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68–018 PDF 2011

S. Hrg. 112–144 

SMALL BUSINESS CONTRACTS: 

HOW OVERSIGHT FAILURES AND REGULATORY 

LOOPHOLES ALLOW LARGE BUSINESSES TO GET 

AND KEEP SMALL BUSINESS CONTRACTS 

HEARING 

BEFORE THE

AD HOC SUBCOMMITTEE ON CONTRACTING 

OVERSIGHT 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

JULY 26, 2011 

Available via http://www.fdsys.gov 

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs 

( 

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(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

SCOTT P. BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

JOHN ENSIGN, Nevada 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JERRY MORAN, Kansas 

MICHAEL L. ALEXANDER, Staff Director 

NICHOLAS A. ROSSI, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

JOYCE WARD, Publications Clerk and GPO Detailee 

AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT 

CLAIRE MCCASKILL, Chairman 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

JON TESTER, Montana 

MARK BEGICH, Alaska 

ROB PORTMAN, Ohio 

SUSAN M. COLLINS, Maine 

JOHN MCCAIN, Arizona 

JERRY MORAN, Kansas 

MARGARET DAUM, Staff Director 

BRIAN CALLANAN, Minority Staff Director 

KELSEY STROUD, Chief Clerk 

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(III) 

C O N T E N T S 

Opening statements: Page 

Senator McCaskill ............................................................................................ 1 

Senator Portman .............................................................................................. 3 

Senator Tester .................................................................................................. 5 

WITNESSES 

TUESDAY, JULY 26, 2011 

Joseph G. Jordan, Associate Administrator, Office of Government Contracting 

and Business Development, U.S. Small Business Administration .................. 6 

Mauricio P. Vera, Chair, Interagency Council of Federal Office of Small 

and Disadvantaged Business Utilization Directors, and Director, Office of 

Small and Disadvantaged Business Utilization, U.S. Agency for International Development .......................................................................................... 8 

Mindy Connolly, Ph.D., Chief Acquisition Officer, U.S. General Services Administration .......................................................................................................... 10 

ALPHABETICAL LIST OF WITNESSES

Connolly, Mindy, Ph.D.: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 43 

Jordan, Joseph G.: 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 31 

Vera, Mauricio P.: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 39 

APPENDIX 

Scorecard referenced by Ms. Connolly ................................................................... 49 

Questions and Responses for the Record from: 

Mr. Jordan ........................................................................................................ 51 

Mr. Vera ............................................................................................................ 61 

Ms. Connolly ..................................................................................................... 62 

Statement from Congressman Bennie G. Thompson for the Record ................... 69 

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(1) 

SMALL BUSINESS CONTRACTS: HOW 

OVERSIGHT FAILURES AND REGULATORY 

LOOPHOLES ALLOW LARGE BUSINESSES TO 

GET AND KEEP SMALL BUSINESS CONTRACTS 

TUESDAY, JULY 26, 2011 

U.S. SENATE,

AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:06 a.m., in 

room SD–342, Dirksen Senate Office Building, Hon. Claire 

McCaskill, Chairman of the Subcommittee, presiding. 

Present: Senators McCaskill, Tester, and Portman. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. The hearing will now come to order. I know 

that Senator Portman will be here, and I know he would want us 

to go ahead and begin, and we will defer to him as soon as he arrives. Let me begin with my opening statement. 

This week Washington is focused on the debt ceiling and the 

looming possibility that our country will default on our obligations. 

This is a time for all of us here to take a hard look at the way the 

government is doing business. 

Today’s hearing is about restoring honesty, transparency, and accountability to one particular part of the government’s books: The 

way that the government awards and tracks small business contracts. 

Several decades ago, Congress passed legislation establishing annual goals for small business contracting. The goal is now set at 

23 percent. Last year, the government announced that it had 

reached 22.7 percent. 

This is a laudable achievement. Unfortunately, as today’s hearing will show, it is also an empty achievement. Many of the contracts that the government counts when it tallies the awards it 

says have gone to small businesses are, in fact, performed by large 

businesses. Today, we are going to examine how it is that a system 

that should be helping small businesses is, in fact, doing little more 

than helping the government play a numbers game. 

This is not the Subcommittee’s first hearing on problems with 

small business programs. Two years ago, the Subcommittee held a 

hearing on the multiple preferences for Alaska Native Corporations 

(ANCs) in the Small Business Administration’s (SBA’s) 8(a) proH605-41331-79W7 with DISTILLER

2 

gram for small and disadvantaged businesses. At that hearing we 

examined how special preferences in the 8(a) program allowed 

Alaska Native corporations—many of which are very large businesses indeed, with revenues far in excess of $100 million per year 

and multiple subsidiaries—to be considered ‘‘small’’ businesses by 

the Federal Government. 

Today we are going to look at some of the other ways that the 

government’s small business rules benefit large corporations. Since 

2005, the SBA Inspector General (IG) has included in their list of 

the agency’s top management challenges the fact that many contract awards recorded as going to small businesses are actually 

performed by large businesses. 

In many cases this happens because the current regulations 

allow contracts to be counted this way. In preparation for this 

hearing, we looked closely at the ways that the size standards for 

small businesses allow the government and contractors to game the 

system to their advantage. The SBA sets size standards for businesses for each of the more than 1,200 industries defined under the 

North American Industrial Classification System (NAICS), a business classification system maintained and used by the U.S. Census 

Bureau for statistical purposes. 

When the Federal Government awards a contract, the contracting officer (CO) determines the North America Industrial Classification System code to describe the product or service being 

bought. NAICS is the acronym for this code, the classification system. The size standard for the NAICS code defines the size of business that can be counted as small for the contract based on either 

a business’ revenue or the number of employees it has. 

Yet even though the contracting officer should have the ability 

to choose a NAICS code that best fits the contract, SBA has created 

a special exception that swallows the whole rule. Even if you do not 

make anything and you are just buying products from a large business for resale to the government, with a markup, you get to be 

considered a manufacturer. This allows a bigger size standard to 

be used, which means that a business that might be too large to 

qualify as small can get the contract, and the government can 

count the dollars toward meeting their small business goals. 

For example, one contractor, immixTechnology, resells commercially available information technology hardware and in 2009 had 

approximately $400 million in revenue and 150 employees. In 2010 

immixTechnology received more than $18 million in new small 

business contracts for resale and wholesale contracts. SBA generally limits wholesale companies to a maximum size standard of 

100 employees and retail companies to a maximum revenue of approximately $7 million to $30 million, depending on the industry, 

both standards that immixTechnology far surpassed. But SBA has 

also created an exception which requires the government to use the 

classification for a manufacturing company for contracts like this 

one, which sets the size standard at 500 employees. All of a sudden, a big company like immixTechnology, for all intents and purposes, is called ‘‘small’’ for the government’s books. 

In meetings in preparation for this hearing, the Subcommittee 

learned that the NAICS system was not designed for use as a government contracting tool. That disconnect may be at the root of 

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some of the abuses that we now see in small business contracts. 

I am going to be asking our witnesses today whether there is a 

more rational way of determining size. 

I will also be asking questions today about all the complicated 

ways that small businesses certify that they are small and what 

happens when they grow large or get bought and are not small 

anymore by anyone’s standards. 

My biggest concern here is that the system doesn’t seem to make 

sense. Small businesses are one of the most important parts of the 

U.S. economy, and government contracts can be an important economic opportunity for small businesses and an effective way that 

the government can use its spending power to help small businesses succeed. We need to make sure that the system provides 

them the opportunities that they need to be successful. We do not 

need to be spending taxpayer dollars to prop up a system that allows the government to take credit and large businesses to profit 

at the expense of the small businesses that the system is meant to 

help. 

I thank the witnesses for being here today, and I look forward 

to their testimony. Senator Portman. 

OPENING STATEMENT OF SENATOR PORTMAN 

Senator PORTMAN. Thank you, Madam Chairman. I appreciate 

your holding this hearing. And as you just said, this is an issue 

that this Subcommittee has looked at before, so I appreciate your 

continued focus on it, and I am glad to be joining you today to take 

it to the next step. I think it is critical that this good work you 

have already started continues. 

This hearing on small business comes at a difficult time, doesn’t 

it? We are looking at high unemployment, over 9 percent nationally, and when you really look at the numbers of people who are 

not looking for work anymore or are underemployed, it is closer to 

16 percent in Ohio. Those are about our numbers. We are looking 

at not just relatively high unemployment but also people being unemployed for a long time. This is a record number of folks being 

unemployed for 6 months or more. So we have a lot of challenges 

in front of us, and small businesses are being looked to pull us out 

of what is a very disappointing recovery. 

And that has always been true. When you look back in history, 

whether it is the Great Depression or recessions we have been in 

before, it is small businesses that tend to hire first and tend to 

bring us out, and we are not seeing that in the way that we should. 

I think there are a lot of reasons for it. We are not creating the 

conditions for small businesses to be able to grow and prosper. 

There is a lot of uncertainty out there. I think we are talking about 

that on the floor of the Senate and the House this week. Part of 

that uncertainty is where we are going with the budget deficit and 

the taxes and regulations and so on. 

The Small Business Administration, of course, is supposed to be 

helping to create more economic activity among the risk takers and 

innovators and small businesses, so this is an appropriate focus for 

us today. 

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I am told that over two-thirds of the new net jobs over the past 

15 years have been created by small businesses, by the way. Those 

are SBA numbers. 

I grew up in a small business, as did a lot of Americans. My dad 

started a small business when he was 40 years old. He left a job 

as a salesman, and he risked it all. He lost money the first few 

years, but it finally caught on, and he went on to be a successful 

small business person, as is my brother, who still works at the 

company. And if we do not get these small business entrepreneurs 

and innovators back in the game again, creating jobs and opportunities, we are not going to be able to get out of either the economic 

issues we are in or also to be able to deal with our fiscal challenges 

because we need more growth. 

So this, again, is an appropriate hearing at a time when we need 

to be focused on how do we get these businesses going. 

By the way, U.S. Bank recently did a survey of small businesses 

nationwide, and they reported that 75 percent of small businesses 

have no plans to expand in the next 12 months. So we need to do 

everything we can to try to help them expand. 

