. WATSON. We are basing this hearing around H.R. 4343, and

I think you heard the position. How would these programs that are

proposed in that legislation affect the MBDA’s current operations

and what, if any, type of additional researches would the Agency

require to implement these programs?

Mr. HINSON. Thank you. To achieve our current mission right

now, as it stands and as we are focused, we have adequate resources. These resources would expand our capabilities to go beyond where we are now. For example, we operate 46 business development centers around the country. These types of resources

would quite naturally allow us to gain a broader footprint to help

more firms grow to size and scale. But in terms of our current operation, our resources are sufficient to maintain the mission that we

have now.

Ms. WATSON. If there is another area that seems to be uniquely

depressed, how would they go about getting one of the centers?

Mr. HINSON. Well, certainly it is in the purview of Congress to

decide if they want to, a Congressperson or Congress in general to

decide.

Ms. WATSON. Would we have to make that decision, or do you

have the authority to make that decision?

Mr. HINSON. We do not have the authority to make that decision

beyond what is within the context of our budget.

Ms. WATSON. That is what I am really getting to. Can you open

a new center if such an area exists and applies to you? Or do you

have to come back to Congress?

Mr. HINSON. We certainly have the ability, because the centers

are public-private partnerships. So we go out and we actually bid

these centers out. The centers we have are the number of cents

that we can actually have in the marketplace given our resources.

So, yes, it is within our power to expand that footprint, but, again,

in that respect we are resource constrained.

Ms. WATSON. Let me give you a case in point. California could

be three States. Central Valley is suffering, and these are the field

workers and so on. Should they want to start a small business to

enhance opportunities for jobs, other than picking our fruits and

vegetables, would they come then to your center? And most of these

are Hispanic workers and so on. Is your center authorized to start

an opportunity there, in that area, if they applied?

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Mr. HINSON. Yes.

Ms. WATSON. Within your budget.

Mr. HINSON. Well, again, we are within the context of our current resources. We have essentially maxed out on our capability to

expand our center footprint.

Ms. WATSON. I see.

Mr. HINSON. What we are doing is we are continuing to expand

job growth by focusing on larger minority-owned and operated

firms. Congressman Bilbray had an interesting point earlier, when

he was speaking with Congressman Rush, about the power of size

and scale. We partner and we work very closely with SBA.

SBA has a tremendous number of programs that help firms start

businesses of different sizes. Our target market is really geared toward, again, because of what we work with on the resource side,

we are really geared toward providing services to those firms that

$1 million or more in gross revenue. But at the same time we provide services to all minority firms of all sizes.

Ms. WATSON. Let me yield now to our ranking member.

Mr. BILBRAY. Thank you very much, Madam Chair.

Let me just say I appreciate the comment.

Ms. Oliver, I want to thank you for bringing up a comparison between the disadvantaged and the small. Some people may say,

well, 50 percent may sound good, but when 60 percent of jobs are

created by small, that looks 10 percent deficient. But in all fairness

to you, I have to say I assume, though, that the 50 percent that

go to the big guys, there are many subcontracts that are serving

the small guys through the larger contracts, is that fair to say?

Ms. OLIVER. That is absolutely fair to say, and particularly with

these funds, because many of them are construction, and construction is an area where there are virtually always lots of subcontracts. It is the way the industry operates.

Mr. BILBRAY. Right. I appreciate that.

Ms. Johns, your reference and you made something that we do

I think too often and, in all fairness to you, it just happens to be

that we go down, we talk about the disadvantaged numbers. One

thing I learned, I did a lot of work in environmental health, and

that single component models are very, very deficient, if not

delusionist. You have to have multi-faceted models to always make

sure you cover the big ones. And I think you were pointing out

there fairly on that about the return that businesses get based on

the community or the ethnic background of the owner.

Did you have with those data, too, the proportionality between

the profit margin and the return that you get based on size and

the inherent disadvantage of the little guy competing in the field?

Ms. JOHNS. I don’t have any specific data about that for this

morning. Ranking Member Bilbray, I would be happy to come back

or provide a specific response to any question you may have.

What I would like to tell you, though, is that the SBA is undertaking a rigorous look at size standards. I have, even in my short

time at the SBA, I have made it a strong priority to meet with minority business owners. In fact, I had roundtables with two sets of

8(a) business owners just last week, one with a national representation, the other was local; and the issue of size standards is something that comes up, and that is as companies grow to a certain

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size and their inability, once they size out of, so to speak, the small

business category, but yet not sufficiently large to compete with

really large companies, we know that is an issue that we have to

pay close attention to. So that study is underway to do just that.

Congressman Bilbray, if I may also just say a word about the notion of coverage and footprint and access to services to start small

businesses. I appreciated Director Hinson’s reference to the SBA

because the agency does have a broad network throughout the

country through our resource partners, the small business development centers, our affiliation with Score, our women business centers; that in a year’s time we touched a little over 1 million individuals to provide counseling to them. So that is why partnership is

so very important. MBDA has its area of expertise; the SBA is the

place where a full complement of services particularly focus on

small businesses that we strive to make available. And, again, we

are looking at where we can improve our outreach and improve

our——

Mr. BILBRAY. Ms. Johns, I appreciate that. I think one of the

things we have to admit, in fact, I guess the example totally separate from this was the RTB back in the 1980’s, where the big guys,

everything was grouped together; contractors grew up so huge that

there were only a few people that could put together capital to

manage that. The American taxpayer was absolutely ripped off because you go out to bid where only two or three people could bid.

But because it was easier for the bureaucracy to manage these

huge packages, rather than breaking them up into competitive

market-based structures, because just inherently it is easier to

handle one contract rather than 10 or 100. But the taxpayer and

the small guy got totally cut out of the system.

I want to make sure that we keep that in mind, because you

can’t isolate the disadvantaged business people from the impact of

our policies on small businesses. De facto, it is always going to be

the minority community that gets hit harder when the little guy

gets hit, regardless. And I think the one thing that isn’t talked

about enough in polite company is the fact that just because it is

a disadvantaged minority-owned business doesn’t mean that people

that do not fall into that ethnic crowd is not benefiting, because the

employees aren’t necessarily in one little group; the employees are

very broad. And I don’t think we talk enough about that, that a job

is a job is a job, and that just because the boss happens to fall into

one category doesn’t mean the general community is not benefiting

with real viable jobs.

My question, though, is when we get down to this issue of subcontractors, are we frank and open to the fact that, like you point

out, they get credit for recruiting those subcontractors, but being

much more aggressive on that? Is that fair to say?

Ms. JOHNS. May I comment on that?

Mr. BILBRAY. Yes.

Ms. JOHNS. What we have done at the SBA is, I believe it was

referenced earlier, we have a scorecard that we utilize to track

what Federal Government agencies are doing in the area of small

business utilization, and just recently the whole area of subcontracting was strengthened and more focus is being put there because, as you cite, Congressman Bilbray, the notion of larger conVerDate 11-MAY-2000 14:50 Jun 17, 2011 Jkt 000000 PO 00000 Frm 00090 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65561.TXT KATIE PsN: KATIE
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tracts for longer terms, as the Government is looking to operate

more efficiently, we have to make sure that even in that situation

that the focus on small business opportunity is not lost.

Mr. BILBRAY. And competition in the long run is going to save

us. I know I have burned up time, but the 900K really sticks out

to me. There is 900K being spent on these centers, and my question to you is, to give you a chance to defend it, wouldn’t that be

better used going directly out to your target rather than creating

this structure and this overhead of getting this directly out into the

market and stimulate the private sector, rather than building this

public sector infrastructure that is costing 900K?

Mr. HINSON. I am sorry, 900K, what are you referring to?

Mr. BILBRAY. I am talking about hiring the development of the

business centers and hiring the experts, consultants.

Mr. HINSON. Right. The answer to that question, I would respectfully say, is no. Those business development centers create the conditions for minority-owned and operated firms to gain access to

capital and access to contracts, the two key inputs if you want to

grow a company. When you look at our operation, our ROI is over

100 times.

In other words, for every dollar of taxpayer money that flows into

our agency, we create over $100 of economic output. I would argue,

sir, that it is the exact reverse. You would want to expand the footprint so you can touch more firms, help these firms grow to size

and scale. And I might add, anecdotally, that minority-owned firms

are twice as likely to export as non-minority-owned firms. This sector screams for investment and for support. So I would argue to

you that, from where we sit, the dollars that are committed to

these centers are critical to providing the conditions under which

these firms can grow.

