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71–177 2011

BEYOND THE SIZE STANDARDS: SUSTAINABILITY 

OF SMALL BUSINESS GRADUATES 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

HEARING HELD 

SEPTEMBER 14, 2011 

Small Business Committee Document Number 112–033 

Available via the GPO Website: www.fdsys.gov/house 


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(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

ROBERT SCHILLING, Illinois 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

JANICE HAHN, California 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 


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C O N T E N T S 

OPENING STATEMENTS 

Page 

Graves, Hon. Sam .................................................................................................... 1 

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

WITNESSES 

Hon. Gerry Connolly, U.S. House of Representatives, Washington, DC ............. 3 

Ms. Tonya M. Speed, Executive Director, Mid-Tier Advocacy, Washington, 

DC .......................................................................................................................... 7 

Mr. Christopher Yukins, Professor of Government Contracts Law, Co-Director 

of the Government Procurement Law Program, George Washington University, Washington, DC ........................................................................................... 9 

Mr. Michael D. Frisbey, Government Suppliers and Associates, Knoxville, 

TN .......................................................................................................................... 11

Margot Dorfman, CEO, U.S. Women’s Chamber of Commerce, Washington, 

DC .......................................................................................................................... 13

APPENDIX 

Prepared Statements: 

Hon. Gerry Connolly, U.S. House of Representatives, Washington, DC ..... 28 

Ms. Tonya M. Speed, Executive Director, Mid-Tier Advocacy, Washington, 

DC .................................................................................................................. 31 

Mr. Christopher Yukins, Professor of Government Contracts Law, CoDirector of the Government Procurement Law Program, George Washington University, Washington, DC ............................................................ 47 

Mr. Michael D. Frisbey, Government Suppliers and Associates, Knoxville, 

TN .................................................................................................................. 62 

Margot Dorfman, CEO, U.S. Women’s Chamber of Commerce, Washington, DC ..................................................................................................... 69 

Questions for the Record: 

Owens, Hon. Bill ............................................................................................... 73 

Answers for the Record: 

Mr. Michael D. Frisbey, Government Suppliers and Associates, Knoxville, 

TN .................................................................................................................. 74 

Additional Materials for the Record: 

Statement of Mid-Tier Advocacy ..................................................................... 76 


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BEYOND THE SIZE STANDARDS: SUSTAINABILITY OF SMALL BUSINESS GRADUATES 

WEDNESDAY, SEPTEMBER 14, 2011 

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

The Committee met, pursuant to call, at 1:09 p.m., in room 2360, 

Rayburn House Office Building, Hon. Sam Graves (Chairman of 

the Committee) presiding. 

Present: Representatives Graves, Bartlett, Chabot, West, 

Ellmers, Hanna, Schilling, Vela ́zquez, Critz, Altmire, Clarke, Chu, 

and Keating. 

Also Present: Representative Mike Rogers of Alabama. 

Chairman GRAVES. Good afternoon, everyone. We will call this 

hearing to order. And before we get started, I want to welcome our 

newest member to the Committee, Representative Bob Schilling 

from Illinois. He is a small business owner and should be a great 

asset to the Committee. Welcome, Bob, and glad to have you on 

board. 

We are here today to talk about what happens to companies once 

they outgrow the Small Business Administration’s definition of 

small. According to the Small Business Act, a small business is one 

that is independently owned and operated and which is not dominant in its field of operation. The Small Business Administration 

further restricts the definition by applying size standards which 

cap the number of employees or the annual—or the amount of annual receipts a firm may have if it wishes to qualify as small. One 

reason for the definitions is to establish which companies will have 

access to small business government contracting programs. 

As our country spent over half a trillion dollars through Federal 

contracts last year, and given that there is a goal of awarding 23 

percent of those dollars to small businesses, prime contractors, access to these programs translates into real opportunities for small 

firms and it also creates tension. What happens to firms when they 

no longer qualify as small, according to the SBA size standards, 

but which still meet the Small Business Act definition of small. 

I am going to be joined today—or we are—on the dais by Congressman Mike Rogers, who has been detained right now at a 

markup. He should be here any minute. And our first witness is 

Congressman Gerry Connolly. Both of these gentlemen have seen 

the challenges faced by firms that are independently owned, operated, and not dominant in their field of operations when they outgrow the SBA size standards. Consequently, both of my colleagues 

have proposed pilot programs to address the challenges facing meVerDate Mar 15 2010 22:38 Nov 29, 2011 Jkt 071177 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\C177.XXX C177

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dium-sized businesses. I look forward to hearing more about their 

proposals. 

As this Committee considers these proposals, we do so with two 

mandates in mind. First, any medium-sized pilot must benefit taxpayers and the government. Even the best-crafted pilots will incur 

costs and create an additional requirement for contracting personnel. 

The second mandate is fundamental to this Committee. We have 

to protect small businesses so that they continue to create jobs, introduce innovations and increasing competition. I strongly believe 

in the value of a vigorous small business contracting community 

and advocate increases in the small business goal from 23 percent 

to 25 percent. But at this time, the administration is awarding only 

as little as 20 percent of the prime contracts to small firms. Given 

that the current small business goals are not being met, we have 

to figure out how to ensure that a new program for larger businesses is not going to make it harder for smaller businesses to compete. 

With that, I am going to thank ahead of time all of our witnesses 

for being here today on the first and second panel. I will now yield 

to Ranking Member Vela ́zquez for her opening statement. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. For small businesses, having the Federal Government as a customer often means 

the difference between failure and success. For an early-stage firm, 

Federal projects can be a reliable revenue source, helping them 

stay solvent as they expand their client base. Equally important, 

unlike their larger competitors, when a small firm secures a Federal contract, the influx of new work inquires them to add employees to their payroll. If we want to generate new employment opportunities for Americans, breaking down the bias to small business 

competition in the Federal marketplace will be key. 

Unfortunately, for entrepreneurs looking to tap into the Federal 

market, significant hurdles remain. The SBA’s annual scorecard 

continues to find that the Federal Government is falling short of 

its 23 percent goals for procurement action that should go to small 

firms. In fact, for many agencies, the level of contracting for small 

firms seems to have dropped between fiscal year 2009 and 2010, 

exactly the direction we should not be headed in. 

Agencies are also expected to meet certain goals for enterprises 

owned by women and service-disabled veterans, yet for prime contracts in 2010, the Federal Government came up short. 

While the obstacles keeping smaller firms out of the Federal 

marketplace are many, the practice of contract bundling is one of 

the most prominent. When small firms’ procurement actions are 

lumped together into a single large contract, it may result in less 

work for Federal bureaucrats, but also means less opportunity for 

small firms. In fact, for every $100 in contracts that are bundled, 

entrepreneurs lose $33 in business. That is adding up to billions of 

dollars that could be creating additional jobs for our Nation. 

While this Committee wants to do everything possible to help 

businesses of all size foster job growth, the record makes it clear 

we must finish the task at hand, making the Federal marketplace 

fairer for small businesses. If we are to explore methods for creating new venues for larger firms,, it is critical that we keep in 


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mind a number of key principles. Size standards remain a critical 

measurement stake not only when it comes to competing for government work but qualifying for other benefits like technical assistance in government work, for qualifying for technical assistance or 

the SBA’s capital access program. Any steps that begin undermining this system in order to generate new opportunities for medium-size companies run the risk of creating more problems than 

they solve. 

It has also become clear, thanks to this Committee’s work and 

numerous GAO investigations, that large businesses are siphoning 

off contracts which should go out to small business. The GAO has 

repeatedly found that the HUBZone program is rife with fraud and 

abuse. Even more disturbing, the Committee’s investigative work 

has uncovered numerous cases where veteran entrepreneurs lose 

work to dishonest big companies that game the system. Given this 

shortcoming, it will seem that a more immediate priority may be 

needed to be ensuring current set-aside programs function as intended before we start creating new ones. 

Mr. Chairman, in every previous recession, small business has 

been the drivers of our economy, creating new jobs and restoring 

America to prosperity. As we contemplate changes to the size 

standard system, and new initiatives for medium-size businesses, 

we can never lose sight of the vital role small firms play in our 

economy and how procurement policy can help them create new 

jobs. With that I yield back. 

Chairman GRAVES. Thank you very much, Ranking Member. 

And at this time, I am going to introduce our first witness, Congressman Gerry Connolly from Virginia. In addition to being sponsor of H.R. 1812, the Small Business Growth Act, Congressman 

Connolly is the ranking member on the Subcommittee for Technology, Information Policy and Intergovernment Relations and Procurement Reform on the Oversight and Government Reform Committee. He also serves as co-chair of the Smart Contracting Caucus. 

Welcome. And I look forward to hearing your testimony. 