One of the things that can be done is to ensure that any Federal 

program that is designed to promote economic development and 

promote small businesses is working, and working efficiently and 

effectively and has measurable results to help get us back on track. 

The contracting set-aside programs that the Chair talked about 

a moment ago created by the Small Business Act are among the 

tools we can use to help small businesses. These programs open the 

doors to procurement opportunities, and we are going to hear a lot 

about that from the witnesses today, some of whom have been 

doing this for a long time and can tell us whether it is working or 

not. The Chair just talked about some of the definitional problems. 

What is a small business? How often do they have to report? Is 

once every 5 years adequate? What happens when a small business 

becomes a big business? Should they still get the same set-aside? 

And, by the way, this is no small line item. In Fiscal Year 2010 

the SBA reported that Federal agencies awarded nearly $98 billion 

of all prime contracts to small businesses. That is just shy of that 

23 percent yearly target that is established by law, and we have 

to be sure that target is met and that it is done, again, in a way 

that truly helps small businesses. Oversight is important here, and, 

again, that is what this hearing is about. 

One of the perennial challenges has been the problem of unqualified large businesses profiting from these small business contracts. 

The SBA Inspector General has identified this issue as a top management priority every year since 2005, and it is appropriately, 

again, a focus of the hearing today. 

More broadly, we have seen that the enticement of limited competition has led to fraud and misrepresentation across several 

small business contracting programs. For example, the Government 

Accountability Office (GAO), reported last year that it identified 14 

firms that received set-side or sole-source 8(a) contracts worth $325 

million through fraud, and, again, this is an appropriate focus of 

this Subcommittee. These 14 firms then received another $1.2 billion in other Federal obligations since entering the 8(a) program, 

including $17 million in awards through the 2009 stimulus bill. 

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5 

So fraud and oversight failures like these are unacceptable. We 

need to focus on them and figure out how to stop them. They not 

only short-change the taxpayers but, of course, those businesses 

that should be benefiting are injured. 

I look forward to hearing from our good panel here today, 

Madam Chairman, and, again, thank you for holding this hearing. 

I look forward to a good conversation about the management and 

oversight challenges in these small business contracting programs. 

Senator MCCASKILL. Thank you, Senator Portman. 

Senator Tester, thanks for joining us this morning. Would you 

like to make an opening statement? 

OPENING STATEMENT OF SENATOR TESTER 

Senator TESTER. I would. Thank you, Madam Chairman, for having this hearing, and I want to thank the witnesses for being here 

today. We all understand how important it is creating jobs. We also 

understand that there is no more proven job creator than small 

businesses. Montana is no exception where the vast, vast majority 

of our businesses are small. 

Right now many of these businesses are struggling. The uncertainty of a debt ceiling is probably part of the reason. We need to 

do a better job of coming together here with reasonable solutions, 

but these small businesses are not looking for a bailout or a handout. They are looking for a level playing field so that they can compete, and one thing that we can do here is make sure that level 

playing field is, in fact, level. And we should not allow the large 

businesses to come in and elbow out the small ones to get those 

contracts that are set aside for the small businesses. 

This, quite frankly, from my perspective is going to be something 

that saves the government money, and I think that the Chairman 

talked about approaching the 23 percent, but, in fact, that is not 

what has occurred at all. So we need to do a better job making sure 

that the small business carveout actually does go to small businesses, and I am eager to hear from the witnesses how we can improve that process, how we can make it better, how we can eliminate the loopholes, the waste, the fraud, the abuse so that businesses truly do get a fair shake. And so I want to thank you for 

that, Madam Chairman. 

On a side note, I would say it is good to see that you still have 

John LaBombard working on your staff. It is good to see that he 

still has gainful employment. 

Senator MCCASKILL. He has lasted a couple of weeks. It is great. 

This is an inside joke. I stole this staff member from Senator 

Tester, so he is cranky about it. [Laughter.] 

Senator TESTER. Actually, I gave him a great recommendation. 

Senator MCCASKILL. You did. You did, in fact, and it is great to 

have him. 

Let me introduce our witnesses for today. Joseph Jordan was appointed as Associate Administrator of Government Contracting and 

Business Development at the United States Small Business Administration in March 2009. Prior to joining SBA, Mr. Jordan was an 

engagement manager with McKinsey & Company, a global management consulting firm. 

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1The prepared statement of Mr. Jordan appears in the appendix on page 31. 

Mauricio Vera is the Director of the U.S. Agency for International Development’s (USAID) Office of Small and Disadvantaged Business Utilization (OSDBU). Since October 2009, Mr. Vera 

has served as Chair of the Federal Office of Small and Disadvantaged Business Utilization Council. Before joining USAID, Mr. 

Vera managed the small business program at the U.S. Nuclear 

Regulatory Commission. Mr. Vera has also served as a Senior Financial Analyst at the Small Business Administration. 

Mindy Connolly was appointed to be the Chief Acquisition Officer 

(CAO) of the General Services Administration (GSA) in February 

2011. Prior to joining GSA, Ms. Connolly was a Senior Procurement 

Policy Analyst at the White House Office of Federal Procurement 

Policy (OFPP). Before joining the Federal Government, she worked 

in acquisition for Honeywell International’s Defense Division. 

It is the custom of this Subcommittee to swear in all witnesses 

that appear before us, so if you do not mind, I would ask you to 

stand. Do you swear that the testimony you will give before this 

Subcommittee will be the truth, the whole truth, and nothing but 

the truth, so help you, God? 

Mr. JORDAN. I do. 

Mr. VERA. I do. 

Ms. CONNOLLY. I do. 

Senator MCCASKILL. Thank you very much. 

We will begin our testimony this morning with Mr. Jordan. Welcome and thank you for being here. 

STATEMENT OF JOSEPH G. JORDAN,1 ASSOCIATE ADMINISTRATOR, OFFICE OF GOVERNMENT CONTRACTING AND 

BUSINESS DEVELOPMENT, U.S. SMALL BUSINESS ADMINISTRATION 

Mr. JORDAN. Thank you, Madam Chairman. Chairman 

McCaskill, Senator Portman, and Senator Tester, thank you for inviting the U.S. Small Business Administration to testify this morning. And having been at the hearing 2 years ago that you referenced, it is very nice to be back. My name is Joseph Jordan, and 

I am the Associate Administrator for the SBA’s Office of Government Contracting and Business Development. 

My office works each day to ensure that small businesses receive 

their fair share of over $400 billion in Federal contracts. We are 

always looking for ways to increase small business contracting opportunities, and I am proud to say that in the 21⁄2 years I have 

been in my position, we have made significant improvements. 

Today I would like to share with you three key initiatives that 

my office has been focused on: One, the small business procurement goaling process and scorecard; two, our three-pronged approach to combating fraud, waste, and abuse; and, three, the implementation of the Small Business Jobs Act (SBJA) of 2010. 

First I will discuss the small business procurement goaling process and scorecard. SBA oversees the Federal Government’s efforts 

to meet the statutorily mandated small business goals, including 

the goal of awarding 23 percent of prime contracting dollars to 

small businesses. 

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The first part of the goaling process is working collaboratively 

with all 24 CFO Act agencies to set small business procurement 

goals for each of them using a fact-based and data-driven approach. 

The second part of the process is to continually monitor progress 

toward these goals and to provide training and support to agencies 

wherever needed. 

The last and most public phase of the goaling process is the publication of our annual scorecard. Last month we published the Fiscal Year 2010 scorecards which showed that the government 

awarded 22.7 percent of contracting dollars to small businesses, 

marking the largest 2-year increase in over a decade. While we will 

always push to do more, we are proud of the improvement we have 

made in the scorecard process and methodology. Two years ago we 

redesigned the methodology to provide a clearer, more transparent 

report of small business contracting performance and to ensure the 

scorecard would incentivized the desire outcomes. 

Additionally, although only the agency awarding a contract may 

enter or modify its data, SBA has developed a robust data quality 

review process to identify any potential anomalies. We work closely 

with agencies to resolve these anomalies after they have certified 

their data to the Office of Management and Budget’s (OMB’s) Office of Federal Procurement Policy and GSA and before we publish 

the scorecard. 

It is also important to note that there are many legitimate reasons for a small business contract to look like it was awarded to 

a business that is other than small such as: If a business grows out 

of being small during a multi-year contract, regulations consider 

the recipient to be small for up to 5 years or the length of that contract, whichever is shorter. 

Second, many firms operate in multiple industries and may meet 

the size standard to be considered small for some of them and not 

for others. We work closely with the Office of Federal Procurement 

Policy, the Defense Acquisition University, and the Federal Acquisition Institute to ensure contracting officers have appropriate 

training on how to classify and report these contracts. 

I would now like to share our approach to combating fraud, 

waste, and abuse in our contracting programs. We have no tolerance for fraud, waste, or abuse in these programs and have, therefore, implemented a comprehensive, three-pronged strategy to identify, prevent, and pursue fraud across all government contracting 

programs. 

The first prong of our strategy is designed to ensure that there 

are effective certification processes on the front end and make sure 

only qualified eligible firms participate in these programs. 

The second prong is conducting continued surveillance and monitoring on these firms once they are in our programs. 

The last prong of the strategy is taking robust and timely enforcement on any non-compliant or fraudulent firms. 

We have made significant improvements in all three phases and 

maintain our focus on ensuring benefits of small business contracting programs only flow to the intended recipients. 

Last, I would like to share our efforts to implement the Small 

Business Jobs Act of 2010. We thank Congress for passing this important piece of legislation which included 19 provisions related to 

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1The prepared statement of Mr. Vera appears in the appendix on page 39. 

small business contracting. We are in the process of implementing 

these provisions and are excited about the impact they will have 

not only on small businesses but also in improving the contracting 

oversight process. These three initiatives demonstrate the steps 

that SBA has taken to strengthen our goaling process, data quality 

efforts, and approach to combating fraud, waste, and abuse. These 

efforts are critical in ensuring small businesses gain access to Federal contracting opportunities. 

While we have made significant progress, we continue to look for 

ways to identify further opportunities for improvement and maximizing small businesses’ access to this important source of revenue 

so that they can grow their businesses and create jobs. 

Thank you for allowing me to share SBA’s views and initiatives 

with you today, and I will be happy to answer any questions that 

you may have. 

