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S. HRG. 108–409

SMALL BUSINESSES CONTINUE TO LOSE FEDERAL

JOBS BY THE BUNDLE

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

MARCH 18, 2003

Printed for the Committee on Small Business and Entrepreneurship

(

(II)

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

OLYMPIA J. SNOWE, of Maine, Chair

CHRISTOPHER BOND, Missouri

CONRAD BURNS, Montana

ROBERT F. BENNETT, Utah

MICHAEL ENZI, Wyoming

PETER G. FITZGERALD, Illinois

MIKE CRAPO, Idaho

GEORGE ALLEN, Virginia

JOHN ENSIGN, Nevada

NORMAN COLEMAN, Minnesota

JOHN F. KERRY, Massachusetts

CARL LEVIN, Michigan

TOM HARKIN, Iowa

JOSEPH I. LIEBERMAN, Connecticut

MARY LANDRIEU, Louisiana

JOHN EDWARDS, North Carolina

MARIA CANTWELL, Washington

EVAN BAYH, Indiana

MARK PRYOR, Arkansas

MARK E. WARREN, Staff Director and Chief Counsel

PATRICIA R. FORBES Democratic Staff Director and Chief Counsel

(III)

CONTENTS

Page

Snowe, The Honorable Olympia J., Chair, Committee on Small Business

and Entrepreneurship and a United States Senator from Maine .................... 1

WITNESS TESTIMONY

Barreto, The Honorable Hector V., Administrator, U.S. Small Business

Administration, Washington, D.C. ...................................................................... 3

Styles, The Honorable Angela B., Administrator for Federal Procurement

Policy, Office of Management and Budget, Washington, D.C. ......................... 10

Lee, Diedre, Director, Office of Acquisition, Department of Defense,

Washington, D.C. ................................................................................................. 37

Cooper, David E., Director, Acquisition and Sourcing Management, U.S.

General Accounting Office, Washington, D.C. ................................................... 48

Adolphe, Eric, Chief Executive Officer, OPTIMUS Corporation, Silver Spring,

Maryland ............................................................................................................... 63

Murphy, Paul, President, Eagle Eye Publishers, Fairfax, Virginia .................... 67

Robinson, Michael, Defense Logistics Manager, Massachusetts Manufacturing

Extension Partnership, Amherst, Massachusetts ............................................. 76

Kuc, Carol, representing Women Impacting Public Policy, Oklahoma City,

Oklahoma .............................................................................................................. 80

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Adolphe, Eric

Prepared opening statement ............................................................................ 65

Barreto, Hector

Prepared opening statement ............................................................................ 6

Answers to Committee Questions ................................................................... 99

Cooper, David E.

Prepared opening statement ............................................................................ 49

Answers to Committee Questions ................................................................... 106

Kuc, Carol

Prepared opening statement ............................................................................ 82

Lee, Deidre

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

Answers to Committee Questions ................................................................... 109

Murphy, Paul

Prepared opening statement ............................................................................ 69

Robinson, Michael

Prepared opening statement ............................................................................ 78

Answers to Committee Questions ................................................................... 117

Styles, Angela

Prepared opening statement ............................................................................ 13

Answers to Committee Questions ................................................................... 119

(IV)

COMMENTS FOR THE RECORD

Page

Black, Ed, President and CEO, Computer & Communications Industry

Association, Washington, D.C., letter ................................................................. 131

Bond, The Honorable Christopher S., a United States Senator from Missouri,

prepared statement .............................................................................................. 124

Connolly, Nancy, President, Lasertone Corporation, Littleton, MA, letter ........ 133

Danner, Dan, Senior Vice President of Public Policy, National Federation

of Independent Business, Washington, D.C., letter .......................................... 134

Denlinger, Stephen, CEO, Latin American Management Association,

Washington D.C., letter ....................................................................................... 136

Kerry, The Honorable John F., Ranking Member, Committee on Small

Business and Entrepreneurship, and a United States Senator from Massachusetts, prepared statement .............................................................................. 127

Neese, Terry, President, Women Impacting Public Policy, Oklahoma City,

OK, letter .............................................................................................................. 137

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

Defense and Education Fund, Inc., Washington, D.C., letter .......................... 139

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SMALL BUSINESSES CONTINUE TO LOSE

FEDERAL JOBS BY THE BUNDLE

TUESDAY, MARCH 18, 2003

UNITED STATES SENATE, COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP, Washington, D.C.

The Committee met, pursuant to notice, at 9:30 a.m., in Room

428A, Russell Senate Office Building, Hon. Olympia Snowe, Chair

of the Committee, presiding.

Present: Senator Snowe.