Mr. BILBRAY. Madam Chair, just for the record, California does

not constitute three States. My county of San Diego is larger than

20 States, and your county is larger than 40 States.

I yield back.

Ms. WATSON. Thank you for reminding us.

I would like now to yield to Mr. Connolly.

Mr. CONNOLLY. I thank the Chair. And before my time starts

counting, on a point of personal privilege, if I may just say, this

may be one of your last hearings to chair, Congresswoman Watson,

and I just want to say personally I have really appreciated your

friendship and the civility and grace and thoughtfulness with

which you comport yourself and bring to every debate and every

issue. It is going to be something sorely missed.

Ms. WATSON. Thank you.

Mr. CONNOLLY. Thank you for your service.

Let me start, if I may, as the Chair anticipated, Ms. Oliver, and,

by the way, is there somebody from Pentagon Government Relations here with you?

Ms. OLIVER. I don’t know.

Mr. CONNOLLY. OK, good. So I hope you take this back. You

know I want to, first of all, thank you for your testimony and

thanks for summarizing it and admitting a lot of it would have otherwise been boring. Thank you. [Laughter.]

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A refreshing change. And none of this is meant personally, but

I want, since you are here and you are from the Pentagon, as you

know, Secretary Gates announced a pullback of 10 percent of all

outside Pentagon contracts for 3 years. Ten percent a year for 3

years.

The Virginia delegation was recently briefed by Pentagon folks,

and there was not a shred, not a scintilla of evidence to justify such

an announcement. There was no analysis; there were no programs

or priorities identified. It was just a number pulled out of a hat.

And for this Member of Congress, and I think increasingly for colleagues on both sides of the aisle, that is unacceptable.

And one of the concerns I got—by the way, this subcommittee

has asked the Pentagon to testify on September 29th. I hope Government Relations takes it back. If you want to duck it, some of

us will call it out for precisely that. But the concern I got, Ms. Oliver, and I want you to have a chance to comment, when you set

an arbitrary goal like that, and what that means is people in the

bureaucracy have to scramble to meet it on a date certain. Ten percent, oh my God.

So what happens? Well, you are going to take the low hanging

fruit. What is the easiest to pull back from outside contracting to

meet that goal? And it ain’t the big guys. The have big law firms;

they can litigate, they can appeal. They know how to work the system, and there are lots of other big contracts at stake even the

Pentagon may not want to upset.

I think the earliest victims of such an arbitrary 10 percent pullback will be small and minority-owned businesses. It will be businesses owned by minorities, women, and disabled veterans, especially. And I wonder, No. 1, has your office at all been involved in

any of the discussions about this incredible decision when we think

about the money and the number of contracts potentially affected?

And have you done any analysis of the potential impact and how

to guard against that negative impact on all of the wonderful statistics you rightfully and pridefully shared with us this morning?

Ms. OLIVER. I would be so happy if you could tell me how to find

those statistics. Yes, we have been. The Department of Defense has

been asking itself internally how will we become more efficient particularly without harming small businesses. We are aware of the

problem and I personally would so welcome any insight you might

be able to give about how to quantify it.

Mr. CONNOLLY. I want to be real clear about your testimony. Are

you testifying here that you were consulted before the announcement of a 10 percent pullback, 10 percent a year for 3 years, and

that the concern was expressed to you we want, of course, to make

sure that we shield or protect or there is not some disproportionate

negative impact on small and minority-owned businesses?

Ms. OLIVER. No, I am not testifying to that.

Mr. CONNOLLY. That is what I thought. Have you been invited

to any discussions, moving forward to the future, to talk about the

implementation of such a sweeping goal?

Ms. OLIVER. Yes, I have been.

Mr. CONNOLLY. Are you aware of the fact that the Pentagon has

been invited by this subcommittee to come and explain that goal

and how it will be implemented? I understand you are not the

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spokesperson for the Pentagon but, unfortunately for you, you are

here.

Ms. OLIVER. This happens all the time.

Mr. CONNOLLY. And even though we loved your testimony, we

want to send you back with a message, because this is very serious

business, and it doesn’t just affect my district or my State; it is

going to affect Mr. Bilbray’s, it is going to affect Diane Watson’s,

it is going to affect Judy Chu’s.

There are contractors all over the country, especially for the Pentagon, and especially I worry that one of the unintended consequences, it certainly is not an intended consequence, is the very

people you get paid to try to help, and the very firms you get paid

to try to integrate into the opportunities of Federal contracting,

will be hurt the first and the most; and that is the message I would

like you to take back to the Pentagon.

Thank you, Madam Chairman.

Ms. WATSON. Thank you so much for your concern, and we are

planning to hold a private confidential hearing for you to raise

those questions and get answers. We did not want to subpoena

anyone from DOD at this hearing, but I think you can get the kind

of information you need. We all represent constituencies that will

be sorely affected, I mean, they are now.

So that is one of the reasons why we are having this hearing.

And in order to save the jobs, particularly those small firms and

minority firms, that are really impacted greatly in this current

economy, we would just like to know what the thinking that went

in. So we are going to have a meeting. We hope to get some direct

answers.

With that, let me yield to Ms. Chu.

Ms. CHU. Thank you so much, Madam Chair.

I certainly embrace Congressmember Rush’s bill, H.R. 4343, and

certainly think that it is so important to improve the outreach to

minority contractors for Federal contracts, and I am certainly

alarmed that minority businesses make up 20 percent of all businesses, yet are lagging with regard to Federal contracts.

I would like to direct this question to Mr. Hinson. As the Chair

of the Economic Development Task Force for the Congressional

Asian Pacific Caucus, I have been contacted by several Asian Pacific Islander groups, the Asian Pacific Islander Small Business

Program, the Pacific Asian Consortium and Employment, the

Search to Involve Filipino-Americans in the Asian Business Association, as well as the Asian Pacific Revolving Loan Fund, and they

are very, very anxious to participate in MBDA and to partake of

the technical assistance that is inherent in it.

I was wondering what kind of outreach you would be doing to the

API community, other than attending conferences or participating

at roundtables? What kind of technical assistance is there to make

these businesses actually succeed?

Mr. HINSON. Thank you for that question. The API community

is a critical community in this country. In fact, the API community

produces $500 billion of the $1 trillion in gross receipts that the entire minority business community generates. Certainly, this community is critical to MBDA, and we continue to provide outreach

and support to this community.

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We have found that, from an overall business standpoint, around

20 percent of our business activity is within API companies. Those

companies and those individuals who are interested in participating have access to our centers just like any other company does;

we continue to provide outreach to the various members of the

community.

In fact, I would say that, at your prodding, which I very much

appreciate, with our new Web site we actually have bilingual capability so that various members of the API community who don’t

have English as their first language have the ability to access the

information that MBDA provides in the language of their choice. So

we continue to outreach to this community; we are aggressive

about it. It is important to the administration that this community

continue to receive support and service, and we continue to outreach and support this community.

Ms. CHU. Well, I appreciate your translation of services on the

Web site. In fact, I wanted to follow that up with a question about

linguistically appropriate outreach. And I am concerned for the

Hispanic community, as well as for the API community, where you

do indeed have many high-end businesses where people may be primarily proficient in another language. So I am wondering what

kind of incorporation in the grant program is there about linguistically appropriate services? I just want to make sure that those

centers do indeed have the capability to address the linguistic

needs of our communities.

Mr. HINSON. And again I thank you for that question. Some of

our centers certainly do have people that work in those centers

that speak multiple languages. Our centers are in high dense communities, where you have a lot of businesses, where you have a lot

o f languages being spoken, and you know as well as anyone that

there is no one language that represents the API community; there

are quite a number of languages.

I won’t sit here and say that on the ground we have the ability,

we have the people that can actually speak each one of the individual languages. I can say that our experience has been, for the businesses that we serve, that they are very comfortable speaking

English in their business transactions. I would tell you that many

of them participate in our B2Bs.

In fact, we partnered with SBA and DOT, as I mentioned, for the

B2B event at our MED Week Conference, and there were quite a

number of API companies that took advantage of the access to the

$300 billion of contract opportunities that we provided. So I understand your point and I appreciate that point, and we will continue

to do as much as we can do to make sure we meet the language

requirements of the community.

Ms. CHU. In fact, I did write a letter asking for a legal opinion

on a linguistic and culturally appropriate services in the new round

of Federal funding opportunities to operate in MBDA centers. Can

you tell me what the status is of this legal opinion?

Mr. HINSON. I cannot tell you now. I will certainly get back to

you with an answer to that question. I will tell you that, as I indicated earlier, that all the centers are public-private partnerships.