Senator MCCASKILL. Thank you, Mr. Jordan. Mr. Vera. 

STATEMENT OF MAURICIO P. VERA,1 CHAIR, INTERAGENCY 

COUNCIL OF FEDERAL OFFICE OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION DIRECTORS, AND DIRECTOR, 

OFFICE OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION, U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT 

Mr. VERA. Good morning. Chairman McCaskill, Senator 

Portman, Senator Tester, thank you for inviting me to testify this 

morning. My name is Mauricio Vera, and I am the Director of the 

U.S. Agency for International Development’s Office of Small and 

Disadvantaged Business Utilization. I also currently serve as the 

Chair of the Federal OSDBU Directors Interagency Council, and it 

is in that capacity, not as a representative of USAID, that I was 

invited to speak to you this morning. 

Section 15(k) of the Small Business Act requires that all Federal 

agencies with procurement powers establish an OSDBU. OSDBU 

Directors are the primary small business advocates within each 

Federal executive agency, responsible for promoting the maximum 

practicable use of all designated small business categories within 

the agency’s Federal acquisition process. OSDBU Directors are 

tasked with ensuring that their agency and its prime contractors 

comply with Federal laws, regulations, and policies related to the 

award of contracts and subcontracts to small businesses. By law, 

OSDBU Directors shall report directly to the agency head or the 

deputy. This is important because it helps to ensure that OSDBU 

Directors have direct access to their agency’s top decisionmakers in 

order to advocate effectively. 

The Federal OSDBU Directors Interagency Council is an informal organization of Federal small business program officials that 

meets monthly to discuss issues that are important to accomplishing our respective missions and share best practices for the 

utilization of small businesses. The Council is led by an Executive 

Committee that is elected annually for 1-year terms by the voting 

membership. At the end of September, I will complete my second 

year as the elected Chair of the Council. Although the Chair is 

elected by the group, he or she has no authority to speak for any 

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of the individual members of the Council. And while every Director 

formally advocates for the priorities of his or her agency, the Council does share some common goals, and these include: Ensuring 

that information is disseminated to small businesses so that they 

can be fully informed as to the Federal laws, regulations, and programs that are relevant to their pursuit of Federal prime and subcontracts; advocating Federal Government-wide compliance with 

laws, regulations, and policies designed to maximize the participation of small businesses; advocating training of the Federal procurement workforce and community in the principles and methodologies to maximize small business utilization; and, most importantly, identifying best practices, sharing ideas, and experiences 

among Federal agencies and private industry that will help leverage resources and develop solutions to more fully utilize small businesses in Federal procurement. 

Agencies are mandated to establish small business procurement 

goals and negotiate these with the SBA prior to the beginning of 

each fiscal year. 

For the past several years, as Joe alluded to, the SBA has also 

issued a Small Business Procurement Scorecard to, one, measure 

how well agencies are meeting their small business; two, provide 

accurate and transparent contracting data; and, three, report agency-specific progress. Each agency’s overall grade is comprised of 

three quantitative measures: Prime contract goal accomplishment, 

subcontracting goal accomplishment, and progress plans for meeting its goals. 

One of the measures in the progress plan section of the scorecard 

is that agencies should ‘‘demonstrate that small business data is 

accurately reported in the Federal Procurement Data System 

(FPDS).’’ The Federal Acquisition Regulation (FAR) and supplemental guidance from OMB’s Office of Federal Procurement Policy 

also require agencies to annually verify that agency data captured 

in FPDS are complete and accurate. OFPP policy letters require 

agencies to verify that agency policies, procedures, and internal 

controls include regular reviews of procurement data and that 

agencies are appropriately sampling procurement records for accuracy on key data elements. 

SBA provides each of the 24 agencies covered under the CFO Act 

an individualized anomaly report for the previous year. These 

anomalies are evaluated by the agency, and then the agencies are 

instructed to review and investigate each of them and either correct those that are in error or provide SBA with an explanation of 

why the transaction should not be corrected. 

A number of OSDBU Council member agencies are taking concrete steps to mitigate the possibility of large businesses obtaining 

contracts that are set aside for small businesses and ensuring that 

their small business data are valid. Some of the best practices at 

various agencies include: Adding responsibility and accountability 

for data accuracy as an element in contracting officers’ and other 

contracting officials’ performance plans; mandating that contracting professionals participate in training that emphasizes the 

importance of accurate reporting; conducting random sampling of 

procurement actions to determine if businesses are coded correctly 

in FPDS and correcting those that have been miscategorized; and, 

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1The prepared statement of Ms. Connolly appears in the appendix on page 43. 

2The scorecard referenced by Ms. Connolly appears in the appendix on page 49. 

last, encouraging small businesses to update their information in 

the Central Contractor Registration (CCR) or Online Representations and Certifications Application (ORCA) databases to accurately reflect size and socioeconomic business status. 

Thank you again for the opportunity to testify before your Subcommittee. Members of the Federal OSDBU Directors Interagency 

Council are committed to helping small businesses get their fair 

share and that our acquisition systems produce the good results 

that our taxpayers deserve. I welcome the opportunity to seek your 

advice and counsel on this important matter and am pleased to answer any questions you might have. 

Thank you. 

Senator MCCASKILL. Thank you, Mr. Vera. Ms. Connolly. 

STATEMENT OF MINDY CONNOLLY, PH.D.,1 CHIEF ACQUISITION OFFICER, U.S. GENERAL SERVICES ADMINISTRATION 

Ms. CONNOLLY. Good morning, Chairman McCaskill, Senator 

Portman, Senator Tester, and Members of the Subcommittee on 

Contracting Oversight. It is a pleasure to be here today to testify 

on behalf of the General Services Administration. My name is 

Mindy Connolly, and I am the Chief Acquisition Officer of GSA. 

This morning I will provide a summary of my written statement, 

which was submitted to the Subcommittee. 

GSA shares the perspective on small business contracting and related data quality concerns in the findings of the Presidential 

Interagency Taskforce on Federal Contracting Opportunities for 

Small Business. We are working together with our colleagues at 

SBA to implement the task force recommendations while making 

progress to increase small business awards and improve data quality within internal GSA operations. 

The task force identified three priority recommendations for Federal contracting: First, providing Federal contractors with stronger 

rules; second, developing a better equipped, informed, and more accountable workforce; and, third, improving outreach and making 

better use of data. 

It is critical that these improvements be examined at the intersection of policy systems, our acquisition workforce, and business 

interests and behavior. Policy drives the regulations and business 

rules around which our systems are managed. The harmonization 

of policy and systems and training is needed to ensure only small 

businesses are the beneficiaries of intended contracting policy. 

GSA recently received a grade of A from the SBA for our Fiscal 

Year 2010 small business performance.2 Every member of the GSA 

leadership team is proud of the acquisition workforce across GSA 

that led to that success. In addition to meeting our own goals, our 

Federal Acquisition Service (FAS) helps other agencies accomplish 

their mission through our multiple award schedule (MAS) contracts, governmentwide acquisition contracts, and assisted acquisitions. Across the multiple award schedule contracts, over one-third 

of the orders go to small businesses, helping other agencies to meet 

or exceed their small business goals. 

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11 

The first priority of the task force is to strengthen rules and policies in order to promote contracting opportunities for small businesses. Many steps toward strengthening the rules are set forth in 

the Small Business Jobs Act of 2010, which, among many changes, 

promotes the increased transparency in contract awards to small 

businesses. SBA has the programmatic lead to issue policy, implementing the changes mandated by the Jobs Act. The FAR Council, 

of which GSA is a signatory agency, is paying close attention or is 

involved in those discussions, and I expect we will open a FAR case 

or cases to address the revised SBA regulations. 

One regulatory issue for attention is the snapshot in time when 

a size determination is made to classify a business as ‘‘small’’ and 

thus eligible for the benefits reserved for small businesses. 

When acquisition policy changes, acquisition systems changes 

must follow. Coordinating with the Chief Acquisition Officers Council and the Acquisition Committee for Electronic Government 

(ACE), GSA is the managing partner of the Integrated Acquisition 

Environment (IAE). The IAE is a set of governmentwide systems 

used by the Federal community and by those who seek to do business with the government. To better serve stakeholders, GSA is developing a new System for Award Management (SAM), that will replace the current FPDS–NG system. Once implemented, SAM will 

provide a single user-friendly interface that will reduce burden and 

errors among contracting officers and vendors alike. Reducing user 

error and duplicative entry improves data quality. In turn, improved data quality creates more accurate reporting and fosters improved decisionmaking. 

As we move forward, the entire acquisition workforce will be critical to ensuring regulatory implementation achieves the intended 

objectives. To assist in meeting this challenge, GSA’s Federal Acquisition Institute is developing a Small Business Programs online 

continuous learning module, due to launch in September 2011. This 

module helps members of the acquisition workforce understand the 

current tools, processes, and resources available to facilitate proper 

awards to small businesses. 

As Chief Acquisition Officer, I am committed to ensuring GSA 

maintains acquisition excellence in all of our activities, including 

small business contracting and reporting. 

Chairman McCaskill, Senator Portman, Senator Tester, I am 

glad to answer any questions of the Subcommittee. Thank you. 

Senator MCCASKILL. Thank you all for being here. 

We will try to do 7-minute rounds, and we will do as many as 

we need to do to get everyone’s questions. 

Let me begin. There are many problems here, and some of it is 

just a matter of complexity, but let me get at one of the more simple issues, and that is, should a contract be counted as small for 

the life of the contract? Let me give you an example. There is a Virginia-based company called VSE Corporation which now has over 

2,800 employees and $363 million in revenue. VSE is doing quite 

well and good for VSE. I am glad they are. That is not the issue. 

VSE is no longer listed as a small business, obviously. No casual 

observer would ever claim that VSE is a small business. Nevertheless, the Defense Department awarded a contract worth up to $2.6 

billion in 2008 to VSE as a small business, and the dollars obliH605-41331-79W7 with DISTILLER

12 

gated to VSE under that contract today are still counted by the Defense Department toward its small business goals. The Department 

likes it. SBA probably likes it. But I do not see how that spurs the 

Department toward looking for small businesses in Missouri or 

other places to fill annual small business contracting goals. Today 

over $30 million—today, with this company being the size that it 

is, over $30 million in task orders under this contract are still 

counted toward small business contracting goals. 