STATEMENT OF THE HON. GERRY CONNOLLY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA 

Mr. CONNOLLY. Thank you, Mr. Chairman. And thank you for 

having me here today. Ranking Member Vela ́zquez and members 

of the Committee, I really appreciate being here. I have a prepared 

statement and I am not going to read it to you. I will submit it for 

the record. 

I listened carefully to the opening statements, particularly of Ms. 

Vela ́zquez, and I looked at some of the testimony you are going to 

hear from. And let me just say that some of the fears expressed are 

understandable, but I think if you look at the respective bills Mr. 

Rogers and I have introduced, they are limited pilot programs and 

they keep the small business set-aside entirely intact. 

You are going to hear testimony, apparently, from the Women’s 

Chamber of Commerce. Their testimony, their assertions, are absolutely false. My legislation does not in any way change the size 

standards of the existing program and in fact explicitly has a provision that this pilot program at GSA for mid-tier companies to see 

if it works cannot take away any business that otherwise would go 


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to a qualified set-aside small business. Period. And I want to make 

that very clear from the outset. 

I also want to talk about why I introduced this bill and I assume 

Mr. Rogers has a similar experience. His bill is limited to DOD. My 

bill is limited to GSA. And I had a number of small businesses, minority-owned businesses in my district, come to me and they have 

been successful. So they are graduating from the small business 

status and the problem is that we sent them into Federal contracting limbo on the next day. So they now find themselves still 

relatively modest in size, albeit successful, in part because of the 

programs this Committee has helped to create and foster and needs 

to do more of, as Ms. Vela ́zquez says. 

But now you have got a minority-owned business successful in 

that category that has to compete with the big guys. And what is 

very interesting is they don’t get any help. They are now graduated. On day one. And frankly, many of them find themselves in 

an impossible situation because they are competing against multibillion-dollar entities who have all the resources in the world to do 

red team, to put together professional proposal writing to make 

sure they are scouring for opportunities in the Federal Register 

and the like. 

And what happens to these midterm companies? Often they get 

just bought up or they go out of business. And so all your hard 

work in fostering and encouraging, correctly, opportunities, diverse 

opportunities in America for smaller businesses, especially minority, female, and veterans-owned businesses, sometimes gets blown 

away the minute they graduate because there is nothing for them 

in terms of transition. 

And so my minority-owned Federal contractors who have been 

part of the small business set-aside came and said, ‘‘Can’t you try 

to address this? We are not asking for permanent help, but, gee, 

to become, say, a $30 million business and now we are expected to 

compete with a $20 billion business. Little wonder that your CSIS 

study shows—if you look at the bar graph they have in their study 

for this Committee, the big guys are crowding out everybody else. 

They are getting bigger. The small business set-aside companies 

are sort of holding their own in that bar graph. There may be a 

little improvement up and down a little bit, but holding their own. 

It is the mid-tier category that is actually shrinking. The Federal 

Government doesn’t keep accurate data on mid-tier companies, so 

it is a little hard to provide a lot of empirical data. But anecdotally 

I can tell you, at least in my district—and I represent a lot of Federal contractors—this is an increasing source of concern. So that 

was the genesis of the program. I took into account the concerns, 

legitimately raised by Ms. Vela ́zquez and others. I read the Committee memo, and I thought it was a very thoughtful memo by 

staff, that there are still some issues that we want to work with 

you in terms of the definition of mid-size. I kind of looked at it from 

an IT perspective and kept the definition at the employee number 

size, because I am only dealing with GSA and I am largely dealing 

with IT contracts. 

But I understand, as the staff points out in their memo to this 

Committee, well, there is a lot of diversity and there are a lot of 

different definitions. And I do actually take into account the staff’s 


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concern about one size fits all. We can’t do that. I understand that. 

You can’t do it in the small business set-aside either. 

There is a multiplicity of Federal agencies with lots of different 

realities in Federal agencies. But my plea to this Committee is 

can’t we, on a very limited basis, create a pilot to see if we can do 

some good and that preserves and enhances the minority-owned 

companies you have worked so hard to incubate and foster, as opposed to just setting them out in a Darwinian world where, day 

one, they are expected to compete with big guys who have megaresources, which frankly they cannot compete. I believe if we can 

do that and succeed in that goal, it is a good deal for taxpayers; 

it will foster innovation because a lot of times, especially with the 

smaller contracts, it is the smaller innovative companies that actually are the creative ones who are providing new solutions. And I 

think it would be win-win in terms of fostering and enhancing the 

legitimate goals of this Committee to create small minorityowned—female owned—veteran and disabled veteran-owned businesses as part of the fabric of American contracting. 

With that, Mr. Chairman, I would be glad to entertain any questions. 

Chairman GRAVES. Thanks, Congressman Connolly. 

[The statement of Mr. Connolly follows on page 28.] 

Chairman GRAVES. I will turn to Mike Rogers, our guest today. 

If you have anything, Mike, you want to add, or questions. And 

then I am going to turn to the ranking member. 

Mr. ROGERS. Thank you very much, first, for letting me sit in on 

this hearing. And I share most of everything that he said, the same 

observations as Mr. Connolly mentioned. My amendment really 

only focuses with the DOD. And I don’t represent a lot of DOD contractors, but we have a lot of them in Huntsville, a lot of missile 

defense. And exactly what Mr. Connolly said is happening. We 

have these very creative, very innovative technology companies 

that are nurtured under the current system, but once they cross 

that threshold of 1,000 employees or $30 million in gross revenues, 

they are on their own, and you can’t compete with Raytheon or 

Boeing or one of these major corporations at that level yet. And invariably they get bought out and that stifles the very creativity and 

the flexibility small companies have. And frankly, they lose a lot 

of brain drain because a lot of their tech people don’t want to work 

for a big company. They like being in the smaller environment. 

So what I am after, as a member of the Armed Services Committee, is for us to nurture these companies to get up to around 

2,500 where they can possibly be players in competition for large 

contracts, because the fact is in the DOD there are four or five 

companies and they own this place. And they need some competition. It is good. It makes them be better and it helps us, as the government, get better deals. 

So that is my motivation and I hope that this Committee can embrace the concept and let us just see how it works for a few years. 

And with that, I yield back. Thank you again for letting me visit. 

Chairman GRAVES. Ranking Member Vela ́zquez. 

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

Connolly. I do share your concern, because thanks to the Committee work. And for 14 years I have been producing a scorecard 


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report and bringing in the administrator and all the big offenders, 

starting with the Department of Defense and Education, and even 

Small Business Administration, failing to achieve the contracting 

goals set up by Congress. But since it has been set up, it has never 

been achieved. And that means small business has been losing out; 

yet because of the proactive work of this Committee, they have 

been more responsive in achieving those contracting goals. And the 

latest one for 2010 was 22.6. So we haven’t achieved the 23 percent. And it means that small businesses are losing out billions of 

dollars in contracting opportunities. 

So my question to you is businesses that are other than small already receive 78 percent of Federal contracts, while small businesses have yet to attain the 23 percent goal. So the duration of 

your pilot program is 5 years. At the end of this period, how will 

you measure whether this program has been successful? 

Mr. CONNOLLY. Well, I would want to—first of all, I take seriously your implied concern this could be a zero-sum game, and I 

don’t want it to be. I believe the two, in fact, are extensions of each 

other. I think we can and should try to reach the 23 percent goal 

and try to help graduates of that program stay in business as minority, veteran-owned, female-owned businesses, as opposed to becoming—— 

Ms. VELA ́ ZQUEZ. The question is: Is this the right place? 

Mr. CONNOLLY. Is what the right place? 

Ms. VELA ́ ZQUEZ. To establish a pilot program that will take 

awards, contracts, away from small business. 

Mr. CONNOLLY. No. I would say that it doesn’t. I think you could 

have a pilot program that actually enhances—because you are trying to build on the successes you are creating and want to enhance 

on the small business set-aside. It is not a zero-sum game where 

if we create any kind of pilot program from mid-tier necessarily 

that takes away from small- and minority-owned businesses. I 

don’t believe that is true. I believe experience will prove that it is 

not true. 

Ms. VELA ́ ZQUEZ. You are aware that GSA implemented a training 

program that is directed at providing technical assistance to those 

who graduate? 

Mr. CONNOLLY. Yes, ma’am. 

Ms. VELA ́ ZQUEZ. Why can’t we wait to see the type of results? 

Mr. CONNOLLY. Well, again you could. It might be—all I can— 

Ms. Vela ́zquez, just as your experience validates and directs where 

you go on issues, I have to tell you as somebody who has spent 20 

years as a Federal contractor, including for big guys and including 

for little guys, and having to implement these goals and programs 

in the private sector until the day I got here, and now hearing from 

my constituents in a district that probably has more Federal contractors than anybody else, it is my small, minority businesses that 

are clamoring for some relief from the mid-tier category. 