There is open bidding. We are in the process of going out with the

new FFO to open up the bidding for these centers, and anybody

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who is interested in bidding, anybody from the API community who

wants to bid, they have the right to bid, and they will be reviewed

in competition with all the other bidders for those particular centers.

Ms. CHU. That is great. I just would hope that there would be

some encouragement for those bidders, especially those who might

have linguistically appropriate capabilities.

Mr. HINSON. Absolutely.

Ms. WATSON. Thank you so much.

To conclude this panel, I would like to go to Mr. Neal, and if you

can answer very quickly. I going to put two questions in one. DOT

has received a considerable number of funds, stimulus funds. How

much of these dollars have gone to DBE firms? And do you believe

that discrimination continues to be a problem in the transportation

industry?

We are getting some feedback and there seems to be some contractors out there that are contacting us that they feel that they

have been treated unfairly. So can you respond?

Mr. NEAL. Sure. Thank you, Madam Chairwoman. Under our Federal Highway Administration, $1.7 billion was committed to

DBEs out of $241⁄2 billion. Under our FTA, Federal Transit Administration, we had 13 percent go to DBEs and $2.3 billion funded,

and $290 million was awarded to DBEs. And under our FAA, Federal Aviation Administration——

Ms. WATSON. Can I just stop you there?

Mr. NEAL. Sure.

Ms. WATSON. Would you give us those statistics in writing to our

committee?

Mr. NEAL. Absolutely.

Ms. WATSON. I would like to circulate them so we can have proof

that we are using these funds to serve the purpose.

Mr. NEAL. Absolutely. And under our Federal Aviation Administration, we had $1.1 billion in recovery money, and $92 million

went to DBEs and 8.4 percent were committed overall to DBEs.

The Office of the Secretary, under the leadership of Secretary

LaHood, has put together an Interagency Task Force solely focused

on DBEs and accountability, and, of course, as I indicated in my

remarks, that yours truly is the chair, and what we do is make

sure that there is a lot of accountability and enforcement in making sure that the States who receive these moneys are now making

sure that they are actually readily reaching out to DBEs and making sure that there is no form of discrimination. And through our

Office of Civil Rights and through our Office of the General Counsel’s Office, we have put together some extreme measures to make

sure that there will be accountability for those contractors and for

those companies who do not reach out to DBEs.

Ms. WATSON. If there are other questions that any Member

might have, let’s have them given to us, and we will submit them

to you. We are really pushed for time now, so I want to thank this

panel for your testimony. Everything you have presented to us has

been recorded and your full statements are over there, and they

will be part of the record.

So any Members that want those charts that we referred to,

please take the materials that are on the table.

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Thank you so much. We will adjourn this panel.

The third panel will be composed of Mr. Anthony Robinson, Mr.

Fernando V. Galaviz, Donald O’Bannon, Mr. Zingeser, Michael

Sumner.

[Pause.]

Ms. WATSON. I want to thank the panel for coming up quickly.

Our time is growing short, so we are going to get started, and if

the audience will quietly exit, those that are leaving, we can begin.

As you know, it is the policy of the Committee on Oversight and

Government Reform to swear in all witnesses before they testify,

so I would like to ask you to stand and raise your right hands.

[Witnesses sworn.]

Ms. WATSON. Let the record reflect that the witnesses answered

in the affirmative.

Now, I will take a moment to introduce each panelist. Mr. Anthony Robinson is the president of the Minority Business Enterprise Legal Defense and Education Fund, where he advocates on

legislative and regulatory issues on behalf of the minority business

community. Previously, Mr. Robinson, was a partner in the law

firm of Singleton, Dashiell, and Robinson in Baltimore, and he also

served as a commissioner with the Maryland Inmate Grievance

Commission.

Mr. Fernando V. Galaviz is the president and CEO of the

CENTECH Group, Inc., and is here on behalf of the Mid-Tier Advocacy. The CENTECH Group, Inc., is a technology systems and solutions provider that has serviced Federal Government, civilians, and

military agencies for more than 20 years. Mr. Galaviz also chairs

the National Association of Small Business Federal Contractors,

Inc., and previously he also worked as chief of industry trade and

market development for the Minority Business Development Agency and as chief of the Contracting and Financial Systems Programs

for the Office of the Secretary, U.S. Department of Transportation.

Mr. Don O’Bannon is vice president of the Business Diversity

and Development Department at the Dallas-Fort Worth International Airport. Mr. O’Bannon is currently serving his second

term as chairman of the Board of Airport Minority Advisory Council [AMAC], and previously Mr. O’Bannon was a partner at the

Dallas law firm of Vile & Hamilton, has also managed his own

legal consulting firm, O’Bannon & Associates, P.C.

Mr. Joel Zingeser is director of corporate development for

Grunley Construction Co., Inc., and he leads the company’s Strategic Planning, Business Development, and New Technology Programs, including sustainable design and construction. He has consulted with the World Bank and the U.S. Agency for International

Development, and he is treasurer of the Washington Building Congress.

And Mr. Michael Sumner, doctor, is research manager for the

Henderson Center at UC Berkeley Law School, where he focuses on

evaluating the effects of equal opportunity programs on both public

contracting and public employment. Mr. Sumner has examined the

impact of California’s anti-affirmative action, Proposition 209, and

has also led the Henderson Center’s work on best practices in equal

opportunity programs. Prior to his work with the Henderson Center, Mr. Sumner worked at the Discrimination Research Center,

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where he focused on language access rights to public institutions

for speakers with limited English language skills.

All right, I ask that each one of the witnesses now give a brief

summary, a brief summary of your testimony, if you will, and keep

this as much under 5 minutes, if you can. Your complete, as I said

before, written statement will be included in the hearing record.

Mr. Robinson, would you please proceed?

STATEMENTS OF ANTHONY W. ROBINSON, PRESIDENT, MINORITY BUSINESS ENTERPRISE LEGAL DEFENSE AND EDUCATION FUND; FERNANDO V. GALAVIZ, PRESIDENT, THE

CENTECH GROUP, ON BEHALF OF THE MID-TIER ADVOCACY;

DON O’BANNON, CHAIRMAN, AIRPORT MINORITY ADVISORY

COUNCIL; JOEL ZINGESER, FAIA, DIRECTOR OF CORPORATE

DEVELOPMENT, GRUNLEY CONSTRUCTION CO., INC.; AND

MICHAEL SUMNER, DISCRIMINATION RESEARCH CENTER,

THELTON E. HENDERSON CENTER FOR SOCIAL JUSTICE, UC

BERKELEY SCHOOL OF LAW

STATEMENT OF ANTHONY W. ROBINSON

Mr. ROBINSON. Thank you very much, Madam Chairwoman. I

am, as you have noted, Anthony Robinson, with the Minority Business Legal Defense Fund. We are affectionately referred to as

MBELDEF, and act as a legal advocate, founded by former Congressman Parren J. Mitchell in 1980, on behalf of the minority

business community. We appreciate very much you holding this

hearing. We think it is quite significant and appreciate your time

and attention as it relates to this matter.

Madam Congressman, it has been noted by a number of previous

witnesses that growth in minority enterprise in exact numbers, but

what has also been acknowledged is the issue of capacity on behalf

of these firms to operate at a level at which the new market has

emerged in reference to that.

Discrimination remains a stark reality for minority businesses.

In a recent survey that was conducted by an economic research

firm, where they surveyed some 350 of the fastest growing minority-owned firms as it relates to the significance of discrimination in

their industry, brought about the following results: 80 percent of

the firms in communications and utilities, 46 percent in transportation, 57 percent in heavy construction, and 53 percent among

general and specialty contractors considered discrimination a very

significant, significant factor within their industry. And it impacts

almost every aspect of their doing business, from business formation, access to contracts, access to credit and capital, to performance on the job.

Recently, Madam Chairwoman, MBELDEF, along with the National Association of Minority Contractors Philadelphia Chapter,

and the National Black Chamber of Commerce, conducted field

hearings in some eight cities across the country, and we interviewed over 65 witnesses. I would ask that we be provided the opportunity to present the testimonies of these 65 witnesses at some

later point to supplement our testimony.

The consistent theme——

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Ms. WATSON. Let me just say you may give them to us and, without objection, we will accept them and put them into the record.

Mr. ROBINSON. Thank you very much.