Doesn’t keeping this contract on the record books as a small business contract skew the entire purpose behind keeping track of 

small business contracts, Mr. Jordan? 

Mr. JORDAN. I do not believe so, Madam Chairman. I think that, 

as you rightfully said, this company has recertified their status, so 

any future awards that they would receive would not be through 

small business set-asides, and those dollars would not be counted 

as small. 

I think what is behind the current regulations that say before 

your sixth year of a contract—so the length of the contract or 5 

years, whichever is shorter—the agency may continue to receive 

small business credit for those dollars is intended to encourage 

agencies in an environment where we have 30,000 contracting officers trying to execute 5 million contracts and contract actions annually to do that in an effective and efficient way and find these 

multiple award contract vehicles that they can get into the hands 

of small businesses without penalizing that contracting officer and 

that agency by then locking in all those dollars into their spend 

base but not giving them any small business credit in the numerator because they did such a good job finding these small businesses that those small businesses grew and exceeded the size 

standard. 

So I think it would be wrong if that entity went out and competed against other small businesses now and won any award, but 

at the time of their offer for that contract they were small. They 

received that contract—I do not know the individual case, but this 

does happen, as you have noted, more than just one time. They 

were right to receive that contract in being a qualified small business, and then at the end of 5 years or the life of that contract, 

whichever is shorter, they can no longer be counted as small. 

Senator MCCASKILL. Well, I guess, I understand from your perspective you do not want to penalize the agency or the business 

that has grown. On the other hand, it inherently makes the number really misleading because they are—I mean, this is one example, but there are thousands of these examples where we are continuing to count toward a small business goal companies that are 

not small by anybody’s measure. 

So I guess what I am saying is by taking the position you are 

taking, you are essentially saying to the public, ‘‘By the way, we 

are saying 22.7, but do not believe it.’’ 

Mr. JORDAN. Well, on that point, I think we all strive for perfection, and we definitely want every single dollar that says it is going 

to small businesses to be going to small businesses, and we will do 

more to make sure that happens and that we hit the 23 percent, 

there is no fraud, waste, and abuse, small business contracts are 

going to small businesses. 

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13 

When you look at it on a relative basis versus everything that 

has ever happened before, not only is the greatest 2-year increase 

in 10 years, but it is also done with the cleanest data ever. So we 

are very proud of that. What we have done on the specific issue is 

try to balance—keeping a level playing field, as Senator Tester 

said, so at the time of competition for a small business set-aside 

all those businesses are only small; do incentivize contracting officers and agencies to get contracts in the hands of small businesses; 

and then, balance with things like when there is a merger or acquisition, then they do have to recertify; they do have to go back and 

they will not get small business credit for that anymore, and a lot 

of contracting officers and agencies get frustrated because they say, 

Joe, I found this great small business. I locked in a 5-year contract 

with them. I am very excited that we are going to have all these 

small business dollars in our spend. But then the next day, fill-inthe-blank household large business bought them, and now I have 

locked that 5-year spend into my denominator, but I am not going 

to get any credit for that. I am going to, in fact, get penalized for 

it when you come out with the scorecard and show in a transparent 

way how we have done. 

So we try to balance both sides of that to keep the behaviors we 

want incentivized but also, make sure that we feel we are confident 

that the small business contracting numbers we report are accurate. 

Senator MCCASKILL. Yes, well, they are not. 

Let me quickly go through this other question, and I may go over 

a little bit of the 7 because there is just a minute 31 left. But there 

are NAICS codes for manufacturing, and then there are NAICS 

codes for retail trade. And there are codes for wholesale trade, and 

there are codes for service. Yet SBA directs contracting officials to 

not use the codes for retail and wholesale and requires them to use 

manufacturing, which has much higher size standards. 

For example, if you are in the resale business, if you do not make 

anything, you just buy and resell it, your size will be determined, 

as the case with manufacturers, based on the number of people you 

employ, not on your revenue, which allows many companies to be 

counted as small that might not otherwise qualify. 

We looked at a number of examples and found some disturbing 

ones. For example, one business was awarded a contract for ‘‘other 

computer peripheral equipment manufacturing,’’ which lets businesses count up to 1,000 employees before it is no longer considered 

small, even though the business was not manufacturing a single 

thing. That business had a $3 million contract to sell toner to the 

government. So all it was done was performing a middleman function selling toner, printer toner, to the government, and they were 

counted as manufacturing under the much higher standard. 

How can you justify that? 

Mr. JORDAN. So procurements are classified based on what you 

buy, not who provides them. So wholesale and retail NAICS codes, 

North American Industrial Classification System codes, do not 

apply to government procurements. So for a supply contract—— 

Senator MCCASKILL. Well, why not? 

Mr. JORDAN. Because, again, the procurements are classified 

based on what is being purchased. 

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14 

Senator MCCASKILL. Why? If they are performing a retail function, why don’t you use the code for retail? Because that is what 

these guys are doing. They are not making anything. 

Mr. JORDAN. The theory is that we are trying to get, again, small 

businesses on a level playing field to be able to compete while not 

just having them either inappropriately participate or act as a 

pass-through. So that is why we ask an agency for supply contracts 

to assign the NAICS code. To be eligible for a set-aside, the firm 

must manufacture the product of a small business. But you are 

right. The non-manufacturer size standard is 500 employees. 

So it is an issue that we look at quite a bit. When do we grant 

non-manufacturer waivers? How do we make sure that we have 

small businesses in the process wherever they can compete and 

provide the government the best value? But it is definitely an issue 

that we continue to look at. 

Senator MCCASKILL. Well, it does not make any sense. I mean, 

these guys are just selling toner. They are just a pass-through. 

Why in the world would you use the standard for manufacturing 

that is much, much higher? There is no reason to do that unless 

you are trying to pigeonhole people into a small business category 

that really are not a small business category. It seems to me that 

it is as plain as the nose on your face that this does not work. 

My time is up, and I want to turn it over to Senator Portman, 

but I need a better answer than this is just the way we do it, because all this does is, once again, skew the numbers in a way that 

in the long run harms small businesses, because everybody gets 

complacent and fat and happy that we are making our 23-percent 

goal when in reality we have a monster-size company that is just 

selling toner that is beating out a whole lot of small businesses 

that might be able to sell that toner for the same price. Senator 

Portman. 

Senator PORTMAN. Thank you, Madam Chairman. 

Let me followup a little bit on the large business issue. You 

talked, Mr. Jordan, about the 5-year certification, which is current 

law. A simple question. Do you think there ought to be a recertification as a small business more frequently than the 5-year period? 

Mr. JORDAN. Well, yes. As the Small Business Jobs Act has instructed us to do and we are now in the process—actually those 

regulations are over at OMB, so we are really getting them through 

the process pretty quickly on a relative basis. That dictates that in 

the Online Representations and Certifications Application, ORCA. 

This is the place that contracting officers go look and say, ‘‘Is this 

business small or not?’’ Small businesses must recertify now on an 

annual basis. 

Now, for the Chairman’s question, that does not affect that issue 

of if they were small at the time of offer and won that award that 

the rule is still 5 years or the length of the contract, whichever is 

shorter. But it will make sure that on an annual basis they are updating—on a minimum of an annual basis. If they exceed their size 

standard, they should do it like that. If they are bought, they 

should do it like that. But on a minimum of an annual basis, they 

are going into ORCA and updating their certification of size. 

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15 

It also instructs us to review all of the size standards, which 

touches all of these issues within a 5-year period, and we are undergoing that right now. 

Senator PORTMAN. I am not sure I understand why it doesn’t address the Chairman’s question. It doesn’t address it because those 

are contracts that have already been entered into and they would 

not be affected? 

Mr. JORDAN. Because the annual recertification of size will ensure that when there is a small business set-aside when a contract 

is being awarded, that those businesses that say they are small 

are. If it a typical base-plus-4 option, 5-year contract, that will still 

allow that agency to get small business credit for having awarded 

that contract to a small business for the life of that contract or 5 

years, whichever is shorter. But that entity will not be able to compete once it is other than small for any small business set-aside 

contracts. 

Senator PORTMAN. How about in terms of your goal? Because 

part of the Chairman’s question was are these goals as reported 

really accurate. In other words, does this annual recertification affect the goals? Is this something that is reported through your 

measurement of the percentage of small businesses? I think the answer is no. 

Mr. JORDAN. It will affect it by ensuring that there is no fraud, 

waste, or abuse in the system. That is what we are pushing on. It 

will affect it from that way, but not to the Chair’s question, like 

you said, not for those types of contracts. 

Senator PORTMAN. It does not change your reporting of the small 

business goals? Shouldn’t it? 

Mr. JORDAN. I think it is a fair discussion to have, but, again, 

the law talks about maximum practicable opportunity, and what I 

have done is, yes, look at what is the optimum way to run these 

things going forward, but also we need some relative comparisons. 

So looking backward, we are already measured against a tougher 

stick. Up until 2006, 2007, if you got that multi-year contract in 

the hands of a small business who was then bought by a large business, that contract would still count. Now that is no longer true. 

We have also taken significant proactive steps to clean the data so 

the anomaly reports that we generate for all the agencies took $3 

billion out of—— 

Senator PORTMAN. I assume you support—— 

Mr. JORDAN [continuing]. So I think the numbers are pretty 

good. Sorry, sir? 

Senator PORTMAN. I assume you support all those things. The objective here is to be sure that you are meeting whatever your criteria area and—— 

Mr. JORDAN. Yes, meet and exceed every single goal is what we 

would like to do, absolutely. 

Senator PORTMAN. Yes. But you almost sound like you are complaining about the fact that now you have better data. So, anyway, 

I think if there is a recertification process, you ought to be looking 

at it in terms of whether you are meeting your goals; otherwise, 

there is not credibility to the 23 percent. Complexity is one thing 

that is often cited as a reason. We have these set-asides for small 

businesses, that they do not have the ability to deal with the comH605-41331-79W7 with DISTILLER

16 

plexity of contracting that large businesses do. And I think that is 

sensible. What concerns me is the fact that I am hearing from a 

lot of small businesses that it is incredibly complex to go through 

the process of certifying as a small business. And I do not know, 

Ms. Connolly or Mr. Vera might want to jump in here, too, but do 

you believe there are opportunities to simplify and streamline the 

process for eligibility? Right now folks tell me navigating the setaside program is a whole other level of complexity, requiring, for 

example, identifying the appropriate industry code from a list of 

over 1,000 codes in the NAICS classification system, and other 

complexities. Is there a way to simplify and streamline it so that 

we are actually helping small businesses who, after all, are being 

given this opportunity in part because of the concerns about complexity? Thoughts? 