That is why I think there is a void that a pilot program, which 

is modest and not too dangerous or expensive, can address. And 

then we can learn whether it works or not. 

Ms. VELA ́ ZQUEZ. In other contracting programs such as the service-disabled veterans, GAO has found that there has been some 

problem with self-certification. In many cases, investigations have 


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shown that businesses did not meet all necessary eligibility requirements, even though they self-certified otherwise. 

It appears that your program would allow for the same sort of 

self-certification. So my question, knowing that this problem exists 

with self-certification, how do you propose we ensure that the representations made by participants are accurate? 

Mr. CONNOLLY. Ms. Vela ́zquez, from my point of view, I would 

be guided by the wisdom of this Committee. So if this Committee 

were uncomfortable with the self-certification process and chose to 

do something else, I would certainly support that and welcome 

that. I am not going to—I am not on this Committee, and I would 

not substitute my judgment for that of this Committee. So obviously if that—if you have decided that that is a problem and has 

to be addressed, I would be supportive of that. 

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

Chairman GRAVES. Any other members wish to be heard, or 

questions? 

Mr. CONNOLLY. Just for the record, Mr. Chairman, I want you to 

know my testimony roundly praises Mr. Rogers for his legislation. 

I thank all of you for your indulgence. I really appreciate it. 

Chairman GRAVES. Thank you very much for coming and I appreciate it. 

Mr. CONNOLLY. Mr. Chairman, one more thing. May I ask unanimous consent that a letter supportive of this effort by the Professional Services Council be entered into the record as part of my testimony? 

Chairman GRAVES. Without objection. 

Mr. CONNOLLY. I appreciate it. Thank you. 

Chairman GRAVES. Thank you very much. We will go ahead and 

seat the second panel. 

I want to welcome our second panel and our second group of witnesses. And we are first going to hear from Ms. Tonya Speed. She 

is the executive director of Mid-Tier Advocacy. Mid-Tier Advocacy 

represents a community of small- and mid-sized firms, providing 

goods and services to the Federal Government. Welcome. And I 

look forward to hearing your testimony. 

STATEMENTS OF TONYA M. SPEED, EXECUTIVE DIRECTOR, 

MID-TIER ADVOCACY, (MTA); CHRISTOPHER YUKINS, PROFESSOR GOVERNMENT CONTRACTS LAW, CO-DIRECTOR OF 

THE GOVERNMENT PROCUREMENT LAW PROGRAM, 

GEORGE WASHINGTON UNIVERSITY; MICHAEL D. FRISBEY, 

GOVERNMENT SUPPLIERS AND ASSOCIATES, KNOXVILLE, 

TENNESSEE, ON BEHALF OF THE NATIONAL SMALL BUSINESS ASSOCIATION; AND MARGOT DORFMAN, U.S. WOMEN’S 

CHAMBER OF COMMERCE 

STATEMENT OF TONYA M. SPEED 

Ms. SPEED. Thank you, Mr. Chairman. Chairman Graves, Ranking Member Vela ́zquez, and the esteemed members of this distinguished panel, I am honored to be here today as executive director 

of Mid-Tier Advocacy to discuss the disappearing mid-size firm and 

to support the Connolly bill, the Small Business Growth Act, H.R. 

1812. 


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The MTA represents a community of small and mid-sized firms 

that provide employment for thousands of people across the United 

States and across multiple industries. MTA is an organization of 

the country’s top veteran-owned service-disabled, HUBZone-certified, minority-owned and women-owned businesses. Mid-size or 

mid-tier refers to other than small businesses that may have exceeded the size standard for the industry as determined by NAICS 

code. They are seasoned businesses as a result of having been in 

the Federal market for 10 and sometimes 30 years or more. Their 

revenues may range from 10 million to 350 million and will likely 

employ from 100 to 2,000 people. They no longer are considered 

small businesses, but neither are they large in the Federal marketplace. 

Our testimony today will attempt to focus on two points, the disappearing mid-size business and why Congress should protect its 

investment, also creating jobs to strengthen the industrial base. We 

believe the standards used to define small business by the North 

American Industry Classification System better known as NAICS, 

are inadequate because in most cases the NAICS code defines 

small business as a company that has less than a certain threshold 

in annual revenues over a 3-year average. The reality is that once 

any company surpasses this standard, it is considered other than 

small. 

One of the greatest challenges for successful small business is to 

survive beyond the size standards. By its own admission, the SBA 

is responsible to the public for ensuring that size standard levels 

are rational and flexible enough to reflect the effects of inflation 

and changing economic conditions while promoting competitive viability among small businesses. 

We believe that the current NAICS codes classifications fail that 

standard and fail the successful small emerging business. Small 

businesses that grow beyond the limits set by the NAICS codes are 

punished for doing what any business needs to do, and that is simply to grow. Once they become moderately successful in the Federal 

market, they are thrust into unrestricted labor market, they must 

compete without the infrastructure or the capital to compete successfully against significantly larger businesses. 

And I do have a chart that I would like to share. Representative 

Connolly touched upon the differences among the very large companies and the small business concerns that we are really talking 

about. Most small businesses provide services where the NAICS 

ceiling is either at 7 million or 25 million, translating to roughly 

100 to 150 employees, whereas on the chart you can see with the 

large integrators they have up to 136,000 employees, on average 

130,000 employees. And these are in fact the people that—the businesses that we represent today are in direct competition with. It 

is not the very small concerns, but the much larger integrators or 

the giants in the industry. 

Our concern is that thousands of small businesses who have 

graduated or matured have disappeared from the landscape of the 

Federal marketplace. The policies that drive the standards and the 

criteria and the entry level in developing firms unfortunately stifle 

many of them who are achieving some modest success. We believe 


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standards should encourage growth by securing balanced competition at all levels: set-up, developing, and our matured phase. 

Under the Connolly bill, mid-sized contract opportunities would 

come from unrestricted procurement and not come from small business set-asides. We believe since the government invests in small 

companies, it should protect the investment and continue to support them or at least monitor their progress after they graduate. 

This makes perfect policy and economic sense. Taxpayers want to 

know what sort of return they are getting on their small business 

investment. 

And finally, I will close by saying that MTA strongly supports 

the Small Business Growth Act, H.R. 1812, because it goes to the 

heart of the government can get a better return on its small business investment. And to quote Mr. Connolly’s office: The success of 

these small businesses is what is helping to drive the economic recovery. And the loss of incentives is what is helping—is what is 

threatening not only their ability to compete but also their ability 

to hire. 

And finally again, we will also quote Mr. Graves as saying that: 

The cost saving strategy can actually help Washington address our 

out-of-control Federal debt and help create jobs for all the reasons 

stated above. The establishment of a mid-size business category 

would ensure that government would get the best bang for its buck. 

Thank you very much for allowing me to provide testimony. 

Chairman GRAVES. Thank you, Ms. Speed. 

[The statement of Ms. Speed follows on page 32.] 

Chairman GRAVES. Next, we are going to hear from Professor 

Christopher Yukins. Professor Yukins teaches on government contract formations and performance issues, anti-corruption measures, 

bid challenges, and government contract litigation and comparative 

issues in public procurement at the George Washington University 

School of Law. Thank you for being here, Professor. 

STATEMENT OF CHRISTOPHER YUKINS 

Mr. YUKINS. Thank you, Chairman Graves, Ranking Member 

Vela ́zquez, members of the Committee. Thank you for the opportunity to speak with you today regarding a potential preference for 

medium-sized businesses for H.R. 1812, Congressman Connolly’s 

pending legislation. 

As Chairman Graves alluded to, I am a professor at GW Law 

School and I teach procurement law there. And in the interest of 

full disclosure, I should say that Ms. Northcutt was actually counsel—is actually a former student of mine. I am very glad to see her 

here today. 

The problem the Committee is addressing today, the problem of 

mid-sized firms in the government marketplace, really has two different aspects. First, there is a problem of graduating small businesses, which grow up under the protection of various small business preference programs and then must compete as mid-sized 

firms without any preferences or protections. 

Second and more broadly, mid-sized firms face special competitive obstacles in the Federal procurement market, a market which 

sometimes favors the largest firms, in part because of its steep barriers to entry. There is a perception that mid-sized firms in general 


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face special difficulties in the government procurement marketplace because those mid-sized firms do not have access to the preferences enjoyed by small businesses and because the mid-sized 

firms lack the economies of scale and sheer economic and political 

muscle of the largest prime contractors. 

There are three possible options to assist medium-sized businesses. First would be to create a preference category called medium-sized businesses. For the reasons that I will be discussing, 

this option, the option of creating a category called medium-sized 

businesses could create serious problems in our international trade 

negotiations. 