As I said, minority business programs are important relative to

speaking to the disparities that have been pervasive as a result of

discrimination, and there has been an enormous amount of research that has been done, much of it noted. I would like to reference the fact that many of the disparity studies that my colleague on this panel, Mr. O’Bannon, will be putting in the record

will speak to much of the private sector discrimination. As it relates to private sector discrimination, I would like to state that

there is no affected policy to deal with private sector discrimination

now in place, and we would ask this Congress to take a look at

that.

In addition, the disclusionary activities of the construction trade

unions continue to have a pervasive impact on minority enterprise

programs. And, of course, as you heard in reference to access to

capital and access to bonding, there continues to be a persistent

and pervasive problem.

What I would like to do with the balance of my time before the

committee is just to relate several of the individual experiences of

minority businesses in the marketplace on the issue of discrimination, and among them would be a Louisiana concrete contractor.

And we have deliberately maintained the anonymity of these contractors because of concerns about reprisal in the marketplace as

it relates to this issue, and it is a very real issue, Madam Chairwoman.

A Louisiana concrete contractor was rejected by six banks, despite the fact that he had worked for some of the largest real estate

development firms in that region of the country on the issue of finance. He knew what banks were looking for and he knew many

of the bankers personally. He had contract commitments from customers who were willing to go with him to the bank to verify their

commitments.

Nevertheless, he was forced to diversify his ownership to include

a white minority partner before any bank would approve the loan.

The only difference in his presentation to the banks before and

after the loan approval was the presence of his white equity partner. The critical variable was not the financial strength of his presentation, because he has a wealthy Black football player that was

willing to act as a credit backer, but still the bank rejected his loan

application. Only when the white credit backer was presented did

the banks approve, so the issue had to be the credit backer’s race.

His was an 8-year-old business with 45 employees, generating 25

percent annual growth during a recession, with $10 to $15 million

in sales, and a $800 to $1 million in annual profits. He had three

times the cash-flow needed to cover debt service on three new

plants, but still he could not get a loan for a single new plant until

he had the white equity backer. In spite of this creditworthiness,

he faced the same challenges that a startup business would face.

No matter how strong the business was, his secondary source for

repayment, his loan application was disapproved by the banks.

In another instance, an African-American contractor in Richmond, Virginia faced disparate treatment in his competition for

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construction, demolition, and disposal contracts. After his bid for a

city demolition contract was determined to be the lowest, the contract was in fact split in half, resulting in a majority contractor receiving a portion of the contract as well. In other cases where he

was the lowest bidder, the contract award was in fact split.

I have many other anecdotes, Madam Chairwoman. I see my

time has elapsed. Again, we would like to submit the balance of the

65 testimonies into the record.

Thank you very much for this opportunity.

[The prepared statement of Mr. Robinson follows:]

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STATEMENT OF FERNANDO V. GALAVIZ

Mr. GALAVIZ. Madam Chairwoman, members of the committee,

we definitely appreciate the opportunity for us to share information

and basically seek your support.

From the previous distinguished panel, I think it would be helpful, because if you listened, as I listened, as a businessman and as

an advocate for the community, that panel basically more or less

gave me the impression that everything is just great and fine.

However, there was no mention about the many, many small minority businesses and small businesses that disappear from the

Federal sector over the last 20 years. There is no mention of how

many of those businesses, the only way to get out is to be acquired.

And in that process, for example, I would like for the panel to

ask the previous members how many of the awards they claim has

gone to small businesses. There has been a GAO study and an SBA

study that shows that agencies are reporting awards that have

gone to large companies as small business awards. Also, when

small businesses get acquired, for example, the recent acquisition

of a company that had almost $200 million worth of business that

used to be a small business, a good portion of that portfolio was

small business awards, and yet the big company now has the contracts but yet is being counted as small business.

Also, as it relates to Department of Defense, it would be important to us why is it that, Air Force contract, where originally we

had a small business set-aside program, the Air Force eliminated

the small business set-aside program. And why is it that many

DOD, particularly the Army, allows for direct competition, they call

it small business set-asides, but yet the small business community

and the minority business community has to compete against the

large companies?

Basically, also SBA representative talked about coming up with

a new study on size standards. Madam Chairman, both Congress

and the SBA have been studying size standards now for 30 years,

and still we are in the same place where we were 30 years ago.

My written testimony that has been submitted to the committee

has been reviewed by the Minority Roundtable organization, by

Tony’s organization, by the LAMA organization, the Latin American Management Association, and also, of course, by the organization that we represent here today, MTA.

The minority and small business community has made significant contributions to our Nation, both in the Federal agencies,

through its employees, and to the community. However, I will focus

my limited time to a specific issue that it is important that all of

us focus on, and that is the inability for small business and minority businesses to really compete due to the faulty policy on size

standards.

Basically, Madam Chairman, it comes to a very simple question.

If you take, for example, a training company, the size standards of

a training company is $7 million. For a facility management company, it is $25 million. Now, when a training company graduates

from the $7 million size standard, how can a $7 million company

compete against a $29 billion company? Take the five top integrators. Their other sales are $29 billion. Now, even if you multiple

the size standards that are now in the books by four times, you

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still have to ask how can a $28 million company, if you take the

$7 million size standard on training and you multiple it by four,

how can a $28 million company compete against a $29 billion organization?

The same thing on IT. The size standard for IT is $25 million. Multiple that times four, be generous. How can a $100 million company compete against a $29 billion firm?

Now, basically, the large organizations, Northrop Grumman is $33 billion. Really, what it comes down to, Madam Chairman, over

the years, mid-sized firms, and the reality is, Madam Chairman, is

the mid-sized firms are really not the classical small businesses

that have grown over the size standard; but it has been organizations like Booz Allen; CACI, $3.1 billion; Wiley, $1 billion; Unisys,

$4 billion. Those firms themselves, if you look at their last 10 years

records of growth, most of the growth has been through acquisition.

So if those firms had difficulty in competing, how in the devil can

we expect for the small business community that has grown out of

the size standard to be able to survive? It is impossible.

The one thing unfortunately, I must share with you, Madam

Chairman, is that when I have had discussions with elected Members of the House and the Senate, and I ask them how does a small

business, where do they pay for their business development and

proposal development, quite frankly, it is sad for me over the years

to find that those members do not know the answer.

In order for a Government contract, there is a big difference between dealing with the private sector and the Federal Government.

A big difference. And the way that a company can grow is how

much can you build into your budget. And the only way you can

have an increased budget in order to be able to afford to be competitive, you have to have a higher level of sales.

But then if you become somewhat over the size standard, it really becomes impossible, and that is the reason you have so many

casualties. So the basic solution—there is a solution, and that is to

develop a tier effect of competition by the number of employees.

We appreciate the opportunity, Madam Chairman, to provide our

testimony.

[The prepared statement of Mr. Galaviz follows:]

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STATEMENT OF DON O’BANNON

Mr. O’BANNON. Madam Chairwoman, members of the subcommittee, thank you for inviting me here today. My name is Don

O’Bannon, and I am Chair of the Airport Minority Advisory Counsel [AMAC]. AMAC is the only national nonprofit organization

dedicated to creating success for minorities and women in the airport industry. While AMAC’s primary focus is on airport-related

business, AMAC members work on contracts funded by many different Federal agencies.

AMAC is a strong advocate for Federal policies, like the DBE

program, that address discrimination in Government contracting.

As this subcommittee has heard and is well aware, racial and gender discrimination against minority and women business owners

continues to be an ongoing problem.

Minority women business owners experience discrimination in all

aspects of public contracting, but DBE type programs do more than

address discrimination. The DBE program is a significant source of

the entrepreneurship, employment, and economic growth of the minority and women-owned business community.

Minority and women-owned firms, when given a fair chance and

a level playing field, are important engines of growth in our economy. Fortunately, various Federal, State, and local programs aimed

at giving every entrepreneur a full and fair opportunity to succeed

have begun to make some headway. Nevertheless, discrimination

against minority and women-owned businesses continues to be persistent and pervasive.

The evidence is compelling that the discrimination remains a

problem and that programs like the DBE program are vital to address that discrimination. Testimonial from AMAC members detail

the discrimination they have had to endure. These personal stories

make it clear how difficult it is to run a business while enduring

discrimination. To make matters worse, business owners are often

fearful about reporting the discrimination. For this reason, we will

report AMAC’s members’ experience without using their names.

A female construction contractor reported aggressive sex discrimination. She has also repeatedly experienced harmful gender

discrimination in supply pricing, bid shopping, and access to capital. One minority business expert has observed discrimination, including intimidation and retaliation against minority contractors;

disproportionate punishment of minority contractors for minor infractions; and racially discriminatory remarks.