Mr. JORDAN. I would just say quickly, absolutely, and that is 

something we are using technology to push on. It is something we 

heard a lot—— 

Senator PORTMAN. Absolutely we should be doing even more? 

Mr. JORDAN. Yes, trying to streamline application processes, help 

automate some of those checks. All these types of things we are 

really pushing to do and are in the process collaboratively of doing. 

Mr. VERA. If I may, Senator Portman? 

Senator PORTMAN. Sure. 

Mr. VERA. I would just add I agree wholeheartedly with my colleague Joe Jordan in some of the things that the SBA is doing in 

trying to streamline the processes, and certainly having been in 

this business for quite some time, I think it is a lot better than it 

used to be, and the use of technology has improved things tremendously. I think the agencies, we all try to do as much as we can 

with our limited resources, but certainly I personally think the 

SBA is doing a very good job in terms of educating—they did a 

tour—once the Jobs Act came out, they did a tour, a national tour 

to try to educate small businesses on some of the provisions of the 

Jobs Act, and I think it is better. It is complex. I agree that it is 

complex. But I think they try. On a daily basis they do a good job 

of trying to simplify things for the small businesses. 

Senator PORTMAN. Going to the duplication issue for a second, 

GAO, recently completed an examination of 80 economic development programs of four different agencies, including SBA and Department of Commerce. GSA was not one. But it assessed the potential overlap and duplication in these programs, and 19 of these 

80 were at SBA. I think this GAO report needs to be responded to 

because it talks about how to create savings, how to economize, and 

in this fiscal climate we are all looking for ways to save money. 

Can you provide the Subcommittee with any update on the SBA’s 

efforts here to identify opportunities for consolidation of overlapping programs or cost-saving collaboration that comes out of this 

GAO report? 

Mr. JORDAN. I can get back to you. I know that there have been 

conversations. We are always striving to do everything we can effectively and efficiently as well. But I would want to give you the 

most up-to-date answer, so I will have to—— 

Senator PORTMAN. I think any estimates on potential savings, 

looking at what they have identified, is something that the SubH605-41331-79W7 with DISTILLER

17 

committee would be very interested in. Will you get back to us on 

that? 

Mr. JORDAN. Yes, sir. 

Senator PORTMAN. One final one. My time is expiring here, but 

this goes to the competition issue. Under the Small Business Act, 

a set-aside is permitted if the contracting officer determines there 

is a reasonable expectation that at least two responsible small businesses will submit bids and a fair market price can be secured, and 

we want to encourage competition. But the Federal Acquisition 

Regulation permits a contracting officer to proceed if only one bid 

is ultimately received, effectively making it a no-bid contract or a 

sole-source contract. 

What percentage of contracts that are competed as a small business set-aside result in a single offer or a no-bid or sole-source? 

Mr. JORDAN. I am not sure what the exact percentage is, but we 

can look it up. I can get that back to you. 

Senator PORTMAN. I think it is important for the Subcommittee 

to know and also telling us what is your process for evaluating why 

a single bid was submitted and correcting whatever market research methods you need to get more bids, because if, in fact, this 

set-aside program is becoming a sole-source program, we would like 

to know that and talk about ways to either re-solicit it or provide 

more opportunities and more competition. 

Mr. JORDAN. And to that second point, Senator, that is where we 

spend a lot of time on outreach, as Mauricio said, and going around 

the country and making sure the small businesses are aware of all 

the opportunities here, but also the training through the Defense 

Acquisition University and Federal Acquisition Institute that the 

Small Business Jobs Act empowers us to now go out and make 

mandatory will be very helpful at the contracting officer level as 

well. So getting both of those folks into the room so that—— 

Senator PORTMAN. Any sense of the percentage of non-competed 

sole-source contracts, Ms. Connolly or Mr. Vera? 

Mr. VERA. I do not have those numbers. 

Senator PORTMAN. Is it substantial? 

Mr. VERA. In my experience, I can only speak for my agency. I 

do not think there are very many where we actually only get one 

bid on a contract that is a set-aside. 

Senator PORTMAN. Ms. Connolly. 

Ms. CONNOLLY. I agree with you colleagues. I do not have the 

number available, but generally when we set aside for small business, it is because we know that there are two or more small businesses who can meet that requirement. OFPP has asked us to reduce high-risk contracting, and although the FAR actually currently States that we can consider a single bid in an environment 

of competition. If all of the vendors thought that they were submitting competitive bids, we do not currently code that as a solesource. It is presumed competition. But OFPP and especially Dan 

Gordon has made that a highlight of reducing our high-risk contracting, is that we should really evaluate. And when we receive 

only one bid, we should be re-looking at our solicitation, we should 

be looking at our requirements and really analyzing what we have 

done as a government to signal to industry that our requirements 

H605-41331-79W7 with DISTILLER

18 

were not open for all to bid on or they were not stated in such a 

way that everyone understood them. 

Senator PORTMAN. Thank you. 

Thank you, Madam Chairman. 

Senator MCCASKILL. Thank you. Senator Tester. 

Senator TESTER. Thank you, Madam Chairman. 

This is a question for Ms. Connolly. I just want to talk about the 

bidding process overall. When a project is put out for bid, is there 

a contingency available for cost overruns? And is it a basic percentage or how does that work? 

Ms. CONNOLLY. Your question covers, I guess—— 

Senator TESTER. Let us say it is a building project. 

Ms. CONNOLLY. Five to $6 million—a number of actions, but a 

building project, I think it varies across agencies. One of the fundamentals of project management is building in a management reserve into your project management process. 

Senator TESTER. OK, but let us say, just to get right down to it, 

if a person puts in a bid and there is a cost overrun, is that generally accepted if it is under a certain percentage? 

Ms. CONNOLLY. I do not believe there is any provision for that 

to be generally accepted. 

Senator TESTER. OK. So it is done with a change order or it is 

not done at all? It is prohibited? 

Ms. CONNOLLY. I guess just to—at an award, I mean, the bids 

would be submitted in a competitive environment, and so there 

would not be a cost overrun at that point. Cost overruns happen— 

hopefully not, but unfortunately too often after award. And so, I 

mean, that is a first issue for the contracting officer. The vendor 

has to support their cost increase, and depending on the terms and 

conditions of the specific contract, they will take certain actions. 

But generally they review that and look at the role of the—compare that to what was actually required by the contract versus 

what has happened by the performance of the contractor. 

Senator TESTER. I got you. Generally speaking, are cost overruns common? If it is bid at $100 million, do they usually come in at 

$100 million when they are done, or is it usually more than that? 

Ms. CONNOLLY. I do not have that—— 

Senator TESTER. If you could get back to me on that, that would 

be good. 

Ms. CONNOLLY. I would be glad to. 

INFORMATION FOR THE RECORD FROM MS. CONNOLLY

The difference between a bid amount, the award amount, and the final payment 

amount on a very large contract can vary for many reasons. Large cost type contracts often have multiple simultaneous cost drivers. Reasons that there are differences between what was awarded and the final price include: Potential cost overruns by the vendor (which must be determined allowable, allocable, and reasonable 

by the contracting officer), the government changing its requirements based on 

newly defined needs or due to fluctuations in anticipated funding over the life of 

the contract. 

Delays in a funding timeline can result in cost overruns because GSA typically 

sequences a project by pursuing site and design work in a single year and construction work in one or more future fiscal years, depending on the size of the project. 

When funding is not allocated in a given fiscal year, costs can increase due to cost 

escalation or updated requirements. Designs can also become obsolete over time, 

which could result in costly redesigns. If the time lag is significant, costs further 

increase. This can be contrasted with projects where the full cost is provided in one 

H605-41331-79W7 with DISTILLER

19 

fiscal year. For instance, through the American Recovery and Reinvestment Act of 

2009, GSA was able to pursue over 260 major new construction and modernization 

projects. With the full funding in one year, we were able to use more efficient contracting methods to deliver the projects faster and with significant savings. 

Senator TESTER. Best-value standard takes in the quality of the 

overall packages, takes in price as a part of it, but it is not the entire part of it. There was a bid granted in Montana, a large firm 

outside the State, a large firm inside the State, which is fine. The 

bid was given to the large firm outside the State. The bid was $8 

million higher on a project that was considerably less than $100 

million. And we were told that the reason that bid was given to the 

other contractor was because of best-quality standard, best-value 

standard. 

It seems to me that large national firms have an advantage over 

large local firms on Federal projects. Do you see it that way? The 

reason is because it comes back, when the bid comes back and they 

say, ‘‘Senator Tester, we were low bidder on this by $8 million. Tell 

me why we did not get the bid.’’ And I can get a hold of your agency, and you say it is because of best-value standard. And we say, 

‘‘What is best-value standard?’’ And they say, ‘‘Well, it is the price 

that we believe to be the best value, and we believe that $8 million 

higher’’—which was about 14 percent higher—‘‘is a better value.’’ 

Can you give me any insight into any of that and how it works? 

Ms. CONNOLLY. I am not familiar with that particular transaction, and I have not been—— 

Senator TESTER. And I do not want to mention names. 

Ms. CONNOLLY. Having been a front-line CO and working many 

source evaluation boards, best value is one of the most challenging 

tasks that we do. I think we have across the Federal Government, 

I think in some ways we have—it was a new tool that was provided 

to us, and I think we have gone into using it—we went from only 

having low-price, technically acceptable to best value. 

Senator TESTER. Yes. 

Ms. CONNOLLY. And my personal opinion it is probably a tool 

that we have overused and it is time to move back to the center. 

Senator TESTER. Right. I will tell you, I will be the first one to 

tell you that low bidder is sometimes low bidder for a reason. You 

do not get the best value. 

Ms. CONNOLLY. Right. 