OPENING STATEMENT OF HON. OLYMPIA SNOWE, CHAIR,

SENATE COMMITTEE ON SMALL BUSINESS, A UNITED

STATES SENATOR FROM MAINE

Chair SNOWE. The hearing will come to order. Good morning and

welcome to today’s hearing, which I have entitled ‘‘Small Businesses Continue to Lose Federal Jobs by the Bundle.’’ I especially

want to thank all of our witnesses who are here with us today—

the SBA Administrator Hector Barreto, the OFPP Administrator

Angela Styles, and DOD Defense Procurement Director Deidre Lee.

I also want to thank Mr. Cooper from GAO for being here today

and all the small business owners who have taken valuable time

away from their companies to make invaluable contributions to this

hearing, as well as the expert witnesses who I am sure will add

extremely helpful information and perspectives to assist us in more

clearly understanding the scope and nature of this problem.

We are here because despite the fact that Congress and the Administration have focused over the past several years on concrete

measures and legislation to increase small business access to federal procurement contracts, we have instead seen a disturbing

trend in the opposite direction. The bottom line is that America’s

small businesses are being eroded by the practice of so-called bundling by federal agencies when they put contracts out for bid. What

I hope to accomplish here today is to focus greater attention on the

contract bundling issue, to examine the Administration’s actions to

address contract bundling, and to identify positive, constructive

change that will ensure that the Federal Government continues to

provide contracting opportunities for our small businesses and address the obstacles that remain.

Again let us remember these goals are entirely consistent with

the recent objectives of Congress and the Administration. What appears not to be consistent, however, is how these goals fit with

what may appear to be a competing goal—the legitimate efforts to

make government cost less and operate more efficiently. Our chalVerDate 03-FEB-2003 10:57 Apr 13, 2004 Jkt 091188 PO 00000 Frm 00005 Fmt 6601 Sfmt 6601 D:\DOCS\91188.TXT SSC1 PsN: SSC1
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lenge then is to reconcile these two policy objectives. I believe it

can be done and must be done if we are to keep the engines that

drive the economy, America’s small businesses, vibrant, vital and

viable.

We have a Federal Government that awarded close to $235 billion in contracts in fiscal year 2001 to procure the products it requires to run its agencies—to support the defense of our nation, to

carry out the myriad functions with which it has been charged.

With America’s small businesses already producing up to 75 percent of our nation’s net new jobs, can there be any serious question

that we should create an environment in which small businesses

can compete fairly for government contracts and be at the forefront

of meeting the Federal Government’s day-to-day needs for goods

and services. Yet small businesses have received less than their

fair share. While the statutory government-wide goal is 23 percent

in fiscal year 2001, small businesses received a little more than 21

percent.

Why has this occurred? While in the years following procurement

reform, federal agencies that have come under increased pressure

to spend these dollars efficiently have consolidated or bundled contracts to save time and money because the truth is it’s much simpler to call a single vendor to meet multiple agency needs, rather

than contract with multiple vendors, which takes time and may

cost more money.

The result, unfortunately, has been that small businesses continue to lose federal contract jobs by the bundle as a result of contract bundling, and the impact on small business is anything but

small. For every hundred bundled contract there is a decrease of

106 contracts to small businesses. For every additional $100

awarded in bundled contracts there is a decrease of $33 in contracts to small businesses.

So with $109 billion in bundled contracts in fiscal year 2001,

small businesses lost out on $13 billion. Indeed, looking at the last

10 years, contract bundling has forced more than 50 percent of

small businesses out of the federal marketplace based on cumulative data obtained from the Federal Procurement Data Center.

I am tremendously concerned about this detrimental impact and

as I am sure my colleagues would also say, this is an issue that

truly hits home. These are not nameless, faceless entities. In fact,

I recently learned that one of my constituents has unfortunately

become an expert in this situation. Treadstone 71, a small technology company located in Scarborough, Maine, would like to provide the Federal Government with risk assessment and information

security solutions. This is a rapidly growing area of need and as

usual, small businesses are well poised to take advantage in terms

of their tradition of innovation and ability to rapidly respond to

shifting market needs.

But while Treadstone 71 has the credentials and the expertise to

satisfy certain small contracts, the Federal Government has regrettably bundled these smaller contracts into larger awards that only

Treadstone’s largest competitors have the resources to satisfy. And

to make matters worse, the company has been repeatedly shut out

of related subcontracting opportunities.

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If small businesses create the majority of new jobs in America,

and they do, and they account for half the output of the economy,

which they also do, they clearly deserve every possible fair chance

to compete for the business of the nation’s largest consumer, the

Federal Government. That is why I was so pleased when the President brought national attention to this issue last March when he

said, ‘‘Wherever possible, we are going to insist we break down

large federal contracts so that small business owners have a fair

chance at federal contracting.’’ Since then, I know the Administration has worked very hard to put together a plan that will help

small business access federal contracting opportunities.