A female Hispanic business owner developed a new airport concessions business. A majority-owned leasing company launched a

whisper campaign intended to undermine her success and the retail lease by falsely claiming that she was not dedicated to her

business and, instead, was focusing on being a mommy.

An African-American business owner endured many instances of

racial discrimination, including being charged 50 percent for certain supplies and being subject to racial slurs.

The story of an African-American airport executive illustrates

just how resistant majority primes can be to change. This executive

was working to help identify business owners for concessions opportunities at Memphis Airport, but the prime was simple not committed to participation. The prime claimed that he could not find any

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qualified owners to open a barbecue restaurant at the airport in

Memphis, TN. As our member said, I kid you not, this man looked

at me in the face and told me he could not find a minority business

that cooked barbecue in Memphis.

With our testimony today, AMAC is submitting 24 disparity

studies. We ask that these studies be included in the record.

Madam Chair, may we offer these studies into the record?

Ms. WATSON. Yes. Without objection.

Mr. O’BANNON. Through both quantitative and qualitative evidence, statistically they demonstrate the existence of serious discrimination against women and minorities in many different industries across the Nation. Each of the disparity studies provides significant quantitative evidence of discrimination against minority

and women-owned businesses in both the public and private sector.

In addition, the studies include numerous individual reports of

discriminatory behavior similar to the examples I have given you

from AMAC’s membership. The accounts make it clear that minority and women entrepreneurs are subject to a broad range of discriminatory actions, including discrimination in lending and supply

purchasing. They also reveal the use of racial slurs and other tactics aimed at intimidating minority and women-owned business

owners.

Overall, these studies provide strong evidence of serious discrimination against minorities and women. They also demonstrate that

there is a compelling and continuing need for the DBE program

and similar programs across the Federal contracting front dealing

with public funds. For these same reasons, AMAC strongly supports final enactment of the FAA reauthorization bill and the improvements to the DBE program it contains. These changes are

precisely the policy changes needed to ensure that the aviation system here in America remains the best in the world.

Thank you.

[The prepared statement of Mr. O’Bannon follows:]

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Ms. WATSON. Thank you.

Mr. Zingeser.

STATEMENT OF JOEL ZINGESER

Mr. ZINGESER. Thank you, Madam Chairwoman and Ranking

Member Bilbray. It is a pleasure to be here. My name is Joel

Zingeser. I am with Grunley Construction of Rockville, Maryland.

I come to you today on behalf of the Associated General Contractors of America.

AGC strongly supports full and open competition for the many

contracts necessary to construct improvements to real property.

AGC supports procurement reform to improve delivery of Federal

construction services. Reform of the Federal procurement process

should recognize construction’s unique melding of industry sectors,

while ensuring the Government is using the most cost-effective

method for procurement.

AGC would like to discuss an issue of great concern to us that

we believe, if addressed, would bring the greatest possible amount

of transparency to Federal contracting, and specifically contracting

with small and disadvantaged businesses nationwide.

Current SBA rules require small business set-asides and establish small business goals be met by large businesses to assure that

significant portions of Federal procurement dollars flow to small

business firms. But the rules for keeping track and measuring the

flow of dollars to small businesses do not take into account the actual amounts that flow down to small businesses below the first

tier level of subcontracting. As you already heard today from others, the nature of the construction industry and how it operates is

through subcontractors and second- and third-tier subcontractors.

Within the construction industry, the bulk of the work is performed by subcontractors that specialize in specific expertise and,

in turn, hire second- and third-tier firms to perform elements of the

project. Under the current system, if an other than small business

is included as a first-tier subcontractor, the prime contractor is not

asked to report the flow of dollars that are going to small businesses hired below the first-tier subcontractor. This is because the

contracting agency, those Federal agencies that are awarding the

procurements, are not allowed to take credit for those dollars toward their goals.

Allowing prime contractors to report small business subcontracting at all tiers would demonstrate true participation of small businesses on Federal contracts and would show more accurately how

significantly the construction industry supports and is in fact dependent upon small businesses.

In attempting to meet the various small business goals under the

current system, prime contractors are often required to consider

subcontractor choices for large projects that are beyond the capacity, especially bonding capacity, of small businesses. The present

approach to keeping score puts pressure on small businesses to accept roles with larger firms operating under them in a way that is

upside down, in an unnatural alignment.

If credit for small business participation were allowed to be

counted toward the goals when the small businesses are performing in their logical and most comfortable roles, the true benefits of

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small business to the construction industry will be measured, accounted for, and recognized for what they are, critical to the success of our industry. Moreover, such a system would allow small

and emerging firms to grow in a natural manner that would force

them not to become overextended, and ultimately this will make

them more successful.

Changing the scoring system will let prime contractors and small

businesses determine together the best arrangement of large and

small subcontractors according to capabilities, capacity, and availability. The ability to solve the reporting problem is available

today. The shift to the Electronic Subcontractor Reporting System

[eSRS], by the Federal Government provides the opportunity to

simply and accurately gather the small business data at all tiers

and thus correct the problem.

The system has the capability to track and report small business

subcontractors on multiple tiers, yet current rules do not encourage

prime contractors and their subcontractors to account for total

small business participation at all tiers. The Interagency Task

Force on Federal Contracting Opportunities for Small Business recommends enhancing the Electronic Subcontractor Reporting System. Specifically, the Task Force recommends enhancing the eSRS

to better capture subcontracting at all tiers.

AGC recommends Congress direct a change to the system by

amending the Federal Acquisition Regulations [FAR], through legislation to allow all parties to report and receive credit for the dollars flowing to all small businesses on Federal contracts. We have

attached suggested language for the committee’s consideration.

I want to thank you for the opportunity to provide our views on

working with the Federal market. We believe this market offers

tremendous opportunities for both construction contractors and the

Federal Government. AGC looks forward to continuing to work

with the subcommittee on this critically important issue.

[The prepared statement of Mr. Zingeser follows:]

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Ms. WATSON. Thank you so much.

Mr. Sumner.

STATEMENT OF MICHAEL SUMNER

Mr. SUMNER. Chairwoman Watson, Ranking Member Bilbray,

thank you for the opportunity to speak with you today regarding

the challenges and opportunities for minority-owned businesses in

contracting. My name is Michael Sumner, and I am the Research

Manager at the Thelton E. Henderson Center for Social Justice at

the University of California Berkeley School of Law.

The Henderson Center is a training and research center that produces scholarship on issues of race, sex, and poverty. My colleagues

and I research equal opportunity programs in public contracting. In

a series of reports, we looked at the California Department of

Transportation [Caltrans], which operates a program for disadvantaged business enterprises [DBEs]. DBEs are small businesses that

are majority owned and operated by people of color and women of

any race or ethnicity.

In the mid-1990’s, there was a successful effort to curtail equal

opportunity programs in California, culminating in the passage of

Proposition 209 in 1996. The DBE program was dismantled entirely for projects with only State funding, but continued for

projects with Federal funding, as required by Federal law.

We examined over 20 years of Federal awards and found that

awards to DBEs doubled between the mid-1980’s and the mid1990’s, providing evidence for the success of the equal opportunity

program. However, when equal opportunity programs were removed and scaled back, the percentage of awards to DBEs dropped

by nearly 50 percent and continued to decline. In fact, rates have

fallen from a high of 28 percent of awards going to DBEs in 1994

to only 2 percent of awards going to DBEs in 2008.

It is important to note that we were unable to analyze awards

for projects that only receive State funding, as CalTrans ceased collecting data for State awards. However, in a report commissioned

by CalTrans, it was found that disparity for State awards was two

to three times higher than for Federal awards. Therefore, the federally required DBE program might have been instrumental in reducing the level of disparity by at least half.

We also collected anecdotal evidence via focus groups and interviews with DBE owners. Contractors said the DBE program helped

them build relationships and encourage prime contractors to pick

up the phone. However, after the DBE program ended, the phone

stopped ringing. Contractors perceived being systematically excluded in part from the existence of an old boys network. When the

anti-affirmative action, Proposition 209, was passed, it was perceived by DBE contractors as reinforcing a system of exclusion.

For example, one female contractor that participated in our study

reported that the day after Proposition 209 passed, the senior

project manager walked up to me and said, hey, Prop. 209 passed

and we don’t have to use you anymore. I didn’t say anything to him

at first, but the next day I told him that I wanted to talk to him

about what he had said to me. I said, did it occur to you that I

have been working here for a number of years and that I have always finished on time or early? And how many letters do you have

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from my clients praising my cleanliness and professionalism? Well,

he didn’t care; he just looked at me and said, well, it’s true, Prop.