Senator TESTER. There needs to be better clarification on what 

you are using. Now, if you are using a contractor that does a lot 

of bids with the Federal Government that we are pretty comfortable with doing and somebody wants to bid on that project and 

we say, I would love to, but this guy, I am comfortable with this 

company over here, and so we are going with this even if it is 10 

or 15 percent higher, that is a non-starter in my book, and I do not 

care if it helps a Montana company or hurts a Montana company. 

The fact is you need to look at all of it. That is all. And so I would 

ask you to go back and do just as you said, move it more to the 

middle, because I think that it is important. And thank you for 

your answer. 

Mr. Jordan, I think this goes to the Chairman’s question about 

miscoding, improper classification of large businesses, and some of 

those large businesses get small business contracts. Let me lay out 

H605-41331-79W7 with DISTILLER

20 

a scenario to you. You have a small business that got a 5-year contract and in the process it became a big business. And you said 

each year they recertify online. While they are doing that small 

business contract for that 5 years, are they still classified as a 

small business if, in fact, online they have certified that they are 

bigger than a small business? 

Mr. JORDAN. They are not classified as a small business for any 

future award. The agency continues to get small business credit for 

that contract that they received when they were small. 

Senator TESTER. That is fine. And I do not know the circumstance you talked about, Madam Chairman, with the Department of Defense contract, but it appeared to me that they were 

given a contract as a small business when actually they were a big 

business when the contract was given. Or is that incorrect? 

Senator MCCASKILL. No, I think they were legitimately a small 

business when the contract was given, but now they in a short period of time have become a very big business, and their number 

still is counted toward a small business goal. 

Senator TESTER. Yes, well, it appears to me that if we are really 

going to utilize small businesses, if we are really going to encourage them to be a part of the equation, be part of that level paying 

field that you and I both agreed to, that there would be no reason 

why you could not get more aggressive then and move them back. 

And we all want businesses to grow, but the fact is if they have 

grown because of that contract, that is a good thing. And so we 

need to look for other small businesses we can grow. 

Is there a problem with that? Is it too much of a bookkeeping 

headache or what? 

Mr. JORDAN. No, I think that the way that we perceive the level 

playing field issue is that once they have grown to be other than 

small, that they are not competing against small businesses as if 

they were a small business themselves. And that is not happening. 

Or that is not what the issue in this case would be. The question 

is: Should that agency who found a legitimate small business lock 

them in for multiple years and then became somewhat a victim of 

their own success as that small business did exactly what we hoped 

they would do—grow their business and create jobs. Should that 

agency continue to get small business credit for that contract that 

they did award to a small business that has subsequently grown, 

that is the question at hand, and clearly I think we should have 

some followup conversations with the Committee because that 

seems to be a hot topic. But that is the challenge: How do we incentive the contracting officers? 

Senator TESTER. I got you. I mean, here is the deal from my perspective, and maybe I oversimplify it, but we have tons of technology out there, a small business becomes a big business pretty 

quickly. And, by the way, the standards for small businesses are 

pretty damn big, in my book anyway. But the bottom line is I think 

you could easily do it. Then you can get more aggressive and offer 

more small business contracts. That is all. 

I want to thank you all for your testimony. I appreciate it. 

Thanks. 

Senator MCCASKILL. Thank you, Senator Tester. 

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21 

Let me make sure that I put on the record—I know the answer 

to this question, but I want it in the record. The giant ANCs that 

are huge and that are multinational corporations that do not have 

to compete and can legally front, which means you can hire an 

ANC to do anything for you and they get the no-compete status 

even if the company doing the work is a big multinational corporation—all of the money that the ANCs contract with the government, they are all counted in this small business total, too, are 

they not? 

Mr. JORDAN. I do not believe that is true, no. The ANCs who are 

in the 8(a) program, those contracts are, but not every ANC subsidiary is in that program. So I would need to confirm—— 

Senator MCCASKILL. Well, why would they not be in the program? Because they get to stay forever. They do not age out. 

Mr. JORDAN. The parent is not in 8(a) program. It is that their 

subsidiaries can be in that program. But those subsidiaries are 

held to the same 9-year term that any other participant is. It is 

just that they can put additional subsidiaries through the program. 

So sometimes those subsidiaries graduate, become other than 

small, and still compete on full and open competitions and win contracts. I do not believe those contracts are counted in the small 

business numbers. 

Senator MCCASKILL. OK. Well, if you would look at that—— 

Mr. JORDAN. Absolutely. 

Senator MCCASKILL [continuing]. Because there is no reason for 

an ANC to ever graduate. They do not have to. They can just hand 

off. They can just do tag team. It is a loophole so big that this 

building could drive through it. And so, I want to find out what 

percentage of the small business number, the 22.7 percent, is ANC 

contracts. 

Why are we using the NAICS? Why are we using that code classification? The Census Bureau people told staff in preparation for 

this hearing that it was never intended to be a contracting tool. So 

why are we using it? Isn’t it complex and clumsy and does not really—isn’t there some shoe-horning going on here? Anybody? This 

question is open to anybody. Why are we using it? 

Ms. CONNOLLY. Senator McCaskill, I know that SBA has built 

their size standards to the NAICS codes, and I will defer to my colleagues for that question. But I think it is—if it is not NAICS 

codes, it is necessary for us to have some framework to define what 

the companies are offering. We have frameworks and, unfortunately, they are often thousands of numbers that we have to— 

somewhat give us these anomalies of what companies are doing. 

And I do not know. If it were not NAICS codes, it seems that we 

would need something equally as complex or equally detailed. The 

detail gives us more granular ways to identify the work that we are 

spending taxpayer dollars on. 

Senator MCCASKILL. I get that, but, I mean, commonsense here— 

I have now gotten into the weeds on this, and, frankly, I have not 

really gotten into the weeds in this hearing because I feel for the 

people in the audience. I mean, it is painful. Let me give you just 

one formula here on how you determine small. 

Sigma equals 414IISCR where S1 is greater than S2 greater 

than S3 greater than S4, and that does not count the footnotes. 

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22 

And there is a Four-Firm concentration ratio, a Gini coefficient, the 

Herfindahl-Hirschman Index. Really? It seems to me that somehow 

under the rubric of complexity and trying to get to a granular level, 

commonsense is taking a vacation. And as we talked about before, 

we are not even using the NAICS codes because we are saying everybody, if they are selling stuff, is a manufacturer whether they 

manufacture anything. 

So it seems to me that we could just step back from this and go, 

OK, if you are retail, this is small; if you are manufacturing, this 

is small. Maybe two classifications for manufacturing. I agree that 

manufacturing widgets is different than manufacturing airplanes. 

And if you are wholesaling, there is this. And if it is professional 

services, it is this. And maybe you classify within professional services some broad categories of professional services. 

And, you could sit around a room with good acquisition personnel 

and say, OK, we are going to forget-—because, honestly, I think 

that the small businesses have to spend a lot of time and energy 

navigating this whole code situation and figuring out the formulas 

and figuring out the computation on the formulas. And I think everybody is so used to using it in your world that you do not realize 

how nuts it is and that nobody is willing to tackle it because it just 

seems overwhelming. 

Am I off the mark here? 

Mr. JORDAN. I do not think so. I think that Dr. Connolly appropriately raises the challenge, which is how do we separate—where 

do you draw the line between the various industries for which you 

are setting individual standards? The Office of Size Standards that 

sends these reports up to me—and I can assure you not being a 

Ph.D. economist that learning about the Gini coefficient and the 

Four-Firm concentration ratios and those types of things, that we 

do to set the one line—and that is the other challenge. There is one 

line. There is no small and medium businesses. You are small or 

other than small. Where below that you could be—you have special 

preference access and above which you are, out competing with everybody else. Those two things present a pretty big challenge, and 

so we go in and look at all the data to say: Where is the right place 

to draw that where we allow small businesses to grow up to that 

point and then through that point, and they will successfully be 

able to compete full and open after that, but we are not making 

it so high we are stifling entrepreneurship and new business starts 

and that sort of thing. And it is one of the most challenging things 

we do. Every one of the size standards that we are advising now 

goes out for public comment and those types of things. 

What we do try to do for simplification standpoint—and as I said 

to Senator Portman, we can do more here, and we are trying to do 

more. GSA and SBA are working together actually on some things 

there. But right now all we really need from the firm is how many 

employees do they have and what are their trailing 3 years of revenue. And then that determines what the size standards are, because they are everyone revenue or employee based. They do not 

need to go through a long, complicated multivariate regression to 

figure out if they are small or not. They just need to know what 

their employees and revenues are. 

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That being said, the more that we can do to get more small businesses into the contracting arena is a win-win, and so simplification certainly is something we want to do there and is a place we 

are pushing. 

Senator MCCASKILL. Well, and I know how much work there is 

to do. We do have real problems with the data. We have real problems with training in terms of contracting officials and challenges 

with the acquisition workforce. Taking some of the complexity off 

their plate seems to me—if you are—I mean, I think probably I 

could get some small businesses in this room that would tell you— 

that would argue with you that it is simple. But if you are trying 

to simplify for the companies, then all of these complex formulas 

and so forth, it just seems to me that we could clear that out. And 

I bet you we could save some money if we did that. 

My time is up. Senator Portman, do you have more questions? 

Senator PORTMAN. Thank you, Madam Chairman. I should probably stop here, but I do have more. 

Again, at the risk of boring the audience, as you said, with the 

technical questions, one thing I found that was interesting is that 

the SBA Inspector General in the 2010 annual report called a GSA 

multiple award schedule provision a ‘‘loophole.’’ The report said 

that in the GSA multiple award schedule contracts that contain 

multiple industrial codes creates a loophole. His quote was, ‘‘Currently a company awarded such a contract can identify itself as 

‘small’ on individual task orders, even though it does not meet the 

size criteria for the applicable task. Thus, the agencies may obtain 

small business credit for using a firm classified as small when the 

firm is not small for the specific orders under the contract.’’ 

Ms. Connolly and Mr. Jordan, can you provide the Subcommittee 

with an update on GSA’s response to that finding and any action 

GSA has taken or plans to take in response to that? 