The second option would be to expand to the small-business size 

standards to include medium-size businesses. This is a technical 

issue, not a legal issue. And it is an issue I will not be addressing 

today. 

The third option is to use an innovative pilot program, such as 

H.R. 1812 outline, to leverage existing mentor protege programs to 

assist medium-sized firms. 

Turning to the first option, the question of whether or not midsize firms’ access to procurement contracts should be resolved by 

creating a new category called medium sized enterprises, H.R. 1812 

does not squarely present this issue. The bill does not create a new 

medium category of firms, but instead creates a special pilot program for certain medium-sized firms. But this issue is likely to 

arise as policy discussions continue. 

The answer to this question, whether or not to create a special 

category called medium-sized firms, may lie buried in the World 

Trade Organization agreement called the Government Procurement 

Agreement. The WTO members, the World Trade Organization 

members, that joined the Government Procurement Agreement, 

which is a subset of the WTO, agreed to open their procurement 

markets to vendors from other members of the GPA. The United 

States is a leading member of the GPA. And in fact, the United 

States has been pushing this initiative to open up procurement 

markets since just after World War II. 

China is negotiating accession to the GPA, and India is likely to 

follow China in joining the agreement. The Government Procurement Agreement, which has been an important part of U.S. trade 

policy for many decades, is arguably the cornerstone to opening 

world procurement markets for U.S. exporters over the coming 

years. 

The United States, when it joined the GPA, made a number of 

reservations, including one vitally important to our discussion 

today. The United States reserved its right to give a preference to 

U.S. small businesses, even if that meant discriminating against 

foreign vendors seeking to sell to Federal agencies. The reservation 

which is set forth in the United States’ general notes to the Government Procurement Agreement states that, quote, This agreement will not apply to set-asides on behalf of small and minority 

businesses. So while the United States opened up its procurement 

markets in general underneath the Government Procurement 

Agreement, it reserved its right to discriminate in favor of smalland minority-owned businesses. 


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The United States has not reserved a right to discriminate 

against foreign vendors from GPA nations with regard to mediumsized businesses. A new unreserved U.S. preference for procurement from medium-sized businesses would undermine the United 

States’ negotiating position with China and other developing nations which are seeking broader protections for their own emerging 

industries before they agree to join the GPA. 

Moreover, were the United States to create a preference for medium-sized business, that preference could trigger a challenge by 

the European Union or other GPA members under the WTO dispute process. In sum, it could create serious trade problems where 

we create this category of medium-sized businesses. 

That leaves us then with the proposed pilot program for mentor 

protege participants. And I talked about some of the practical 

issues in my prepared statement. 

I just want to briefly touch on a couple of the issues. The first 

one is whether or not the affiliation rules should apply to companies in the pilot program. The affiliation rules say that if a small 

business has an affiliation with another company, typically through 

joint control, that other company’s resources should count and the 

small business should be considered essentially a larger business. 

There are two ways this issue could possibly arise under this bill. 

The first one is if a medium-sized firm were to reach outside to a 

third party and affiliate with that firm. So a firm less than 1,500 

employees, which is a medium-sized firm, would reach to another 

firm, for instance, to seek additional capital from that other firm. 

That could become a large business then. That would be a serious 

issue that the legislation should address. 

Another possible form of affiliation, though, would be between a 

mentor firm and a protege firm. And that kind of affiliation is arguably something the legislation should encourage. So I would 

argue that the legislation should allow that form of affiliation between mentor and protege. 

Mr. Chairman, I see that my time is up. I reserve the rest of my 

comments to my prepared testimony. Thank you. 

Chairman GRAVES. Thank you very much, Professor. 

[The statement of Mr. Yukins follows on page 48.] 

Chairman GRAVES. Next we are going to hear from our third witness, Mr. Michael Frisbey, the founder of Government Suppliers 

and Associates, Inc., of Knoxville, Tennessee. Mr. Frisbey is testifying on behalf of the National Small Business Association. Thanks 

for being here. 

STATEMENT OF MICHAEL D. FRISBEY 

Mr. FRISBEY. Thank you very much. If you hear knees knocking, 

they are mine. 

Good morning, Chairman Graves and Madam Vela ́zquez. I want 

to thank you first for allowing me to be here and to talk specifically 

about the Small Business Growth Act. My name is Michael 

Frisbey. I am a member of the National Small Business Association. I am also a small-business government contractor and I have 

40 years of experience in government contracting work. Again, I 

would like to thank you for being here. 


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Let me give you a little background on my company and why we 

are so opposed or why the NSBA is so opposed to this pilot program. I started the company in 2002. In 2004 we received our first 

prime vendor contracts with the Department of Defense. In 2009, 

those contracts, those first three contracts that we won were completed. In 2009, in open competition again, even against unrestricted businesses, we won two more prime vendor contracts. 

Those contracts today are worth $11 million. 

In addition to the Department of Defense, we are a registered 

supplier to 15 allied Ministries of Defense around the world where 

we sell U.S.A.-made product in direct competition against Chinese, 

Korean, Bangladeshian and other foreign countries. 

In 2008, my wife and I purchased the assets of Columbia Sewing 

and started a new company, Government Sewing and Apparel, 

LLC, which is located in Hope, Arkansas, and today employs approximately 80 people directly, and approximately 200 people 

through our subcontractors. I want to try to take this project and 

bring it back to reality for you. I believe that all of us agree in that 

Federal procurement, if it were not for that, there would be no 

small businesses. 

We also believe that small businesses are a great balance and a 

needed necessity in Federal contracting. Yet we talk a lot about 

small-business creation. In 1997, as you mentioned, Ms. Vela ́zquez, 

the act was passed at 23 percent, and since it was passed, we have 

not hit 23 percent yet. We do not need to divide 23 percent into 

a new category. If the category were to create a medium-sized program, we have no problem with it. But to take 23 percent that the 

government has not yet hit and divide it up and make it smaller, 

we see no value in. 

I am going to give you a real-world example of what we are up 

against as a small business. In August of 2010, a solicitation was 

posted by the Department of Defense for a program called MOLLE. 

MOLLE stands for Modular Light Load-bearing Equipment program. This contract when awarded will represent $98 million a 

year, or $297 million over the 3-year life of the contract. MOLLE 

consists of 43 items, individual items just like the two I am holding 

here. Each of these has their own national stock number, each of 

them has their own specification number. Those 43 items are assembled into seven sets and used by the military: rifleman set, medium rucksack set, large rucksack set, pistolman set, grenadier set, 

medic set. All of them are individual components. They could be 

made by 43 individual small businesses, the entire set-aside. 

When the set-aside—when the contract was issued or when the 

solicitation was issued, it was issued as unrestricted. The justification was that all of the items had to be interoperable and that by 

putting them into small businesses rather than letting one large 

contractor do them, we could not assure that these products would 

work together. The interoperability that they are talking about is 

actually nothing more than the purchase of a piece of 1-inch nylon 

elastic and being sure that that 1-inch nylon elastic from one product slips into the second product. That is interoperability. That is 

the justification for not having it as a small business set-aside. 

I want to thank personally in this hearing, Congressman Mike 

Ross from the State of Arkansas, who worked diligently with us to 


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try to convince the Department of Defense to set aside a part of 

that contract. After much back and forth with DSCP, we were successful in getting a whopping 2.4 million, or under 2 percent of that 

contract set aside for small business. 

That is what small business is up against today. That is why we 

don’t hit 23 percent, because the large businesses do that. That is 

why we are so adamantly opposed to this bill, because we believe 

first and foremost, the Federal Government must hit the 23 percent level that it set for small business set-asides before it can consider any other type of category of business. 

And we would encourage you, as was suggested by Chairman 

Graves, to not only increase—not only support the 23 percent, but 

increase it. I would beg you, increase it to 25 or 30 percent. Small 

businesses represent 50 percent of the GDP of this country. Small 

businesses represent 50 percent of the jobs in this country, and yet 

all we have is 23 percent of government contracts and that hasn’t 

been met since 1997. I beg you, please, do not pass H.R. 1812. It 

will destroy small businesses in this country. I am a small business 

contractor and if it is passed, I can assure you I will be out of business within a year of it. Respectfully submitted. Thank you very 

much. 

[The statement of Mr. Frisbey follows on page 75.] 

Ms. VELA ́ ZQUEZ. It is my pleasure to introduce Ms. Margot 

Dorfman. Ms. Dorfman is the founder and CEO of the U.S. Women’s Chamber of Commerce. The Women’s Chamber of Commerce 

represents 500,000 members, three-quarters of whom are small 

businesses and Federal contractors. Through her leadership, this 

organization has championed opportunities to increase women’s 

business, career and leadership advancement. Additionally, Ms. 

Dorfman has done extensive background in business, including 10 

years in executive positions with General Mills and other Fortune 

500 firms. Welcome, Ms. Dorfman. 