209 passed and we don’t have to use you anymore.

Additionally, contractors discussed the challenges in securing

loans, bonding, and insurance. One contractor shared a story of

being asked to provide collateral for a $200,000 loan. His attorney

said that similarly situated white male clients were able to secure

loans of that size without being asked for collateral.

In summary, our research found evidence that discrimination

and disparity are still prevalent for minority and women-owned

businesses; that equal opportunity programs can aid in leveling the

playing field; removing or weakening equal opportunity programs

can lead to dramatic reductions in the opportunity for minority and

women-owned businesses to succeed; and the removal of equal opportunity programs can create a climate in which discrimination

and disparity become more widespread.

In order to promote equal opportunity in contracting, we recommend that programs should be championed by key leaders and

organizations to counter discriminatory and isolated social networks. The programs should include help with securing bonding, financing, and insurance. The programs should minimize the burdens on entrepreneurs applying for certification, while being stringent enough to weed out false fronts. The programs should promote

prompt payment, unbundled contracts, and increased lead times,

elements that are race and gender neutral. The programs should

include a data collection and analysis mandate to ensure the utilization of best practices.

The research I mentioned today is available in more detail in our

reports, which are freely available on our Web site and I have

asked to be included in the record.

Thank you very much for the opportunity to be here today. I

would be happy to answer any questions you may have.

[The prepared statement of Mr. Sumner follows:]

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Ms. WATSON. Thank you so much. I was there on the fateful day

that affirmative action was eliminated in front of the Board of Regents. Seated next to me was the president of UCLA; on the other

side Jessie Jackson and another Member of the Senate. Tears came

down the face of the president and he left the university at that

time.

The results of the passage of the bill to eliminate affirmative action resulted in not one Hispanic being admitted to the law school

at UCLA, and only one African-American being admitted to Boalt

Hall, and he chose not to go. So it has had a dire effect. Potentially

very bright students who would have been able to come out and

practice, started their own firms were just blackened with that one

vote.

And I have other things I want to say, but I am going to yield

now to Mr. Bilbray.

Mr. BILBRAY. Thank you. First, may I advise maybe you two

want to get together and work this thing out. I think that the goals

of the program and the results, we get frustrated with a lack of results, but I think that the Association of General Contractors were

pointing out the issue that I have run into, and it is not just in

the construction trades. The fact is it is across the board and is

something we need to talk about and make sure that we should follow the money, as we say. That is what really counts.

I know it is tougher on the bureaucracy to do multi-tier evaluation assessment, but this is important enough. If it is really enough

to have the program, then it is important enough to have the program operate appropriately and function the way its goals are,

rather than just basically saying, look, we have done this, we have

spent this money, and obviously we should pat ourselves on the

back.

Let me just say one thing, and I want to say it again and again.

The biggest problem with Washington is not that we try new

things. The biggest problem with Washington is not that we try

new things and make mistakes. But when we make mistakes, we

are not willing to go back and take care of it. And we love to take

the credit when we sign a bill, but we have an obligation, and it

is one of the things I enjoy being in Oversight about, is go back and

fine-tune it. Any businessman knows that, because there is a real

incentive to do that.

Sadly, that incentive doesn’t occur in Government, because if we

go back and find problems, then we have to admit that our package

wasn’t perfect. But we should be proud to say, you are right, it

wasn’t perfect, but we care enough about it, this is our baby, and

we ought to go back and, yeah, every once in a while we have to

change the diapers for the bureaucracy and get this thing straightened, even if it is a messy process. But I think that we need to talk

specifically about making sure that system of following the money

reflects reality, not just some kind of easy accounting process.

Look, there were some discussions here. There are certain characteristics that each one of your industries have on this issue.

Would you point out in your industry what makes it more or less

difficult for small disadvantaged businesses to enter the contracting process specifically to your industries?

Mr. ROBINSON. I’m sorry, I didn’t hear the question.

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Mr. BILBRAY. The question is, every business has its pros and

cons and whatever when it gets into it, but specifically from your

industry’s point of view, do you see the advantages or can you point

out the advantages and disadvantages from your perception of your

industry either gaining access or not being able to gain access into

the Federal process?

Mr. ROBINSON. First of all, Mr. Bilbray, I don’t represent any

particular industry. The nature of my organization is to be an advocate on behalf of minority businesses in the courts and in the legislative bodies.

Mr. BILBRAY. And I appreciate that and I apologize. I was trying

to get down to those specific industries and, Mr. Robinson, it obviously wouldn’t be a question to you, but it would be to some of the

other members.

Mr. GALAVIZ. If we take the information technology and engineering logistics and support contracting efforts in the Federal

Government, we basically most contributed to minority business to

enter into the Federal space has been over the last 30 years the

8(a) program. The 8(a) program has made a lot of significant contributions to startup the funds. The other is the small business setaside program. And particularly during the Clinton administration,

with the reform of the GWAC concepts, that also provided some

added opportunities.

However, the downside is that when those firms finally start developing some modest capability, then they are cut down at the

knees, because I said earlier in the testimony the one question that

all of you——

Mr. BILBRAY. Success goes punished, basically, once you——

Mr. GALAVIZ. No, no.

Mr. BILBRAY [continuing]. You reach a certain level, a tier, and

you start getting cutoff?

Mr. GALAVIZ. Well, that is one interpretation, but the other is,

to ask a simple question, how can a $7 million firm compete

against a $29 billion firm? Or how can a $100 million firm compete

against a $29 billion firm, or even a $300 million firm? And that

is one thing, in the community, where we are working with antiquated policies that basically put us in the economic ghetto, because the one thing that every time you look in the paper about

XYZ Co. being acquired by a large corporation, and look at the history of what has happened to those companies, a lot of them finally

give up because their balance sheet has become so deteriorated because they keep losing competition.

My firm alone, I have had years worth of successes. Now that I

am in the so-called twilight zone market, first of all, I am not a

mid-tier firm because I am not Booz Allen or I am not UniSys.

Those are the guys are the mid-tier firm. I’m the small guy. Even

though I outgrew the size standards, I am still a small guy. So

what is going to happen, let’s say, to most of us? Give us an accountability of what has happened, the Government has made an

investment in developing these firms, particularly in operation support contracts.

Let’s be honest. The private sector hasn’t made an investment on

developing the staff of those contracts, because you have the concept in the Federal Government that operation support contract

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that when the new company picks up the same cases from the previous company, and the new company, regardless what was said in

their proposal, because that is another thing the Congress has

never looked at, and that is these companies get selected because

of a competitive process, Lockheed Martin, IBM, anybody. And they

say, well, the reason you won is because you had these strengths,

because you are going to bring this added value.

But yet, Madam Chairman, the Government never puts that in

the contract. They do not put that in the contract. So then what

does the new site management for that company do? He is hired

to manage the contract according to what the Government signed

on to, and the Government neglects to put down all the goodies

that were in the proposal.

Mr. BILBRAY. That is absolutely fabulous testimony on that. It

really is a good point. The fact is it is a proposal. If this is what

the decision was made on this standard, on these proposals, then

it should be almost automatic to transfer that in.

And I know my time has expired, but from the AGC’s point of

view, let me kind of hit you with a counter on that. Do you have

any reason why we would not take that proposal and basically say,

here is your proposal, this is what you propose, this is what the

bid was on; we are now going to include that in the contract that

you sign? From the AGC’s point of view, do you see a major problem with that?

Mr. ZINGESER. Generally speaking, I think any general contractor working with subcontractors is always looking at their proposal.

In other words, we might write a scope of work of some sort, which

is saying how we see the work that needs to be done. They come

back in turn and either agree that is what they can and will do

or come back with their scope and saying that they ‘‘got it all.’’

Mr. BILBRAY. What if, right off the top, the proposal is put out

there, and this is one of those things, don’t offer if you are not willing to deliver, and this is a very good point that we may want to

be talking about, and that is the fact is when a proposal uses certain terminologies used in certain proposals, that terminology from

the proposal is incorporated, at least referred to in reference right

in the contract.

Mr. ZINGESER. Yes. That is an automatic.

Mr. GALAVIZ. Well, that is not quite so in the Federal sector.

Mr. BILBRAY. But that is what you are saying and I am saying,

is if that was a goal that we were shooting for, you think that

should be included in, sir. That is what I am talking about.