But from my extensive review of this critical issue for small business, we can and must do more to ensure they have access to the

federal marketplace while at the same time ensuring fiscal responsibility in government. And one of the programs I will be interested

to explore further today is the Administration’s e-government initiative. This is part of the President’s management agenda to make

the government operate more efficiently and effectively by using

best practices among government procuring offices to purchase

goods and services faster and cheaper.

In the final analysis this really is an issue of striking the right

balance. Together I believe we can find the solution and find the

balance between a small business commitment and fiscal responsibility. And again I look forward to learning more about how we can

achieve that goal from our witnesses here today.

I am delighted that we have with us today the Small Business

Administrator Hector Barreto, who has been on the front lines for

small businesses, has been part of the small business community

before assuming his position as SBA Administrator and I know he

has had a long history in the corporate and small business sectors

of our economy and he is obviously a passionate advocate for the

small business community. So I am delighted that you are here

today, Administrator Barreto.

And Ms. Styles, we look forward to hearing from you, the Administrator of the Office of Federal Procurement Policy in the Office of

Management and Budget. She will be followed by Deidre Lee, director of the Office of Acquisition, the Department of Defense. And

we also will conclude this panel with Mr. David Cooper, the Director of Acquisition and Sourcing Management at the General Accounting Office. We hope these witnesses give additional insights

in terms of how we can proceed and develop final solutions that

can address some of the issues that have arisen as a result of contract bundling.

So I will proceed with the Administrator. You can all summarize

your statements and we will include the full text in the record of

the Committee.

Mr. Barreto.

STATEMENT OF HON. HECTOR V. BARRETO, ADMINISTRATOR,

U.S. SMALL BUSINESS ADMINISTRATION

Mr. BARRETO. Good morning, Chairwoman Snowe. Thank you

very much for inviting me to discuss how contract bundling is affecting the ability of small businesses to compete for federal contracts.

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As you know, this has been an area of concern and action for our

President, George W. Bush, since he took office and there is a good

reason why. When small businesses are able to compete for government contracts it can change lives, both those of the business

owner and the people that that business employs. A good example

is Dr. Adam Macias, a service-disabled veteran who is president of

a company called Asamath, incorporated in Morgantown, West Virginia. SBA’s procurement center representatives worked with him

to acquire government contracts and his company went from one

that could barely cover its electric and phone bills to one that now

does $7 million in business with federal agencies and prime contractors each year. His business went from employing 12 people to

employing over 100 people.

Unfortunately, contract bundling hinders opportunities like the

one that Dr. Macias maximized. Contract reforms implemented in

the mid–1990s, such as multiple award contracts have exacerbated

an already difficult situation for small businesses. Orders under

these contracts are not subject to review for contract bundling and

small business participation.

The consequences of bundling are serious. Bundling federal contracts puts small businesses at a disadvantage because they are

generally unable to supply all of the requirements in the bundled

contract. As you said, according to the SBA’s Office of Advocacy, for

every 100 bundled contracts 106 individual contracts are no longer

available to small firms. And for every $100 awarded on a bundled

contract, there is a $33 decrease to small businesses.

These acquisition reforms that encourage more bundling have led

to the reduction in the number of existing and potential firms

available to the government and therefore to a reduction in the

amount of contracts awarded to small firms. Data included in my

submitted testimony shows that over the course of the past decade

significantly fewer small businesses are receiving Federal Government contracts. We believe that contract reforms are a significant

part of the reason, because agencies are using these various types

of multiple award contracts which reduce new contract opportunities for small businesses.

When small businesses are excluded from federal opportunities,

our country suffers. Small business participation is necessary for

innovation and cost-savings, not to mention the benefits to our

economy when small businesses are able to grow and create more

jobs. All of this is why President Bush’s small business agenda,

which he rolled out last March, included several proposals to ensure full and open competition for Federal Government contracts.

Through leadership, training and accountability, we believe this

Administration is making significant headway in reducing bundling

and therefore increasing opportunities for small firms. Avoiding

bundling whenever possible, ensuring that government contracts

are open to all small businesses that can supply the government

needs, and streamlining the appeals process for small businesses

that contract with the Federal Government are all essential components as we make sure that small businesses get their fair share

of federal contracts.

The SBA was honored to participate with OMB in developing the

October 2002 report to the President entitled ‘‘Contract Bundling:

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a Strategy for Increasing Federal Contracting Opportunities for

Small Business.’’ The strategy outlined nine specific steps to eliminate unnecessary contract bundling and mitigate the effects of necessary contract bundling. As a result, SBA and the Federal Acquisition Regulatory Council published proposed changes to their respective regulations in January of this year.