STATEMENT OF MARGOT DORFMAN 

Ms. DORFMAN. Thank you. Chairman Graves, Ranking Member 

Vela ́zquez and members of the House Small Business Committee, 

I am here today on behalf of the U.S. Women’s Chamber of Commerce, under 500,000 members, three-quarters of whom are American business owners and Federal contractors. 

The U.S. Women’s Chamber of Commerce strongly opposes H.R. 

1812, the Small Business Growth Act and other similar legislation. 

H.R. 1812 arbitrarily and unscientifically abandons the well-established small-business size standards methodology which is managed by the Small Business Administration, carving out a new contracting set-aside program for firms that are not small. 

The SBA already has tools to assist small-business growth. First, 

SBA size standards methodology has scientific basis, ongoing oversight, and includes the specific objective to assure competition 

among industries. The methodology employed by the SBA to provide small-business size standards is scientifically sound, well documented, and includes a mandate to foster competition. 

Through the size standards process, the SBA regularly examines 

the structural characteristics of industry as a way to regularly—as 


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a way to assess industry differences and the overall degree of competitiveness of an industry and of firms within the industry. 

Industry structure is examined by analyzing five primary factors: 

average firm size; degree of competition within an industry; startup 

costs and entry barriers; distribution of firms by size; and small 

business share in Federal contracts. SBA also considers other secondary factors as they are relevant to the industries and the interests of small businesses, including technological change, competition among industries, industry growth trends and impacts on SBA 

programs. 

At the core of the whole size standards philosophy and process 

is the intent of promoting industry competition, which is why the 

SBA includes industry competitive analysis through the measurement of concentration or market power to determine the extent to 

which a particular industry is dominated by a few large firms. This 

is also why the SBA recently increased and continues to adjust the 

employee and/or revenue size number of industry size standards, 

appropriately fine-tuning industry size standards to reflect the current competitive landscape. 

In other words, the SBA is already making sure that the definition of ‘‘small’’ for each industry encompasses the larger firms so 

as to assure a strong competitive climate. 

Additionally, the Federal Government is not meeting its statutory obligations and goals for contracting with small businesses. 

These ongoing shortfalls should be of paramount concern for Congress. Over the last 5 years alone, American small businesses have 

lost $22 billion in revenues as the Federal Government has consistently failed to achieve the statutory requirement to place 23 percent of prime contracts within small businesses. This is a horrific 

loss of opportunity for small businesses, their employees, their families, their communities and the American economy. And within the 

prime contracts that are placed with small businesses, the goals for 

emerging market businesses like women-owned small businesses, 

are missed year after year. 

Over the last 5 years, American women-owned small businesses 

have lost over $29 billion in revenues as the Federal Government 

has failed to achieve the goal of 5 percent prime contracting with 

women-owned firms. 

So what can be done to assure the growth of small businesses 

that fall within industry size standards? Congress can take action 

in a number of ways to support businesses that do qualify as small 

to assure maximum growth: 

First, take the caps off the contracting limits within the womenowned small business set-aside program. 

Increase the overall goals for contracting with American small 

businesses to a percentage that is more in alignment with our 

numbers. 

Increase small business access to capital and compel banks to 

lend. 

Continue to fight to eradicate bundles, big business sole-source 

contracts and fraud. 

And stop inappropriate in-sourcing. This practice is destroying 

opportunities for thousands of American small businesses. And finally, remove the goaling exclusions that limit the ‘‘small business 


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eligible’’ dollars and drive down our opportunities for growth. And 

I have a list of these at the end of my testimony. 

Thank you for the opportunity to share our views. We strongly 

encourage Congress not to step outside the well-established small 

business size standards. Instead we ask you to focus on assuring 

that businesses that are small secure access to larger contracts so 

that we might continue to grow and prosper and drive economic 

growth for the American economy. Thank you. 

[The statement of Ms. Dorfman follows on page 70.] 

Chairman GRAVES. Thank you to all of our witnesses. We are 

going to start questions with Mr. West. 

Mr. WEST. Thank you, Mr. Chairman and Ranking Member 

Vela ́zquez. And, Mr. Frisbey, go Big Orange. It is football season. 

We have got to beat these Gators this weekend. 

As I sit here and listen to the testimony, in my simple Southern 

way, it seems like we are talking about hell, purgatory and heaven. 

Small business owners operate, it seems, in a hell. And we have 

got to make sure that we prop them up and we protect them and 

enable them to be successful. Because as you say, they are an economic engine. 

But yet I would think that we have some of these small businesses that do want to graduate maybe out of hell and get to purgatory; but yet in purgatory they find themselves, you know, kind 

of left out to hang. And I don’t want to see us create this gap where 

all of a sudden these businesses that have grown become mid-size 

businesses and then they fall off the map and then that creates a 

new problem. And, of course, heaven represents the big guys. 

So I guess, as my question is to the panel, what do we do to 

make sure that we continue to protect—we have got to get to those 

right levels, the 23 percent contracts for small businesses as you 

talked about for women-owned businesses. 

But what do we do to also make sure that we incentivize growth 

for small businesses to get out of hell, to get into purgatory, and 

they can stay there and at least we can have that vibrant—if we 

wanted to talk about a middle class—but a middle operating range 

for businesses here in America. 

So my question is: What do we do to make sure we are 

incentivizing coming out of that small business to get into the medium-range business, but then not taking away from those small 

businesses? 

Mr. FRISBEY. Could I respond to that? 

Mr. WEST. Any way we want. Of course, you are a Tennessee 

Vol, so you get to go first. 

Mr. FRISBEY. I think that if you look at what we talked about 

before, you have got 23 percent for small business and the balance 

for large business. To create a medium-size category, to me in my 

mind, makes perfect sense. But it needs to be a separate category. 

It does not need to come out of the 23 percent, that small business 

set-aside. If we were hitting 23 percent regularly and had done it 

for a number of years, you wouldn’t hear from me because I would 

say that is—we are accomplishing our objective. But when you 

haven’t hit the 23 percent, to turn around and take that large business category and let them compete on ours, just to make the number, makes no sense. 


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And I will put it in perspective for you. When we talked about 

1,500 people—now, I don’t know the category, but I am out of the 

textile clothing and uniform business—there are four large companies that dominate the uniform and textile and clothing business 

as primes to the Department of Defense, companies like American 

Apparel and Proffer, for example. At 1,500 people, guess what? 

They are now small. They just wiped us out. We don’t even exist 

anymore, because there is no way I can compete with them. 

Ms. SPEED. May I also respond? 

Mr. WEST. [Nonverbal response.] 

Ms. SPEED. In all due respect to my esteemed panelists here, and 

to Mr. Frisbey in particular, as Mr. Connolly described his bill, 

H.R. 1812, and as we interpret it, it doesn’t take from small business concerns. First of all, what the bill is attempting to do is to 

allow a growth path or a transition for companies who have already exceeded their NAICS codes. They are no longer considered 

small, but they are not large enough to compete on the large-scale 

business with Northrop Grumman and SAIC and others. 

So what we are looking at is—I think I am hearing from most 

of the folks here today, the goal is one issue, and that needs to be 

addressed. But how we allow businesses to grow is yet in itself another issue. And this bill is a pilot which simply is designed to protect small business by allowing small business to continue to grow 

up to 1,500 based on an employee-sized standard that currently I 

believe falls in telecommunications today. So it is not even a new 

standard. It is something that does exist. But now we are utilizing 

it in this pilot to allow more businesses to grow up to 1,500. 

They are also required under the pilot to mentor to other small 

business. Mentoring is important because it allows for that business to gain the necessary infrastructure. What we find in this 

range of mid-sized companies or larger ‘‘smalls’’ is that they have 

added benefit in terms of their accounting systems and infrastructure, and they can reach back to help other small businesses to be 

able to gain those same types of things, to strengthen their infrastructure. 

And I believe someone mentioned the business breakthrough at 

GSA. That is aimed at those businesses, by the way, that were 

small, and they accelerated so quickly, they blew through their 

NAICS Code size standards, but they still operate as a small business but not as a medium-sized business. They don’t have the infrastructure in place. 

And so the business breakthrough program is designed to aid 

those businesses with needed technical assistance and the types of 

things that they can’t get otherwise, because they no longer qualify 

as a small business. So we are really looking at a growth path. And 

I recede. 

Ms. DORFMAN. I would say the core issue is the bundling issue, 

because the contracts have been set aside for small businesses, and 

then those that are not set aside for small businesses are typically 

quite large, and a medium-sized business could never attain that. 

So I believe that we keep the small business set-asides for small 

businesses and then take care of the anti-bundling, remove the 

bundling as an issue. Then those who do graduate into a larger 


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business, but not the super-large, would have a vehicle to then 

grow their business. 