Mr. GALAVIZ. Well, yes. In other words, if you are going to say,

the evaluation committees, if they are being ethical and morally

correct, they made a decision to hire this other company because

they can do a better job, then those things, and probably I can give

you some very interesting examples, and have those submitted to

the committee.

But the fact is that right now, we are going through a very dynamic, kind of stupid experience right now. Right now, because of

the budget pressures, right now companies or agencies are just

doing the following: as long as you pass the technical cut, then lowest price will prevail. So what really the Government now is doing

is saying we really don’t care about added value, we really don’t

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care about innovation, OK? Right now we just care for you to show

that you are a reasonably good contractor, that you have not been

arrested over the last month, and, therefore, as long as you have

the lowest cost.

Now, what is happening? Now, how do these large companies get

the lower cost? And what is happening today in the marketplace

is what they are doing is they are using different call centers with

different benefits package. So now the new employees are now basically having less benefits, less holiday. So guess what happens?

Those folks are going to stay there as long as they can find another

job.

We have gone through this cycle before in Government over the

last 40 years, OK, and then find that people get wise. Right now

we know of three contracts that have been awarded just in the last

90 days in which a third of the incumbent employees either have

left or are looking for a job because the new bidder won the contract in a totally different environment. So what is the Government

really doing? You are creating sophisticated body shops.

Mr. BILBRAY. Thank you very much.

And I appreciate the extended time. I think we have some opportunities here. I am sad to say that I don’t have the opportunity to

look forward to working with the Chairwoman. Hopefully, with the

blessing of the voters, I will be around to work with whoever the

democratic leadership chooses to work with me on this committee.

But I think that there are some great opportunities here.

I just have to say one thing about the budget process. You think

it is tough now? Believe me, it is going to get very, very ugly. I

mean, the Congressman from Virginia talked about a 10 percent

cut across for the Department of Defense for contracts. I think we

are going to see some real tough times coming down the pike and,

believe me, when all of us go back to the district they are really

looking at us; and coming from this committee, we get a lot of scrutiny.

So I appreciate your testimony and, Madam Chair, I really appreciate the fact that you have jumped into this, and I know you

have some questions.

Ms. WATSON. Thank you so much.

Let me quickly just go down the line of panelists. I would like

to start with you, Mr. Robinson. You are in the business of providing the legal defense and so on. In your opinion, how do minorityowned firms tend to view the various types of Federal assistance

provided to them? And are some programs perceived as being more

or less effective in offering assistance?

Mr. ROBINSON. Madam Chairwoman, that is a very mixed bag.

There are programs where the policies that are in place that Congress designed to develop companies, we have been talking a lot

about capacity, and if you look at the statutes that Congress has

passed as the goal of these programs to build competitively viable

companies, and yet you look at how that policy is executed on the

ground, it leaves a great deal to be desired.

And I am specifically talking about, for example, the Department

of Transportation. I think one of the things that they have instituted relative to accountability between State recipients and the

Federal Government, and how they are accountable for the impleVerDate 11-MAY-2000 14:50 Jun 17, 2011 Jkt 000000 PO 00000 Frm 00163 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65561.TXT KATIE PsN: KATIE
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mentation of the program, begins to move us in the right direction,

but there is a huge distance between what Congress has intended,

or the Federal Government has intended, and how that is actually

executed on the ground. And I think that, if you would poll many

companies, they would indicate that those services designed to develop them are wholly inadequate.

Ms. WATSON. Assuming that the Federal courts will continue to

eliminate these exclusive programs, including price evaluation adjustments and quotas, such as inclusive programs like technical assistance and outreach, how could the inclusive programs be made

more effective? You know, we recognize there are some problems

with the execution of these provisions. How can we make them

more effective?

Mr. ROBINSON. I would like to correct one observation, one point

that you just made. There is no program that you can consider a

quota. All of these programs are inclusive. The SDB program,

which is questionable as to whether it is in fact operating right

now, but all of the other programs eligibility is determined by socioeconomic criteria.

And if you read that socioeconomic criteria, in most of these programs you can participate. So there are no what I would call exclusive programs in the Federal sector; most of these programs have

general socioeconomic criteria by which you can in fact engage.

The second part of your question as it relates, again, to the effectiveness of the program.

Ms. WATSON. Right.

Mr. ROBINSON. I think the importance there is accountability, because most of this money flows through State and local actors, and

to the degree that the Federal Government provides accountability,

and for those who do not provide that accountability and do not implement these programs according to Federal law, the Federal Government has an obligation to cut out those funds to those agencies.

Ms. WATSON. That is why we are the Oversight Committee, and

we are looking at how we hold the entities out there accountable.

That is an excellent point, and I am so pleased that Mr. Bilbray

is our ranking member, because you heard him commit to helping

to work through some of these issues that you are raising today.

Thank you so very much.

Mr. Galaviz, what types of Government programs would help the

mid-tier companies in obtaining financial or Government contracts,

and what could be the downside of such assistance?

Mr. GALAVIZ. Madam Chairman, thank you for that question.

First, the reality of the environment of size standards is really a

major, major hurdle, because it just practically, practically, it is difficult to answer that question, how can a $7 or $25 million company compete with a $29 billion company. So what we basically are

proposing, to design a pilot program that would provide a tier type

of competition, which, by the way, we implemented this and I

helped part of design 20, 25 years ago, when the Department of

Commerce introduced the comments program.

And there have been several agencies that have used that tier effect, and right now we do have a couple of agencies looking at that,

and the reason why they are looking at that, because there has

been a significant number of investments made by the Federal

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Government in the development of some of these firms, and some

of these firms have performed very, very well particularly because

they know that on these mission-critical programs that are quite

sophisticated and accomplished in technology, they know that when

something goes haywire they can get the CEO of that company, of

that small business, to come down and take care of it right away.

They know they are not going to get the chairman or the CEO of

Northrop Grumman to even say hello.

But also, for example, another thing that has been important to

us in support of this pilot program is the fact that the small business community, the one thing that has been very positive on the

Federal level is that over the last 35 years the small business community and the minority business community have gained significant amounts of capability to give confidence, for example, to the

Air Force, which is the most sophisticated range you find in the

world, and, 5, 7 years ago, they decided to make that a small business set-aside, and they had a significant number of competition.

A small business won the contract 5 years ago; they performed very

well. And the other examples we can provide to the committee were

the small business community has really demonstrated to be able

to provide the services that are needed in complex, critical projects.

So what we propose is basically to have the ability of collaboration to stop the bleeding that is happening in the marketplace by

having a program that either SBA gets their act together and the

Department of Commerce gets their act together of coming up with

a realistic size standard program or develop a pilot program to

show that indeed it can be a win-win situation, because in the proposal that we have, it would protect small emerging businesses.

Now, one thing that we have to give credit to MBDA is that since

President Nixon established the minorities agency, they have done

tremendous excellent work throughout the country in small businesses; the small manufacturer, the barber shop, the little market.

All that has created a lot of vitality of economic development.

However, it is important to say that in the history of MBDA, as

far as working with Federal contractors and really supporting Federal contractors, that has not been their strength. And SBA still

has what we call the ghetto economic mentality. We hope that the

proposal that we are saying on this pilot program, that should be

considered, Madam Chairman.

Ms. WATSON. Thank you so much. We have other questions we

would like to ask, but, for the sake of time, we are going to send

you a letter with these questions, and you can respond in writing

to us.

Mr. GALAVIZ. Yes, ma’am.

Ms. WATSON. Mr. O’Bannon, you described a situation that we

know all too well. Are you aware of any ongoing efforts by the Department of Transportation to ensure that airports are actively

working to increase the contracting opportunities for minorities

and women-owned businesses? What are they doing that you are

aware of?

Mr. O’BANNON. AMAC has worked extensively with some of our

sister organizations, COMTO, with Tony’s group and other organizations, to work directly with the Federal Aviation Administration

and DOT on rulemaking, and some of the rules that have been proVerDate 11-MAY-2000 14:50 Jun 17, 2011 Jkt 000000 PO 00000 Frm 00165 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65561.TXT KATIE PsN: KATIE
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posed, such as the increase in personal net work for an adjustment

for inflation are those types of efforts that will hopefully have a

positive impact. In addition, there has been more of an emphasis

on accountability, and there are some efforts being taken by the

agencies in that regard in terms of increasing accountability.

It just seems to me that, fundamentally, the issue has to be a

recognition that there is a problem by these agencies, and it just

seems to me, and, again, I am not a statistician, so when I go down

this road, please don’t ask me about the statistics of all of this, but

many of these A&D studies look at a lot of factors, and at the end

of the day, when they control for size, when they control for education, when they control for experience in the given industry, at

the end of the day, a lot of these studies, when they find discrimination, it is race or gender, which is the motivating force that establishes that discrimination still exists, despite size, despite income.