The details of SBA’s proposed regulations are included in my

submitted testimony. They focus on holding agencies accountable

and closing the regulatory loopholes that have often resulted in lost

opportunities for small businesses. Again leadership and accountability will make the difference for this nation’s small businesses.

By implementing these new regulations and holding agencies accountable, a contracting environment will be created where small

business owners will have the maximum opportunity to successfully compete for federal contracting and subcontracting. The SBA’s

current activity that seeks to ensure contract opportunities for

small firms includes the work of our procurement center representatives or PCRs and a new and already quite successful matchmaking program that brings contracting opportunities to localities

all over the country. The SBA also plans to establish the Small

Business Procurement Advisory Council and reinstitute its Surveillance Review Program. Both existing and planned programs are described in more detail in my submitted testimony but I would be

happy to discuss either one of these in more detail today if you

have any questions about them.

The SBA also recognizes that contract bundling is but one piece

of a larger puzzle to provide small businesses with what they

want—more business. In addition to facilitating the highly successful matchmaking events just described, increasing access to federal

contracting, and marketing the opportunity of federal contracting

to small businesses beyond the Washington Beltway, the SBA will

also make it easier for small businesses to learn how to do business

with the Federal Government with on-line procurement academies.

In undertaking all of these actions, the SBA is demonstrating its

commitment to the President’s small business agenda and its focus

on bringing federal procurement opportunities to America’s small

business. Since small businesses are the engines that drive the

economy, increased opportunities for these firms will result in savings to the taxpayers, a stronger economy, and a stronger America.

This concludes my remarks, Chair Snowe, and I would be happy

to answer any of your questions. Thank you.

[The prepared statement of Mr. Barreto follows:]

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Chair SNOWE. Thank you very much, Mr. Barreto.

Ms. Styles.

STATEMENT OF ANGELA B. STYLES, ADMINISTRATOR FOR

FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET

Ms. STYLES. Chair Snowe, I am pleased to be here today to discuss contract bundling.

This Administration is working hard to create an environment

where small businesses can flourish. For small businesses the primary issue is access to the federal marketplace and the opportunity

to compete. And for us as policy-makers, the issue is a dramatically

reduced contractor base and mounting lost opportunity costs of

choosing among fewer firms with fewer ideas and innovations to

deliver products and services at lower prices.

On March 19th of last year the President unveiled a small business agenda that made several proposals to increase the access of

small businesses to federal contracting opportunities. The agenda

called upon the Office of Management and Budget to develop a

strategy for unbundling federal contracts. My office formed and

chaired an interagency working group to develop the strategy requested by the President.

In June, we held a public meeting to give interested parties, especially small businesses, an opportunity to express their views on

this important subject. Taking those views into consideration, I

submitted a strategy to the President in October 2002. A copy of

this strategy entitled ‘‘Contract Bundling: A Strategy for Increasing

Federal Opportunities for Small Businesses,’’ is attached to my testimony.

We found that although contract bundling can serve a useful purpose, the negative effects of contract bundling over the past 10

years cannot be underestimated. Not only are substantially fewer

small businesses receiving federal contracts, but the Federal Government is suffering from a smaller supplier base. As we have

broadened the scope of contract requirements into fewer and fewer

contract vehicles over the past decade, the pool of small business

contractors receiving new contract awards has declined from 26,000

in 1991 to about 11,600 in 2000. When small businesses are excluded from federal opportunities through contract bundling, our

agencies, small businesses, and the taxpayers lose.

The strategy outlines nine specific actions the Administration is

taking to eliminate unnecessary contract bundling and mitigate the

effects of bundling that agencies find to be necessary and justified.

These nine recommendations can be divided into three categories:

promoting leadership and accountability, closing regulatory loopholes, and mitigating the effects of necessary and justified contract

bundling.

In speaking to small businesses throughout the country, it has

become clear to me that accountability and leadership are the keys

to making progress. With successful implementation of this strategy, we believe that we can reduce a significant barrier to entry

and in doing so, allow small businesses to bring their innovation,

creativity, and lower cost to the federal marketplace.

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We are holding agencies accountable. We have asked agencies to

begin reporting on their efforts to reduce contract bundling and to

mitigate the effects by increasing the overall access of small businesses to federal contract opportunities. Through the President’s

Management Council representatives to the 26 major departments

and agencies, agencies are now reporting on a quarterly basis to

OMB on actions they are taking to implement each of the nine recommendations identified in the strategy.

The second issue: closing regulatory loopholes. Several actions

identified in our strategy call for cleaning up regulatory loopholes

that have allowed certain types of contracts and contract actions to

escape bundling reviews. My office formed and is heading an interagency task force to develop regulations to amend both the Federal

Acquisition Regulation and the Small Business Administration

bundling regulations to help implement this strategy. The proposed

regulations were published on time on January 31, 2003.