Mr. FRISBEY. Ms. Vela ́zquez also hit the nail on the head. I have 

got 40 years in the defense business. I have seen firsthand the 

fraud and the manipulation that goes on. When you have got a 

company that goes out of the small business category—there are a 

number of them and I am not going to name them here—but there 

are a number that will try to set up businesses under wives, kids, 

family members, other company names, just to try to get around 

the small business standards. 

I have seen factories where orange construction barrier tape was 

run through the middle of the factory, 200 operators on one side, 

200 on the other. When you push to find out why that is there, 

they are mentoring another small business on the other side of the 

construction barrier tape. There is not the enforcement there to 

even really aggressively go after enforcing the small business 

standards and we compete against it all the time. 

Mr. WEST. Thank you, Mr. Chairman. I yield back. 

Chairman GRAVES. Ms. Vela ́zquez. 

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

the Women’s Procurement Program, the contracts eligible for restricted competition are limited to those valued at less than 5 million for manufacturing and less than 3 million for all other contracts. The mid-tier contracting programs that have been suggested 

have no caps on the value of contracts that can be awarded 

through restricted competition methods. 

Can you think of any policy that will justify why mid-sized companies should be allowed to receive contracts of unlimited value 

through restricted competition, and the value of contracts that can 

be awarded to small businesses through these methods are constrained? 

Mr. YUKINS. The problem is even bigger than that, which is that 

the way that the pilot is set up, all contracts will be subject to full 

and open competition, which will presumably exclude the IDEQ 

and the GSA schedule contracts. All contracts that are subject to 

full and open competition would presumptively have to be considered first for this program. So you could have a huge—potentially 

billions of dollars for contracting funneled through this program. 

It would be very important for the Committee to consider ways 

to constrain, because otherwise you could have a few firms that are 

inside the mentor protege program suddenly become enormously 

wealthy. It is as though you are taking a river and channeling that 

river through a very small little stream. And the people who happen to be sitting in that stream are suddenly very, very wealthy. 

So your question is very important because the way the legislation 

is set up right now, all the contracts are pushed through that little 

tiny stream, the mentor protege program. 

Ms. VELA ́ ZQUEZ. Thank you. I raised the issue with Congressman 

Connolly about the fact that large businesses have presented themselves as small businesses and are taking contracts away from 

small businesses. And this has happened, and it has been documented with an investigation conducted by the GAO and the SBA’s 

IG. So this is all happening despite the fact that there are several 


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monitoring devices in the program, such as annual audits and site 

visits. 

So my question to you is: What kind of fraud prevention tools 

would be necessary in this pilot program to ensure that the targeted mid-sized businesses are receiving the contracts instead of 

large cooperations? 

Mr. YUKINS. The logical solution would be to subject the companies in this program to size protest, a normal SBA size protest 

process. 

Ms. VELA ́ ZQUEZ. Okay. So my question to you is: Which agency 

will handle that? 

Mr. YUKINS. The size protest could be handled in the first instance by SBA. The problem is that SBA—the size standards that 

you would apply only apply to small businesses, so the size standards would have to be revised. And then when you apply the size 

standards to these mid-sized companies, the size standards are incredibly complex and it adds a layer of complexity of management 

difficulty for those mid-sized companies. 

Ms. VELA ́ ZQUEZ. Given the constraints, budget-type constraints of 

the Small Business Administration, they don’t have the resources 

and manpower to monitor and make sure that the 23 percent contracting goal is achieved. So now we are going to give this other 

responsibility. 

Mr. YUKINS. That is definitely an issue with whether or not they 

have the capacity, and also whether or not the mid-size firms have 

the capacity to deal with the very complex size standards. 

Ms. VELA ́ ZQUEZ. Okay. Thank you. 

Ms. Speed, in your testimony you mentioned that a mid-tier program will strengthen the industrial base of these businesses, create 

jobs and encourage competition. 

Has your organization done any research as to how significant 

impact of changes we can expect to see with the introduction of 

these types of programs? What hard data do you have? What type 

of research has been conducted? 

Ms. SPEED. That is a wonderful question, Ms. Vela ́zquez. I would 

say we haven’t done internal research per se, but there is anecdotal 

research based on other relationships that have been built. Again, 

these companies and MTA is comprised of are very mature companies; they have been around 10—some almost 30 years, and they 

have understood and have operated even with the constraints that 

policy has today, that it is all about building relationships. And 

along the way, what we have gleaned from that is in terms of mentoring other companies, that gives the assistance that they need, 

that lends itself to greater capacity for those smaller firms. But 

also with the medium-size firm, they are the ones who can actually 

go out and hire. When a contract is awarded, and I believe there 

have been several in the past, that are larger-sized contracts from 

the unbundling days—but now they are all bundled—there was 

work. And the bottom line is there just isn’t enough work. 

Ms. VELA ́ ZQUEZ. Ms. Speed, in a recent article in Washington 

technology, you stated that mid-sized companies were a key element to the Federal marketplace, and these companies are apt to 

hire more people than small businesses. However, research has 


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shown that small businesses have created more than two-thirds of 

new jobs in the last 15 years. 

Additionally, in a study referenced by Professor Yukin’s testimony, job losses were found to be attributable to low-impact firms 

with more than 500 employees. Thus, following your logic, 

shouldn’t we instead put renewed effort in small business contracting programs since these are the companies that are responsible for most of the job creation in this country? 

Ms. VELA ́ ZQUEZ. So one of the imperatives that we are faced with 

here in this Committee is how can we get the best bang for the 

buck, right? And the President announced his proposal and initiatives. We need to create jobs. So based on the data that we have, 

it seems to me that resources will be better and more productive 

if we target small companies that are the ones creating the jobs 

that we think we need at this moment to get the economy growing 

again. 

With that, thank you, Mr. Chairman. 

Chairman GRAVES. Mr. Rogers. 

Mr. ROGERS. Thank you, Mr. Chairman. And thank you for calling this important hearing. In listening to the witnesses—you 

know, I know there has been a lot of talk about Mr. Connolly’s bill. 

But I have got the one that goes just to the DOD. And I talked a 

little earlier about, you know, my focus has to do with missile defense. I am on the Strategic Forces Subcommittee. This is a real 

issue in the missile defense industry. 

Ms. Speed, in your comments you talked about Mr. Connolly’s 

bill. Do you see any problems with the DOD pilot study that I am 

proposing to nurture these mid-sized companies? 

Ms. SPEED. Thank you, Mr. Rogers. Actually, no. We are in support of both approaches. In fact, whether it is DOD, GSA, or possibly even DHS, the idea is to allow these companies the ability to 

continue to be able to have the necessary infrastructure and resources without being restricted. I heard earlier of the disincentivizing of companies—I believe Mr. Frisbey made the point. Some 

companies are trying to do all they can to remain small. It is all 

about work and the employees that you have. So we do support you 

and support your approach as well. 

Mr. ROGERS. Ms. Dorfman, you made reference to the fact that 

size standards are being reviewed regularly and adjusted by the 

SBA. Not in the missile defense industry. They have not changed 

the size standards or the volume of revenue that you can generate 

in decades. 

Ms. DORFMAN. Well then, if that is the case, then they obviously 

need to focus in on that. But we do need to adhere to the size 

standards. Otherwise, small businesses will be usurped by the larger businesses. 

Mr. ROGERS. Well, here is what I am trying to get at: We are not 

dealing with small businesses in my proposal. We are saying, over 

and above what is set aside for small businesses. So the concern 

that Mr. Frisbey had is not a concern in the bill that I proposed 

because we aren’t going to penetrate down into that 23 percent. 

This is over and above that, because the truth is Mr. Frisbey one 

day probably would like to be a little bit bigger business and then 


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be able to nurture that next level. So I guess I am trying to figure 

out what is your opposition about the proposal? 

Ms. DORFMAN. Our focus is making sure that we get the emphasis on the small business goals. They need to be met. And that is 

our first concern. 

Mr. ROGERS. And I agree with that. So what is your opposition 

to that? 

Ms. DORFMAN. So then the secondary nature is when we take a 

look how to move forward, I agree we do have to help small businesses get to that next level; but in doing so, we feel that we have 

to make sure that there is a sound technique that is put in place 

and that the small business size standards are included in that 

process because they have been there and they have worked. 

Mr. ROGERS. My proposal is a pilot study. That is the whole purpose of a pilot study is to find out where the bump in the road is 

and what works and what doesn’t. So why would you oppose a pilot 

study? 

Ms. DORFMAN. Again, we would like to see Congress work on 

making sure that the small business goals are being met. And I believe that the larger firms can access the contracts if they were put 

together in a way that was not in the bundling fashion, where they 

are so large that they can’t access them. 