Ms. CONNOLLY. Senator Portman, I am familiar with the SBA IG 

report, and I was not able to speak to the IG directly to understand 

any nuances of that, but I will continue to answer, but I want to 

first acknowledge that the report was directed to SBA to take internal management actions to address those regulations. But, of 

course, whenever it involves our GSA multiple award schedules, 

SBA cannot do it alone. GSA and SBA need to work together on 

that. And what I found out as part of coordination for this hearing 

is I was pleasantly surprised to find out the Federal Acquisition 

Service and SBA have been working together closely to fine-tune 

some of the instructions. 

We have a system now—and if everybody is—people can be doing 

the right thing to apply the predominant NAICS code to the schedule, which covers a broad range of usually supplies and services. 

The contracting officer can be doing the right thing to code that according to current policy and regulations, and the awarding task 

order or delivery order contracting officer can be following appropriate instructions and recognizing that NAICS code has already 

been assigned, and they cannot change that in the system. And to 

the best of my understanding, I believe that is what the SBA IG 

is calling a ‘‘loophole.’’ And I know in—it does happen, and that is 

what GSA and SBA are working on to resolve. 

Senator PORTMAN. Anything further, Mr. Jordan? 

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Mr. JORDAN. Sure. I agree with everything Mindy said, and I 

really appreciate the collaboration by GSA and the Office of Federal Procurement Policy. This ties into the discussions we are having as we implement the Small Business Jobs Act provision around 

task order set-asides for multiple award contracts and how all 

these things work together. That law asked Administrator Mills, 

OFPP Administrator Dan Gordon, and GSA Administrator Johnson 

to work together to implement these task order set-aside rules and 

how they will look going forward, and this issue that my Inspector 

General has had for a management challenge in my shop for a few 

years now is certainly something that we are working to come to 

a final resolution on and that all parties can agree to. 

Senator PORTMAN. All right. This is why I probably should have 

stopped my questioning earlier because let me just list some of the 

things we talked about today. 

This multiple award contracts issue is the latest in the complexity that is around the set-aside program. We have talked about, 

as Senator Tester said, large businesses elbowing out small businesses. And the Chair has probed that, as I have, on why are large 

businesses securing some of these contracts that should be for 

small businesses. And, frankly, in a system like this, with less competition, it encouraged gaming of the system. And there is some 

gaming of the system we have talked about. The complexity we 

have talked about that makes it very difficult for a lot of small 

businesses to even access this opportunity. And, again, what I hear 

from small businesses is: It is supposed to be an opportunity for 

us because of the complexity of Federal contracting, we are small 

businesses, we do not have the sophistication, and yet we are finding that the complexity of this program is too much for us; we are 

trying to grow our businesses and not be focused on government 

complexity. 

Duplication we have talked about, the GAO report, and we look 

forward to hearing back from you on that. And then the competition issue, which is maybe the most fundamental one, if you have, 

under the FAR, the ability to have only a sole source, does that 

make sense for the taxpayer? 

All this leads to a fundamental question that I want to get on 

the record and get your response to, with the incredible fiscal challenges that we face, with this ongoing discussion that we are having about how to be sure that everything in government is as cost 

effective as possible. And I think knowing—I think it is fair to say, 

we can stipulate that anytime you limit competition for Federal 

contracting, there is going to be a cost to the taxpayer, and whether it is this set-aside or others, if you restrict competition, it tends 

to increase the contract price. 

Again, $98 billion in prime contracts to small businesses, not 

meeting the 23-percent target but coming close, CRS tells us that 

about $56 billion of that have been awarded through some kind of 

restricted competition or sole-sourcing in 2010, and not all solesourcing but restricted rather than an open competition. 

So I guess I would ask you this question: Is it fair to say that 

the major small business contracting programs come at a premium 

to the taxpayers? Is this an unbudgeted cost that follows from the 

competition? And are you aware of any effort to try to estimate 

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what that is? Do you have any cost—what is the cost to the taxpayer of having this restricted competition? Mr. Jordan. 

Mr. JORDAN. I do not have a quantified cost, and I do not have 

a quantified benefit, but I can say unequivocally that small business contracting is a win-win. It is a win for the small businesses; 

it is a win for the government. And, it is a third win for the taxpayers as well. 

I have been doing this for 21⁄2 years, and there are certainly complexities. We have tried to streamline and will do more. There are 

rules that we did not think made sense, and we have changed 

many of those and will change more. But if there is one thing that 

I have seen and have no question about is that these small business set-aside programs are good. They are good for the economy. 

They are good for the growth of small business. This revenue is important oxygen these firms need to grow and create jobs, and I 

have no questions about that. 

Senator PORTMAN. Good answer, but has there been any evaluation? Are you aware of any evaluation of what the cost—— 

Mr. JORDAN. I am not aware of any. 

Senator PORTMAN. Ms. Connolly. 

Ms. CONNOLLY. Senator Portman, I am not familiar with the 

CRS number, but I wonder if we are having competition set aside 

for groups of small businesses, if that is being calculated into the 

number. And so that is my—— 

Senator PORTMAN. I think it is just a number saying that it is 

not an open competition. The general rule, of course, in government 

contracting is it should be open and, that is—open and full competition is what the Competition Contracting Act says, full and 

open competition. So when it is not full and open competition, it 

is more restricted. I think that is where their number comes from. 

Ms. CONNOLLY. Yes, full and open competition. We also have 

other requirements which require us to set aside—— 

Senator PORTMAN. No, I know. That is—— 

Ms. CONNOLLY [continuing]. Awards under the simplified acquisition threshold for small businesses. So I guess we have competing—— 

Senator PORTMAN. Exactly. Has anybody ever evaluated what the 

cost is of that? 

Ms. CONNOLLY. I am not aware of that type of evaluation. 

Senator PORTMAN. Do you think SBA would be able to evaluate 

those costs? 

Mr. JORDAN. I do not know. I mean, I think that the challenge 

would be you cannot just evaluate a short-term cost. You need to 

evaluate the long-term cost. Building a monopoly could in the short 

term deliver great prices that year, but then the reason that our 

laws are against that is because in the long term the power 

changes and then you do not get good price or good value. And by 

getting rid of the small businesses who may be undercut by large 

businesses—— 

Senator PORTMAN. I do not think anybody is talking about a monopoly, just—— 

Mr. JORDAN. It is restricting—— 

Senator PORTMAN [continuing]. Open and fair competition. 

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Mr. JORDAN. Well, I think where the calculation would be a factor is the fairness, because a large business may be able to eat a 

lower price now, putting those small businesses out of business. 

Then there are no small businesses to provide those goods or services, and large businesses say we are going to recoup all those 

losses, and then some, government, because you have nobody else 

to procure from. And that is what I would need to look at if a study 

like that would be done, and I think it would be pretty—well, it 

would certainly be pretty complex. I do not know if we would have 

all the data available to do it. 

Senator PORTMAN. I just think it is a question to be asked. 

Again, as I said at the outset, I think this is an important program, 

and we need to be sure small businesses who are struggling right 

now and who are going to be the way in which, in my view, we get 

out of this difficult economic situation and have the opportunities. 

But it is also a program, rife with inherent issues, and, again, I 

listed them a moment ago. I will not go back over it. But there is 

complexity involved here, and there is a restriction of competition 

to the point that there is sole-source contracting, which is certainly 

not the intention of Federal procurement laws and regulations generally where you want to have competition, because ultimately the 

taxpayer pays. Mr. Vera. 

Mr. VERA. If I may, Senator Portman, while I do not have any 

of the quantifiable data that you are seeking, I would just say that 

small businesses absolutely do benefit from the set-aside programs. 

We as advocates would argue in most cases—after doing the appropriate market research that the FAR requires, we would argue for 

a set-aside if it makes sense, and the reason being that small businesses have limited resources to market to the agencies. So if it is 

a full and open scenario, they may not want to compete against the 

huge firms in a set-side—that they have more ability to pursue the 

contracts, and that is why we advocate for that. 

Senator PORTMAN. Well, again, I think simplification and streamlining, dealing with some of these definitional problems, are really 

important to make sure small businesses want to compete even 

under the SBA program because some of the small business groups 

I talk to and small businesses themselves, again, are frustrated by 

it. I think there are probably some small business groups represented behind you here. Maybe I am not hearing the full story, 

but some of them tell me, frankly, this is not a top priority for 

them because it is complicated and costly. So we need to do a better job of making these programs work better for small businesses 

and ultimately be sure it is all working for the taxpayer. 

Thank you, Madam Chairman. 

Senator MCCASKILL. Thank you, Senator. 

I want to go back and correct the record or clarify the record as 

it relates to the question that Senator Tester asked about the business, was it small at the beginning and then grew to be so large, 

the example I used at the opening of my questioning. And let me 

point out that this brings in another issue, because VSE benefits 

from the coding. The code for this particular contract was aircraft 

manufacturing, which sets a size standard for a small business at 

1,500 employees. That is the largest possible business size under 

the SBA’s standards. 

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If the government had determined that the code for the contract 

was aircraft maintenance and repair services—which, by the way, 

that is what this contract was for—the size standard would have 

been $7 million and this company would have never qualified. Had 

the government used the appropriate code which more closely 

matches the contract description, they never would have the setaside in the first place. 

So now they have exceeded even the largest standard, but they 

started out being coded at a standard much larger than they 

should have ever been coded. And it gets back to my question before: Why is everybody a manufacturer? 

Mr. JORDAN. Well, on this issue—I do not know the specifics of 

this case, but on the issue overall I actually think that we will have 

a tremendous amount of common ground because I hate NAICS 

code shopping. I think that contracting officers need to select the 

most appropriate NAICS code for that procurement. Now, that is 

different from the wholesale/retail issue that we spoke about before, but what you are implying—and this is not the only case 

where that is raised to me—is that a contracting officer is choosing 

a NAICS code because they want the higher size standard, not because it is the most appropriate for that solicitation. That is something that my procurement center representatives that work with 

the buying activities, when they see that happen, they push back 

strongly. I have had protests and other issues come to me on that 

issue, and it is something we work on the training on the front end 

and the accountability on the back end to try to make sure does 

not happen, because I agree, it is very inappropriate to NAICS 

shop because you are looking for a certain size standard, and even 

worse, if it is because you want a certain firm or firms to be part 

of that competition. 