In general, these regulations would make clear that multiple

award contracts and orders under such contracts are not exempt

from regulatory requirements and procedures designed to eliminate

contract bundling and mitigate the effects. They would also provide

more effective agency and small business contracting review procedures. Finally, they would require agencies to identify alternative

strategies that reduce bundling and justify decisions not to use

those alternatives.

The third piece of our strategy is mitigating the effects of necessary and justified contract bundling. Our report to the President

identifies actions we are taking to mitigate the effects of contract

bundling when agencies find it to be necessary and justified.

Specifically, we are counting on agencies to do their part to

strengthen prime contractor compliance with subcontracting plans

and facilitate the development of small business teams and joint

ventures. The proposed regulations would require agencies to assess prime contractor compliance with the goals identified in their

small business contracting plans as part of the agency’s overall

evaluation of a prime contractor’s performance. Since this past performance information is often used as a significant factor in agency

decisions to award contracts, this regulatory requirement should

provide a strong incentive for prime contractors to increase subcontracting opportunities.

Our report to the President recognizes that successful implementation of these mitigating actions relies more on the initiative of

the agency than on the issuance of regulations. We are counting on

agencies to strengthen their oversight of contractor efforts to comply with subcontracting plans by establishing procedures that designate agency personnel responsible for monitoring contractor compliance. We are also counting on agencies to train and facilitate

early development of teams of small business contractors to compete for upcoming agency procurements.

Our office will continue to look for ways to improve the subcontracting practice, including ways in which we can increase small

business access to subcontracting opportunities; for example, by

providing greater incentive for prime contractors to follow through

with their subcontracting plans.

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Through my office I look forward to a continued leadership role

in implementing the President’s strategy. I think we can make a

real difference for small businesses and a real difference for the

taxpayers.

Thank you again for having me here today.

[The prepared statement of Ms. Styles follows:]

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Chair SNOWE. Thank you, Ms. Styles.

Ms. Lee.

STATEMENT OF DEIDRE LEE, DIRECTOR, OFFICE OF

ACQUISITION, DEPARTMENT OF DEFENSE

Ms. LEE. Chair Snowe, as you mentioned, small businesses are

important to our government-wide economy, but small businesses

are a critical component to the defense industrial base. Eighty-two

percent of all DOD prime contractors are small businesses. Small

business prime contractors performing on DOD contracts increased

to 33,000 in fiscal year 2002 compared to 24,000 in 2001. The DOD

accounted for an unprecedented $59 billion to small business firms

in 2002, with $33 billion going to small business prime contractors

and $26 billion to small business subcontractors, yet that is not

enough. There is still more to be done.

The Department is fully committed to fostering small business

prime contractors, subcontractors and vendors. The department

fully supports the President’s small business agenda and his initiative to avoid unnecessary contract bundling.

The acquisition environment has changed considerably within

DOD over recent years as a result of increased mission requirements, acquisition reform, organizational realignment, base closures, downsizing, and competitive sourcing.

In some instances, DOD combines or restructures mission requirements as a means to gain efficiencies or realign organizations

to meet mission demands. In cases where the mission needs are

consolidated and small businesses can no longer compete, the consolidation is referred to as a bundled contract. The Department is

committed to avoiding contract consolidations that result in bundling unless market research and a benefit analysis support that

there are measurably substantial benefits. In cases where bundling

is warranted, the Department is committed to ensuring vigorous

small business participation at the subcontract level.

There have been numerous reports on the impact of contract

bundling on small businesses with differing conclusions, and I

know the GAO is going to talk about some of those today. The Office of Federal Procurement Policy issued a report in October 2002

entitled ‘‘Contract Bundling.’’ We have discussed it previously here

today. And the Department of Defense participated in the development of the report and had members on the implementation working group that developed the Federal Acquisition Regulations and

the SBA regulations, which are currently out for public comment,

with closure on April 1st. Once the comments are considered, final

rules will be issued and the coverage will be effective.

I would like to briefly discuss five areas that the Department

sees as key emphasis from these reports. The first is, as Ms. Styles

mentioned, the emphasis that orders placed previously under GSA

schedules or other contracts which were not in the definition are

now an area we must focus on.

We also must focus on early involvement of the small business

specialist. We are going to have more small business specialists

thinking about the acquisitions in the early planning stages. We

think that will be a considerable boost to thinking how small business can be part of the acquisition strategy.

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Third, is the case where we have lowered the dollar threshold

that signifies a bundled contract and what is considered a substantial bundle. Also, at the Department when people do consider bundling, they are required to come up with alternate strategies so we

can say how this could be avoided, or what could be done differently.