Mr. ROGERS. So you don’t have any amendment language that 

you would like to see incorporated to make you happy? You are just 

against it is what you are saying? 

Ms. DORFMAN. At this point, yes. 

Mr. ROGERS. That is unreasonable. As I told Chairman Graves, 

I am open to any kind of amendment that calms the concerns of 

any sector. But I am not okay with just obstructionism. And that 

is what I am hearing. Mr. Frisbey seems fine, as long as his concerns are met. But it sounds like you are saying you don’t care 

what concerns are met, you are against it. And that is a reasonable 

position, I guess, in your view, but it is not reasonable to me. I am 

hoping this Committee will make any kind of changes you want to 

make. But we ought to at least look at nurturing these businesses 

up to this next level, particularly in missile defense because this 

is serious stuff. 

And right now when it comes to the big guys, Raytheon and 

Lockheed and Boeing, they don’t have competition. 

Ms. VELA ́ ZQUEZ. Would the gentleman yield? 

Mr. ROGERS. Absolutely. 

Ms. VELA ́ ZQUEZ. Thank you for yielding. My question is, do you 

have small businesses that grew and that are mid-sized? 

Mr. ROGERS. Oh, absolutely. 

Ms. VELA ́ ZQUEZ. And that you feel that they have problems with 

the size standard? 

Mr. ROGERS. Absolutely. That is the problem. They are being 

bought up once they go over 1,000 employees. 

Ms. VELA ́ ZQUEZ. So two things could happen. One is that those 

businesses that feel that the size standard needs to be changed or 

adjusted should apply to SBA to get that reviewed; but also SBA, 

as we speak, is reviewing the size standard issue. So there is nothing that will prevent those businesses in your district from requesting SBA to look at the size standard issue. 


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Mr. ROGERS. I thank the gentlelady. The fact is, that gentleman 

right there would object to that, if they wanted to raise that size 

standard so that companies that went over 1,000 employees could 

now compete for this 23 percent. And the fact is that the companies 

that I—and I don’t represent them, I wish I did, but they are in 

Huntsville, can’t get SBA to even consider those adjustments. So 

I am just trying to figure out how we can solve the problem and 

I hope you all work with me in any way, and I am amenable to 

any kind of amendments you all want to make. Thank you. 

Chairman GRAVES. Ms. Chu. 

Ms. CHU. Thank you Mr. Chair. This question is for Ms. 

Dorfman. Of course we know that the Federal Government has a 

5-percent goal for contracts to be awarded to women-owned small 

businesses. But it has taken 10 long years after the legislation authorizing the program was passed to get the women’s procurement 

program in place. Now women’s businesses are able to compete. 

But the program still has a ways to go. 

And so considering the 5-percent goal that has yet to be 

achieved, if a mid-sized program were to be implemented, how do 

you think it would affect the ability of women-owned small businesses to get contracts and meet the 5-percent goal? 

Ms. DORFMAN. It would actually be devastating for our members 

simply because it has been actually 17 years since the goal has 

been put into place. The Federal Government has never met that. 

You have to understand, women-owned firms represent one-third of 

all businesses in the United States. The goal of 5-percent can’t 

even be met. The goal really should be, if we are playing fair, 30- 

percent. So it is very important that we make sure that womenowned firms and small businesses overall have access to these contracts and the goals are achieved. 

Ms. CHU. And how many women-owned firms are mid-sized? Are 

there examples of mid-sized women-owned firms that have been 

successful in receiving Federal contracts? And where is the critical 

need for women-owned businesses right now? 

Ms. DORFMAN. At this point, what we are seeing is the critical 

need is making sure that the program is up and running, where 

they are accessing the contracts as it is. We have a number of different levels of firms, from the small to up to $30 million in revenues, that I have seen. We had done a survey last year. And what 

was interesting about the survey is that actually the larger midtier firms, when you looked at job creation, they would hire one 

person, where the smaller ones were poised to grow and they would 

commit to hire three to four people if they had the proper funding 

and the proper access to contracts. 

So I think you can see why I am really focused on making sure 

that the small businesses, as a whole, have access to the contracts 

and we meet those goals. 

Ms. CHU. You mentioned a way of assuring growth is to take 

caps off the contracting limits within the women-owned small business set-aside program. Can you expand on this? Would this include increasing the size limit of women-owned firms allowed to 

compete for the same contract and opening the field to small, mid, 

and large? And basically is there a way to improve the way that 

this program is implemented? 


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Ms. DORFMAN. Right. The caps were part of the original legislation where a women-owned firm contracting officer would set a contract aside for a women-owned firm and $3 million would be the 

largest contract you could have unless it was manufacturing, and 

then it would be $5 million. The problem with the caps is that it 

does not allow women-owned firms to grow their businesses, and 

it keeps them small. So that is why we are asking for those caps 

to be removed. 

Ms. CHU. Are there other ways to improve the implementation 

of this women procurement program? 

Ms. DORFMAN. Absolutely. One of the things that we have seen 

is that the leaders—and I would say, you know, Congress and the 

executive branch have the oversight to ensure that the agencies 

meet their goals. And it would be very helpful if the agency heads 

were held accountable for not meeting their goals of women-owned 

firms and small businesses. And I think that is paramount because 

it starts at the top. If there is not a commitment from the Secretary, it is not going to happen. 

Ms. CHU. And one question for Mr. Frisbey. In this pilot program 

created by the bill, by Mr. Connolly’s bill, small businesses will be 

excluded from participation if it was found that the rule of two is 

not satisfied. That is under this rule, where contractors have to set 

aside a contract requirement that says that if two or more small 

businesses are capable of performing the contract, then—but so 

therefore they couldn’t compete. But there are small businesses 

that are able to win contracts in full and open competition with 

larger companies. So would small businesses lose contracting opportunities under this rule? 

Mr. FRISBEY. Yes, ma’am. The rule of two is absolutely critical 

to small business contracting. It is one of the few things where we 

have a chance to—before the formal solicitation goes out, to go back 

and challenge the contracting officer and basically say, hey, wait a 

minute; here are two companies or here are three companies that 

are capable of handling this program as it is structured; and because of that, they are both small businesses or they are both 

HUBZone businesses or they are both women-owned businesses; 

and therefore this should be set-aside for it. So that rule of two is 

a critical element in giving us a chance to fight to try to get a part 

of those contracts, even though they are under the 23 percent. And 

I just want to comment, one of the reasons that they don’t get to 

the 23 percent is because there is absolutely no penalty. Okay, so 

what, I don’t get the 23 percent. I don’t get coffee this week, or 

whatever the—there is no attention. There is no focus or requirement to do that. A little bit of pressure that you guys are able to 

create, but there is no punitive action. It doesn’t go against their 

reviews. It doesn’t go against their performance. It is just one of 

those things that—it is kind of like I have got to do it. 

And that is one of the key reasons why that 23 percent doesn’t 

get met at all levels, because there is no enforcement. And that is 

why—and I appreciate it. That is why the Small Business Administration, the national Small Business Administration is so opposed 

to this bill is simply because we see it just continuing to chip away 

at the 23 percent, rather than growing the 23 percent to 30 or 35 

percent or 25 percent, as Mr. Graves suggested. It just chips away 


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at the 23 percent. We would like to see that percentage increase 

to represent more of what small businesses in this country really 

represent. 

I am not sure, did I answer your question correctly? 

Ms. CHU. Yes. I yield back. 

Mr. GRAVES. They are going to call votes pretty quickly. So I 

want to try to accommodate Mrs. Ellmers and Ms. Clarke. 

Mrs. ELLMERS. I just have a couple of quick questions. I have 

heard repeatedly that the 23 percent limit has not been hit. Where 

are we then? I mean how far away from that 23 percent are we? 

Mr. FRISBEY. We are 22.6 in total right now. That is why I 

brought up specifically the example of MOLLE because there is a 

$98 million contract that could be all small business. But for the 

contract officers, it is easier to administer one contract than—— 

Mrs. ELLMERS. Rather than—— 

Mr. FRISBEY [continuing]. Than five or four or three or anything 

else. So if I can get just one company, I have done my job. The contract is let, so be it, and move on. 

Mrs. ELLMERS. Just streamline it and try to get it through. And 

again, there is a 5 percent for women-owned contracts. How far 

away are we on that? 

Ms. DORFMAN. Well, I think at the last count, the SBA said we 

were about 4 percent. What we have to understand is that the data 

that has been out there has been flat over the years, so we don’t 

know what is accurate. We did a study a few years back, and 2 

years running, SAIC was the number one women-owned firm accessing contracts—not that they were a women-owned firm, but 

they were shown. So the number was skewed. 

And then last year also, the inspector general for the SBA came 

out and said that the error rate was about 96 percent in the data 

for the SBA. So we don’t really know what the true data is. That 

is kind of what it is. And then when you take a look at the 23 percent, again, it doesn’t include the exclusions which we calculated 

over the last 5 years as about $60 billion in lost opportunities for 

small businesses. 