Senator MCCASKILL. So can you pull this thread and go back to 

the contracting officer that shopped for this code and clearly used 

the wrong code that allowed this huge contract to be part of the 

small business calculation now since 2008? And does something 

happen to that contracting officer that clearly decided they wanted 

this company to be able to qualify for the set-aside when they really should not have? What happens? 

Mr. JORDAN. With this particular case, I do not know—yes, we 

are happy to look into it, to the first part of your question. With 

how will that play out, I just do not know without all the facts of 

the case. But, in terms of an accountability piece of this, which I 

think you are also alluding to, we are now pushing to get small 

businesses achievement, small business contracting included in the 

performance plans for Senior Executive Service (SES) members in 

the contracting officer chain of command, because there are 30,000 

contracting officers doing 5 million contracts a year. They make 

mistakes. And if that is the case, that is one thing. 

Senator MCCASKILL. I do not think this is a mistake. 

Mr. JORDAN. But there are other issues as well, exactly, and we 

want to make sure that all the folks—chief acquisition officer, senior procurement executives, heads of contracting activities, all the 

way down—have skin in the game in making sure the right thing 

is done, and the right thing is getting small business contracts to 

small businesses. 

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Senator MCCASKILL. I would love to get a room of contracting officers—and maybe you can comment on this, Ms. Connolly or Mr. 

Vera. I would love to get a bunch of contracting officers in the room 

with truth serum and say, ‘‘Do you have any fear that if you 

shopped the code to be able to include a company in a small business set-aside, do you have any fear that there will be any accountability if clearly you have shopped the code and put the wrong code 

on a company?’’ What do you think? Anybody afraid of that in the 

acquisition personnel world? 

Ms. CONNOLLY. I am not afraid of that. I think by far the majority of our acquisition workforce has the highest integrity, is passionate about their work and feels that they are doing a very patriotic duty to spend the taxpayer dollars. I do acknowledge that between the systems that we have there is probably—in the whole 

continuum, there are probably contracting officers and small businesses who are overwhelmed by the complexity of the systems that 

they are required to use, and we have training for the contracting 

officers. We have some training for the vendors. There is a continuum of people who have trouble selecting the right NAICS code 

among all the other things that they are doing. If they are a small 

business, they are out delivering their products and services. 

Senator MCCASKILL. Well, don’t you think, though, it would be 

pretty easy to figure out whether somebody is manufacturing airplanes? 

Ms. CONNOLLY. Yes. 

Senator MCCASKILL. I mean, with all due respect, either you are 

building airplanes or you are not. I can see where there could be 

some coding issues that would be hard to maybe pick which one, 

but I cannot imagine one that would be much easier than figuring 

out whether somebody is building—whether they are repairing airplanes or building airplanes. I mean, those are not kissing cousins. 

Either you are putting an airplane together from scratch and selling it or you are not. 

Ms. CONNOLLY. That seems entirely clear-cut. 

Senator MCCASKILL. Yes. 

Ms. CONNOLLY. But I have to admit, as a contracting officer I 

have been in specific procurements in my career where something 

that originally—let us say it looked like we were buying a supply 

because of—as we developed the statement of work, that—and understood really what we needed as an agency, I am personally familiar with instances where that supply, because of the way we 

needed it delivered and the services that we needed to accompany 

that delivery, that became a service contract. So that is the appropriate action when you have gone from a supply to now I need 

services, I need delivery, I need sizing, I need the vendor to determine those for us or deliver those services in conjunction with the 

item. It is appropriate to change the NAICS code to a service. 

Senator MCCASKILL. Well, and I agree that there are going to be 

places where there is gray and it will be hard for the contracting 

officer and hard for the vendor, and I get that. But maybe I am 

somewhat jaundiced by my experience into looking into defense 

contracting. I think that sometimes there is a tendency in the defense world that I want what I want from who I want it from when 

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tions in a way that will allow that result. And, by the way, if we 

are talking about shooting fish in a barrel, it probably is the Department of Defense, because I think we all know that they are the 

big gorilla when it comes to contracting in the Federal Government. 

So I would certainly encourage you all to pull the thread when 

you see an instance where it appears there has been code shopping 

and make sure that the acquisition force at DOD understands that 

somebody is watching and paying attention. 

Finally, the last thing that we have not covered that I wanted 

to cover briefly was self-representation. Have you found contractors 

that have misrepresented their size status? Anybody? 

Mr. JORDAN. I can say yes. SBA handles size protests, so while 

your size status is a self-certifying thing, an interested party—be 

that another bidder, the contracting officer, whomever—can protest 

that. And last year, I think SBA handled just over 700 of these size 

protests, and I think just under 200 of them were sustained. So we 

do see that frequently, and I have a team of folks who handle those 

protests very quickly so as not to slow down the process but to 

make sure that business who said they are small in fact is. 

Senator MCCASKILL. And what happens to the people that have 

misrepresented their size status, that have actually lied about how 

big they are? 

Mr. JORDAN. We have a range of enforcement actions, and not 

just that we have them, we are actually using them. So there are 

suspensions—— 

Senator MCCASKILL. This is not like debarring, you are actually 

using it? 

Mr. JORDAN. We have suspensions and debarments, which we 

are using, and I have the statistics that show that they are going 

up and up. For the first time, for example, this year, referrals to 

SBA suspension and debarment officials from internal sources outnumber those that are referred from GAO. So we are really driving 

things through that process. 

Senator MCCASKILL. Good. 

Mr. JORDAN. In addition, the Small Business Jobs Act gave us 

another really important arrow in our quiver around presumption 

of loss, which says if you misrepresent your size or status to win 

an award, then the government can sue you civilly for the full 

value of that contract. So we will keep the building you built, we 

are going to debar you, and we are going to sue you and get our 

50 million bucks back. 

Senator MCCASKILL. Have we done that yet? 

Mr. JORDAN. We have not implemented them. They are in the 

process of being implemented, but I am very excited about, not just 

the retributive, punishing the bad actors, but disincentivize anybody from trying. 

Senator MCCASKILL. It is a sad day when I have to admit that 

excites me, too. [Laughter.] 

That just shows you how wonky this stuff gets and how important I think it is. I think that would be terrific. And I really do 

think one of the things that government does not do well is deter. 

I think we put up with sloppiness because we are overwhelmed by 

the workload, and many times when there are bad actors, we do 

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not react swiftly enough or strongly enough, and that is something 

that does deter. As an old prosecutor, there are crimes you can 

deter and there are crimes you cannot deter. You all are in an area 

where you can deter a lot of bad activity by the way you handle 

the code shopping, by the way you handle misrepresentation of 

size, by the way you handle some of the twisting and turning that 

goes on in order to try to shoehorn businesses into a small business 

category. And some of this is the pressure that we are putting on 

these agencies to do more business with small business and them 

trying to react to that. So we have to be careful that we do not 

incentivize to the point that we are forcing people to try to miscode 

in order to ‘‘make a number.’’ And I think that is the other danger 

we have here. 

Clearly, we did not do 22.7. I do not know what we did, because 

there is a bunch of money in there that is not really from small 

businesses. I would like to see that number go down if it meant it 

was more accurately reflecting the amount of business that we 

were actually doing with small businesses across this country. 

That concludes the questions I have. We will look forward to the 

answers to the questions that you all were gracious enough to indicate you would get back to us with. Thank you all. I do know this 

is hard stuff. I do know that you guys are not going to have a ticker-tape parade in terms of being heroes to the American people. 

You will forever be in a category of very important work that does 

not get enough positive attention, but there are people out here— 

and I know many of them serve on this Committee—that really appreciate the work you do. 

So thank you for being here, and I will look forward to maybe 

an answer as to why—especially I am anxious to know why we cannot change that manufacturing classification. 

Thank you, Mr. Jordan, thank you, Mr. Vera, and thank you, Ms. 

Connolly. 

[Whereupon, at 11:35 a.m., the Subcommittee was adjourned.] 

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35 

H605-41331-79W7 with DISTILLER


68018.005
36 

H605-41331-79W7 with DISTILLER


68018.006
37 

H605-41331-79W7 with DISTILLER


68018.007
38 

H605-41331-79W7 with DISTILLER


68018.008
39 

H605-41331-79W7 with DISTILLER


68018.009
40 

H605-41331-79W7 with DISTILLER


68018.010
41 

H605-41331-79W7 with DISTILLER


68018.011
42 

H605-41331-79W7 with DISTILLER


68018.012
43 

H605-41331-79W7 with DISTILLER


68018.013
44 

H605-41331-79W7 with DISTILLER


68018.014
45 

H605-41331-79W7 with DISTILLER


68018.015
46 

H605-41331-79W7 with DISTILLER


68018.016
47 

H605-41331-79W7 with DISTILLER


68018.017
48 

H605-41331-79W7 with DISTILLER


68018.018
49 

H605-41331-79W7 with DISTILLER


68018.019
50 

H605-41331-79W7 with DISTILLER


68018.020
51 

H605-41331-79W7 with DISTILLER


68018.021
52 

H605-41331-79W7 with DISTILLER


68018.022
53 

H605-41331-79W7 with DISTILLER


68018.023
54 

H605-41331-79W7 with DISTILLER


68018.024
55 

H605-41331-79W7 with DISTILLER


68018.025
56 

H605-41331-79W7 with DISTILLER


68018.026
57 

H605-41331-79W7 with DISTILLER


68018.027
58 

H605-41331-79W7 with DISTILLER


68018.028
59 

H605-41331-79W7 with DISTILLER


68018.029
60 

H605-41331-79W7 with DISTILLER


68018.030
61 

H605-41331-79W7 with DISTILLER


68018.031
62 

H605-41331-79W7 with DISTILLER


68018.032
63 

H605-41331-79W7 with DISTILLER


68018.033
64 

H605-41331-79W7 with DISTILLER


68018.034
65 

H605-41331-79W7 with DISTILLER


68018.035
66 

H605-41331-79W7 with DISTILLER


68018.036
67 

H605-41331-79W7 with DISTILLER


68018.037
68 

H605-41331-79W7 with DISTILLER


68018.038
69 

H605-41331-79W7 with DISTILLER


68018.039
70 

H605-41331-79W7 with DISTILLER


68018.040
71 

Æ 

H605-41331-79W7 with DISTILLER


68018.041