Fourth, there are several changes for the agency Office of Small

and Disadvantaged Businesses. First, the SADBU or the specialists

are going to have a better connection with the OSDBUs, as we call

them, so that when, in fact, they feel in their workplace there are

some issues to be discussed, they can do that. Also, the agency

OSDBU will receive copies of any reports on bundling so they are

advised in advance and can work the issue.

In addition, as required by the report, Mr. Frank Ramos, our Office of Small and Disadvantaged Business representative, is going

to establish a procedure to conduct periodic reviews and assess how

small businesses supporting the Department of Defense are faring

in our activities.

And fifth, we are going to go ahead and strengthen the compliance with the Small Business Subcontracting Plans. Again as Ms.

Styles mentioned, we do have a rich area for small businesses to

do subcontracting and we want to make sure that is emphasized

in the Department of Defense.

Finally, there is an additional key recommendation of the OFPP

report that is not implemented in regulation but is vital to implementation of the President’s initiative. That is the accountability of

senior agency management for improving contracting opportunities

for small businesses. The department leadership fully supports this

recommendation.

With this in mind, the Department of Defense has prepared a

supplemental policy letter to our January 17th memo that was

issued and we will include emphasis on these new areas. In that

memorandum Mr. Aldridge reminded the program managers and

other officials responsible for acquisition planning that we must ensure small business participation is considered from acquisition

planning through program execution. A benefit analysis guidebook

has been prepared and we are educating our community on how to

use these tools.

I would like to reaffirm the Department of Defense’s commitment

to small business and its support of the President’s small business

agenda and would be happy to answer any of your questions.

[The prepared statement of Ms. Lee follows:]

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Chair SNOWE. Thank you very much, Ms. Lee.

Mr. Cooper.

STATEMENT OF DAVID E. COOPER, DIRECTOR, ACQUISITION

AND SOURCING MANAGEMENT, U.S. GENERAL ACCOUNTING

OFFICE

Mr. COOPER. Good morning, Madam Chair. Thank you for inviting me to participate in today’s hearing on the Administration’s

plan to address federal contract bundling issues. We believe the

plan, if successfully implemented, and that is a big if, could be a

positive step toward addressing long-standing concerns about the

effects of contract bundling on small businesses.

Specifically, we are concerned about the measures and information that will be used to monitor agencies’ efforts to achieve the objectives of the plan and to hold senior managers accountable for

those results. Our concerns stem from long experience in trying to

look at a number of acquisition reforms over the last several years

and to make such assessments.

Unfortunately, all too often when we went to look at whether

those reforms and initiatives were producing the desired outcomes,

we were not able to find the measures or the information to make

that judgment. We believe that without reliable measures and information, the Congress and the President will not be able to ensure agency accountability for improving small business participation in federal procurement.

Accordingly, we believe it would be wise to establish and clearly

communicate what measures and information will be collected and

used to monitor agencies’ progress in implementing the plan.

We are also concerned about whether the Small Business Administration and agency offices of Small and Disadvantaged Business

Utilization will be able to meet the added responsibilities envisioned by the plan.

In January of this year, proposed rules to implement the plan

were published for public comment. The rules establish new expectations and expand the responsibilities assigned to those offices.

We agree that both are key players and that their involvement is

critical to ensuring successful implementation of the Administration’s bundling plan. However, based on several reports we have

issued to this Committee in recent times, we are concerned that

the added responsibilities will further burden staff that is already

struggling to accomplish their missions. The reports I am referring

to are reports we have issued on the procurement center representatives and the commercial marketing representatives.

Given our findings in those areas, we recommended that SBA

strategically assess, evaluate and plan their staff needs, including

assessing the impact of assigning multiple roles to its staff, identifying training needs, and assessing the effectiveness of its compliance monitoring efforts. We believe that applying a similar strategic planning approach would benefit SBA and the agency offices

of Small and Disadvantaged Business Utilization as they approach

the challenge of implementing the Administration’s plan.

Madam Chair, that concludes my remarks. I will be glad to answer any questions.

[The prepared statement of Mr. Cooper follows:]

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Chair SNOWE. Thank you very much, Mr. Cooper. We will start

with some of the issues that you have raised here to the panel, because I do think it is important to explore some of the recommendations that you are suggesting that ultimately would demand accountability and reliability Government-wide.

I think one of the things that I have learned from all of this is

that there is a lack of uniformity and a lack of consistency, even

with the Administration’s new approach in the nine-point plan,

which I certainly want to commend the Administration and the

President for advancing. I do believe that we are going to have systematic problems ultimately from agency to agency if we do not

have some kind of systematic and uniform standard by which we

can measure results at the onset of the process, not years later.