I hate to use an example, but when I was younger and I was

driving through certain neighborhoods in North Texas, they didn’t

stop and ask me if I was in college, and they sure as heck, when

I stop now, don’t ask me if I am a lawyer or what the balance in

my checkbook is. They stop me because I am African-American

driving through a certain neighborhood after hours. And that is the

reality that we have to keep in mind and continue to address. And

I think fundamentally, as long as the agencies focus on that and

then come up with specific policies to address that, then we can

move forward. But until that happens we are not going to move forward.

Ms. WATSON. You used an example of asking about, is there anyone available who can set up a barbecue stand in the airport. That

is just like saying there is no available sand on the Hawaii beaches, you know. Maybe we ought to establish this, this is what I did

at the University of California when I went in to talk to the current president at that time, and there were several minorities, five

of them, trying to get tenure, and he said they didn’t do the kind

of academic research; and I set up an example for him and he

couldn’t respond.

But where I went with it, I said, well, why don’t I supply you

with a list of credible academicians in this country that will meet

the standard that you set, because I know, right off hand, 10 of

them? I would not let that excuse rise. So maybe we ought to be

developing lists of people who meet those standards. Think about

it. You don’t need to respond. But I think if they can’t find qualified contractors to fill this requirement or this need, we ought to

some available.

Mr. O’BANNON. Ms. Watson, I know we are in need of time, and

I will be brief, but I just want to point out, again, I think the committee should keep in mind that if you analyze in sheer number,

not size of contract, but sheer number of contracts, that a significant portion of those contracts are well within the capability of the

majority of our minority and women-owned business community.

Ms. WATSON. Of course. And that is what I am saying. Maybe

we better have, when we go in and raise these issues, a list of

those that are qualified. Then they would have to tell us why they

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don’t meet the standards. And I think they are illusional, as you

have referred.

Mr. Zingeser, how are other firms in the industry affected when

minority-owned firms are unable to meet the bonding requirements

for prime contractors and, instead, become subcontractors? You

know, I have gone through this for decades, and I remember sitting

on the school board in Los Angeles, the largest one in the State,

really, the largest one in the country under one board, seven members, and there would be contracts, and minority contractors, of

course, would come to me because I am the only one of color sitting

there, and they would say they can’t compete because the bonding

was too high and they couldn’t get bonded. And I said we are still

in 2010, pointing up the same problem. Would you respond?

Mr. ZINGESER. Yes. It is a complex issue, but I will try and break

it down into a couple of pieces.

Ms. WATSON. Please.

Mr. ZINGESER. First of all, in our industry, we have general contractors who are like systems integrators and putting all the pieces

together, and then there are subcontractors, and those subcontractors on a large project, and by large I am talking about $100 million renovation of this building, they may, in turn, have large subcontracts, like the mechanical work might be $30 million. And

then, in turn, their subcontractors look down at other smaller firms

to do work that break down into the duct work or other parts of

that trade.

So there is general contracting and then trade work. General

contracting does require, generally, a higher bonding capacity than

work at a lower tier. The issues related to subcontracting for any

general contractor, and I am not speaking necessarily for AGC, but

I will speak for myself and our company, and I think it is similar.

We are looking at two things, capability and capacity. Capability

is to do the job. If it is painting, if it is installation of some specific

system. And then capacity is ability to know that they are going

to show up, they have the workers and they have the financial capacity to be there.

There are programs for small businesses, whether they be minority businesses or not, such as the SBA 8(a) Mentor-Protege Program, which is an excellent program. We participate. We have a

couple of proteges that we work with. It has been very successful

from the mentor’s point of view and I think from the protege’s

point of view. That process officially allows us to bond the work.

We have the bonding capacity, where they may not. Their bonding

capacity has grown because they have been more successful. We

have been in this relationship for a few years now, so they are developing their bonding capacity. But because there is an entity that

is blessed, we can bond that and we can help. We can help in that

way.

The issue that I pointed to in my testimony is really two points.

One is very, very, very simple; it is that we can get the right data.

We have the ability to know where the dollars go, as Mr. Bilbray

said. We can do that easily. And we, the contractors, will give you

that information; all you need to do is ask us for it. The Electronic

Reporting System enables us to ask our subs, and they their subs,

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for this data. We can tell you how many dollars go to what types

of entities.

Now, the second part of the problem, though, is by not scoring

that information or allowing it to be accounted for, we are forcing

the subcontractors, who both logically and from a business model

point of view don’t necessarily want to be general contractors or

don’t want to work at a higher level, they do what they do; we are

forcing them into situations where they are taking risks that they

may not be comfortable with or creating some situations that I

think are now being looked at, which I referred to as being upside

down. That is where a small business gets in bed with a large business because the large business can provide the bonding. Well, the

surety companies are not looking favorably on that and I don’t

think the Government is looking favorably on that.

That is a business model that I suggest is not meeting the social

economic goals of the program. I think it creates some businesses

whose model is to operate in the scoring system, but not to hire

employees to do work, to get out there, to increase productivity and

contribute to the Nation as a whole. So if we simply do the right

thing, which Mr. Bilbray, I think, suggested when we make a mistake perhaps we can correct it, if we properly account and let these

businesses, whether they be minority or other specially characterized businesses, if we allow the businesses to operate at the level

they want to operate at, the trade they provide, the service they

provide, and we get the credit, everybody gets the credit, we will

see what we are doing; they will grow, they will be more comfortable, they will do the things that the program is intended to do,

not create some opportunity for other business models.

So I am, as you can tell, pretty passionate about this. I think we

have the answers to some part of it. It is an incremental problem.

We can’t solve all of the history of our country through some of

these things, but we can do some things that will make a better

environment for these programs to succeed. That is what we are

trying to suggest.

Ms. WATSON. I appreciate your testimony.

Finally, Mr. Sumner, in your testimony you cite the decrease in

Federal contract awards given through CalTrans to disadvantaged

business enterprises from 28 percent, that was 1994, to just 2 percent in 2008. How much of an impact has the Federal Government

had in increasing contracting opportunities for minority-owned

businesses?

Mr. SUMNER. Specifically from the Federal Government, the DBE

program that was required, because it is a USDOT requirement if

you receive Federal awards, I think was beneficial in the State of

California because it continued some form of the DBE program. Although we weren’t able to collect evidence on that ourselves, the

CalTrans Availability and Disparity Study showed the level of disparity to be two to three times higher for State awards, which is

where the program wasn’t operating.

And, on top of that, some of the things that were part of the Federal program would be things like mentorship opportunities, technical assistance opportunities. That would have a spillover effect on

State awards. So it is possible that without the Federal program

the State program might have shown even more disparity. So the

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Federal Government’s DBE program has been a benefit, I think, in

California.

Ms. WATSON. And given the influx of the American Recovery and

Reinvestment Act funds to California, are you aware of an increase

in opportunities for minority-owned businesses?

Mr. SUMNER. Obviously, there the potential of opportunity is

there, since it was a large increase in construction dollars that

were available. We haven’t done any research on that nationally or

in California. I know, anecdotally, that others have done research.

I know that the Kirwan Institute has been tracking stimulus

money by race and I believe by gender, but I would have to review

what their findings were, and I could get back to you on that.

Ms. WATSON. I want to say to this panel we really appreciate

your input. We are going to be back in touch with you to give us

concrete suggestions as to how we can fix the programs that we put

into place through legislation. Working with our ranking member,

I think that we can take the bill that we have and add provisions

to it that would have the outcomes that we intend for Federal

funds to have.

When we put them into a program, there is an outcome that we

expect, and this hearing this morning and now into the afternoon

has been about how do we cover minority- and women-owned businesses, and I think that all of you are on the track to helping us

design the kind of policies that will reach our goal and have the

outcomes.

We are about fairness and justice. As you know, we are in an

economic time that is very troublesome for most families, and certainly for those at the lower end of the socioeconomic scale. People

of color, women, feel the brunt of it greater than other segments

of our population. We need to address it. We can’t create miracles,

but we can identify the provisions that need to be applied and the

oversight that we need to do to be sure we get the results we intend.

So thank you so much, panel members there, and we will be extending to you more questions that we would like to have answered. We would appreciate your getting right back to us within

10 days, if you can.

Thank you very much, and we will adjourn this panel.

[Whereupon, at 1 p.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Gerald E. Connolly follows:]

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