Mr. FRISBEY. I would usually say they are cooking the books on 

10 percent. 

Mrs. ELLMERS. Therefore, that is one of the issues that we need 

to really be looking at then, to make sure we are getting accurate 

data based on what is out there. 

The other issue—and I know we have addressed this considerably. For those small business owners who have performed so well 

at that level and they have basically grown into that mid-level size 

and now, unfortunately, they are competing with those much larger 

entities and they just simply can’t compete, Ms. Speed, what would 

you say? What is an answer there for that? What can we be doing 

to help that situation? 

Ms. SPEED. I think we should look at both pilots that Mr. Rogers 

and Mr. Connolly both have. They both are sound legislative vehicles for looking at how we grow business. But I also want to just 

talk—just one more point about the pilot that we really didn’t get 

a chance to address, and that is, in the pilot and in the concept of 

it, the ability to grow; for the small companies, they can continue 

to bid up. That is something we did not talk about. 


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But in terms of the larger ones and the mid-sized ones who are 

emerging, they don’t bid down. So in effect if there is a contract 

award that goes out on the street, small businesses can still team 

and align themselves in all the ways that are under SBA’s guidance and rules which we, I think, are hearing today should be applied to the mid-sized as well and the emerging firms. Then what 

we should be doing is allowing companies to continue to grow and 

bid up and not have the larger ones coming down, which is what 

we are seeing from the very large integrators. 

Mrs. ELLMERS. And Mr. Yukins, you are the only one that hasn’t 

commented. What would you say to that? 

Mr. YUKINS. In terms of increasing opportunities? 

Mrs. ELLMERS. Yes. Just in making sure that those companies 

that have moved their way up and now they are unfortunately 

lumped into that much larger group and are really incapable of 

competing with that larger entity, do you see solutions there that 

we can be approaching? 

Mr. YUKINS. Yes. The Europeans have dealt with exactly this 

same question over the last few years. For internal political reasons, the Europeans can’t have a category called ‘‘small business’’ 

that they give preference to. So what they did is they did a comprehensive review of their procurement rules and they said, What 

can we do to make life easier for small- and medium-sized businesses, not necessarily creating rigid preferences, but how can we 

facilitate their involvement in this marketplace? And those efforts 

are ongoing in Europe right now. We should do the same thing 

here. It is what the Obama administration is doing with his business breakthrough program. But expand that. Do a comprehensive 

review of the rules and figure out how do we make life easier for 

small- and medium-sized businesses. 

Mrs. ELLMERS. Thank you very much. I yield back the remainder 

of my time. 

Chairman GRAVES. With the Committee’s information, I can tell 

you that the number is closer to 20 percent on small business contracts. The SBA, they get a little creative with the math to make 

the percentage look higher than it is. 

Mrs. ELLMERS. The more accurate number is about 20 percent? 

Chairman GRAVES. Yes, absolutely. Ms. Clarke. 

Ms. CLARKE. Thank you, Mr. Chairman. And thank you, Ranking 

Member Vela ́zquez. I want to thank the panelists because this has 

been a very, very good discussion. I am not quite convinced, however, that there is not a need for a graduated process. When I 

think about the businesses in my district, particularly small businesses, and as they grow and they sort of hit the glass ceiling, I 

have found that they either get bought out or they die. And for 

small businesses like the ones that you are advocating for, what do 

you see as the remedy for that? 

I mean, certainly, Mr. Frisbey, if your business now gets to the 

point where it can no longer avail itself of the procurement opportunities as stimulated under an an 8a program or any other program, what would you suggest would be the next step for yourself? 

I want you to consider that. And then I want to put it out there 

for the rest of the panelists because it has been my experience that 

there hasn’t been another rung on the ladder that enables a small 


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business to really compete out there against some of these companies that are, you know, basically preeminent in the space. 

So I would like to hear some of your solutions or some of your 

ideas around how we bridge that gap, because it is significant and 

we—I don’t think we should be blind to it, which is sort of where 

I have heard us going here. It is like small business, let’s preserve 

our domain. But small businesses grow. And you reach that point 

where that growth either takes you where you need to go or it kills 

you on the vine. Let me end my comments there. 

Mr. FRISBEY. Let me try to respond to your question, then. And 

one of the gentlemen said it earlier; yes, I would definitely like to 

grow. I must be missing something somewhere along the line because to me, it seems quite logical to have a second rung on the 

ladder called mid-tier that is above small businesses. Leave the 

percentage—increase it to 25 percent, but then set aside a second 

tier on the ladder for another 10 percent and call it medium businesses. Why can’t we do that? If that is an issue with the trade 

issues, then deal with it through the trade issues and negotiate it 

that way. It makes perfect—maybe I am missing something. But 

yes, I think there should be another rung on the ladder and I think 

that would be an appropriate way to do it. 

But my opposition is, because I have seen it happen so many 

times, the manipulation by large businesses coming down and 

chomping out another big chunk of the small business set-asides, 

and that is exactly what is going to happen if this bill goes 

through, because every one of the large businesses is going to turn 

around and mentor their wife or their cousin or their son or whatever in a small business and they are going to get the small business set-aside. 

Ms. SPEED. If I may also address your issue and your statement. 

And it is absolutely as you describe, as these businesses continue 

to grow, graduating from NAIS code they say is like falling off a 

cliff because there is no transition currently. And we believe that 

the pilot provides a venue, an opportunity. And what are the parameters again of the pilot? It allows you to gather the data. Currently there is no data on mid-sized companies, how many are out 

there. We know they are shrinking. But we can’t even track how 

many actually graduate and survive to begin with. 

We have some sense of that through the CSIS study which 

showed that there were at least 2,700 still existing. And that is a 

far short number of how many small businesses you have that you 

would hope are able to continue growing within that space. And if 

they are not growing, then there are also some disincentives, we 

believe, that are in place that are preventing that. 

And I go back again to what Mr. Frisbey contends, that a number of businesses are spinning off and trying to remain small. They 

are doing all these things. The idea is not just to keep them in a 

category or a subcategory all their lives. They should eventually become prime contractors, which is what we are trying to suggest 

today; that when you get to that glass ceiling, there should be an 

opportunity for you to break through, along with all of the training 

and technical assistance that you can get based on where you were. 

You were getting it the day before. Now you are too large, and you 


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can’t get anything and you are expected to compete against the integrators. 

So we believe the pilot allows, first of all, to test it. Let’s test and 

see what is going on with these mid-sized companies so that we can 

come back and make great sound policy decisions around the actual 

sizes that they should become. 

That is something that your Committee, I believe, Mr. Graves 

and Ms. Vela ́zquez, can quite clearly easily do and we really are 

looking forward to how this moves forward with your assistance. 

And we are here to lend our support. Several of our MTA CEO 

Roundtable members are here and sitting behind me. They have 

been passing me notes to help me on technical questions. So I really thank you. 

Ms. CLARKE. Ms. Dorfman, I know my time has run out; but, Mr. 

Chairman, I would be interested in a woman’s perspective, if you 

would indulge us? 

Chairman GRAVES. Sure. 

Ms. CLARKE. Ms. Dorfman. 

Ms. DORFMAN. Sure. I agree there is an issue for the small businesses trying to jump into the next tier. What we have been hearing today is, it is not a formulated process that is going to protect 

small businesses. It really is a pilot program that doesn’t have any 

parameters. Out of the GSA, there is no Small Business Administration involvement; there are no protections really for small businesses. 

What we see right now is if you use what we have for the Small 

Business Administration, they have parameters set that will protect small business interests, and we need to make sure that they 

are used and enforced. I think a big issue right now for those who 

are trying to make that leap is the bundling issue. And the bundling that happens is, you really have the set-asides for small businesses or you have the super-sized contract that a mid-tier cannot 

actually access. So if we can break apart those contracts and provide different sizes of contracts appropriately, I think that would 

answer all the questions, including Mr. Roberts with the DOD 

issue. 

Ms. CLARKE. Thank you very much, Mr. Chairman. I yield back. 

Chairman GRAVES. Thank you all for participating in today’s 

hearing. I appreciate the fact that we had a broad spectrum of 

opinions, obviously, represented in your testimony. It is going to 

help us better understand the challenges that are facing the smallest of our government contractors as well as those just emerging 

from the small business contracting firms. 

I ask unanimous consent that all members have 5 legislative 

days to submit statements and supporting materials for the record. 

Without objection, so ordered. 

[The information follows on page 74.] 

Chairman GRAVES. This hearing is adjourned. I thank you all for 

coming out very much. 

[Whereupon, at 2:35 p.m., the Committee was adjourned.] 


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