So let me start with what Mr. Cooper raised, and I would like

to ask the panel to address this question. In terms of reliability of

measurements and standards and accountability, how exactly will

that come about in this process? Because, Ms. Styles, you mentioned the fact that the proposal by your office would demand quarterly reporting. As I understand, a majority of the agencies have

not submitted their quarterly reports that are required to be submitted in January. Is that true?

Ms. STYLES. No, we have reports from more than half at this

point in time.

Chair SNOWE. More than half. But what happened to the others?

Ms. STYLES. We are still working with them to get their reports.

Chair SNOWE. Well, that is bothersome because that seems to be

an indication that an agency is not taking this requirement seriously.

Ms. STYLES. Right.

Chair SNOWE. So again it gets back to how we are going to demand accountability and compliance. If that is the first step in the

process and that is not achievable, then obviously we have some

problems. I would like to know how we could demand that they

submit those reports in a timely fashion and certainly according to

the regulations.

Ms. STYLES. I share your concerns. We have had discussions with

the agencies that have not submitted their plans. I am meeting

with the Executive Committee of the President’s Management

Council to address that issue.

It is an early stage for the agencies. I think it is an early stage

in reporting. I had a conversation with Mr. Cooper several days before this hearing, and I agree with his concerns about metrics and

measures and we are very willing to work with GAO and others

to make sure that we have the appropriate metrics and measures

in place.

From a perspective of the Administration, we decided to require

quarterly reports, much like we do for other items on the President’s management agenda. We have a scorecard process right now

for most of the President’s management agenda. These reports will

be submitted in the same time frame as our scorecard process to

our budget shops. It is a good way to hold people accountable at

the lower level within the agency, but also requiring the report to

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ment Council. So you are getting it from the top and from the bottom.

I do think the key is the metrics here. We began with a report

with some of the basic information that we need. We anticipate in

the future to have more extensive reporting requirements for the

agencies on a quarterly basis. It is very important for us to determine on the front end here, and this is the front end, what the appropriate metrics are so we are not two years into this and we are

not quite sure if we have achieved success.

Chair SNOWE. First of all, on the reports, I would be interested

in having a list submitted to this Committee of the agencies that

responded and those that did not.

Ms. STYLES. I can tell you right now if you would like.

Chair SNOWE. Yes, I would be glad to hear it.

Ms. STYLES. In fact, the ones that have not submitted are probably the easiest for me to give, although I can give you the ones

that have. We do not have reports yet from Commerce, Education,

Interior, Justice, State, AID, EPA, GSA, HHS or OPM.

Chair SNOWE. And they have obviously been contacted?

Ms. STYLES. Yes, they have.

Chair SNOWE. And their response has been?

Ms. STYLES. They will be getting us reports.

Chair SNOWE. Does that require a statutory change? I mean

would it to require submitted reports?

Ms. STYLES. No.

Chair SNOWE. I hesitate to do that, but if we are going to make

a system and the process work, we have to be assured that there

will be compliance by the agencies. I mean that is not just for one

year, it will be systematically every year.

Ms. STYLES. OMB is usually good on a year-to-year basis at getting information from the agencies. This being a new report, I

think it is taking a little bit longer at some of the agencies.

Certainly if you wanted it in place for the long term that would

require a statutory change. This is a requirement of this Administration and will only remain in place as long as the Administration

in office is committed to it.

Chair SNOWE. Mr. Barreto, I would like to hear your response to

Mr. Cooper with respect to having insufficient resources to do the

kind of monitoring that will be required and especially because as

I understand it, you have just 47 procurement center representatives.

Mr. BARRETO. Yes.

Chair SNOWE. And there are 255 department agency contracting

offices, so that would mean that about 80 percent of the federal

contracting offices have no oversight. So could you explain to the

Committee how exactly the SBA is going to go about providing effective oversight and monitoring?

Mr. BARRETO. Absolutely. You are absolutely right. We have 47

procurement center representatives and they are located all across

the country. Many of them are on major military bases or where

major civilian buying activities are occurring. Those 47 PCRs, as

we call them, are responsible for 255 of the largest federal procurement activities in the country and that represents about 60 percent

of all federal procurement. They do a pretty good job.

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Now that does not mean that there is not more to do and that

we cannot find ways to reach some of those others where there is

actually less activity. It is still very important to do that. We are

exploring ways right now, using technology as a way of having a

broader coverage area.

But some of the recommendations that were articulated by Angela Styles and that were in that nine-point plan give us an opportunity to really engage the OSDBUs at the agencies, and we think

that that is a very important component, as well, because this focus

and this diligence really needs to be occurring at the agency level

and also, as Angela said, from the top to the bottom.

So our PCRs are going to play a critical role, but they are part

of an overall solution that is being articulated right now and one

of the roles that we believe that we have is to work even closer

with the OSDBUs and also provide the proper training of folks that

are going to be really engaged in these kinds of activities.

Chair SNOWE. So do you believe that you would need additional

resources and personnel to do an effective job?

Mr. BARRETO. I think with the PCRs that we have, what our intention to do is to support them more. We are not looking for additional PCRs at this time. Again, one of the things that we believe

very strongly is that the PCRs could do a great job, and they have

done a great job, but we really need to drill down even more at the

agency level, and that is why we think the OSDBUs have such a

very important role to play in identifying procurement opportunities and mitigating some of the issues when there is contract bundling.

Chair SNOWE. I know Mr. Cooper, in his recommendations, would

suggest that SBA evaluate the number of people and resources that

would be required in order to oversee these contract responsibilities

and to effectively assess the implementation of this plan. Have you

done any kind of assessment in that regard?

Mr. BARRETO. We are continuously doing it. Especially every

year as we are preparing budgets for the next year we are identifying how our people are doing and what kind of tools that they

need, so this is kind of an ongoing issue. We are looking at it even

more closely now that we have this plan that we are going to be

executing.

One of the things that we are very clear about and I think it

comes up over and over again is that part of the teeth, if you will,

the accountability, really is at the agency level and there is absolutely no substitute for this commitment being at the agency head

level, going through the organization to the OSDBU. We want to

support that and we feel that that is a very effective way of approaching this challenging issue and really making the changes

that need to be made.

Chair SNOWE. Ms. Lee, the Department of Defense is critical to

the procurement process. You represent about two-thirds of the

procurement budget at the federal level.

You said in your testimony the Department of Defense awards 21

percent of its prime contracts to small businesses and how did you

calculate this? Does SBA agree with that calculation?

Ms. LEE. Yes, I believe they do. We take it out of the federal procurement database and it is a matter of dollars spent and the perVerDate 03-FEB-2003 10:57 Apr 13, 2004 Jkt 091188 PO 00000 Frm 00060 Fmt 6601 Sfmt 6601 D:\DOCS\91188.TXT SSC1 PsN: SSC1
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cent of those or the dollars that went to small business from that

base. There are a few adjustments to the base. The particular one

is the foreign military sales, which is not U.S. dollars; it is foreign

military that is buying something and we actually do the buying

for them, so it is not in the DOD base.

Chair SNOWE. You mentioned that you were planning to or have

lowered the threshold for small business, so what would that

threshold be?

Ms. LEE. One of the things in this report was the Department of Defense previous threshold for reviewing bundling was $10 million. It has been lowered to $7 million in this report.

Chair SNOWE. And to that question, it is $7 million and I under- stand that the average size of a prime contract is about $1.2 million. The average small business contract size government-wide is

$410,000. The average small business contract size for the Department of Defense is $424,000.

So, is this threshold not high? I mean in other words, for a jus- tification of what is considered to be substantial bundling above $7

million, that seems to be a very high threshold.

Ms. STYLES. We have actually lowered it from the statutory

threshold.

Chair SNOWE. I understand that, but the question is whether or not $7 million is too high—

Ms. STYLES. We had extensive discussions with the Department

of Defense before we set those thresholds.

Chair SNOWE. Well, even with the Department of Defense and other agency consultation, the $5 million—

Ms. STYLES. And the $2 million for other agencies.

Chair SNOWE. Right.

Ms. STYLES. Considering the Department of Defense mission, we think the $7 million threshold is appropriate. Now that would be

bundled requirements, so it would not be one contract. I mean the

reason that we are looking at that is because it would be too large

for any small business to bid on that particular requirement and

we do believe $7 million is the appropriate level.

Chair SNOWE. Well again, I think that I would be interested in

knowing how you reached that determination because ultimately

the threshold is high for the kind of justification that would allow

for substantial bundling.

Ms. STYLES. We looked at statistics and the number of contracts

that would be reviewed based on that level and I would be glad to

get that for you because we did go through agency by agency and

compare what the effect would be, how difficult it would be to actually implement. We wanted to set thresholds that we could actually

fulfill.

I am glad to get you the data on the number of contracts that

would be reviewed as a result of moving it from $10 to $7 million

and that is different at the Department of Defense than it is at

other agencies, which is the reason you find different thresholds.

Chair SNOWE. Mr. Cooper, could you respond to what you think

they are not doing that they should be doing? You mentioned having reliable measurements and demanding accountability. What

are they not recommending at this point that should be incorporated in their approach?

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Mr. COOPER. When we looked at the reports that are being submitted they contained more process-related kinds of information,

like who is accountable, have they issued regulations, has training

been conducted, have policy memos been written, things like that.

The point that I am trying to make is that if we are really going

to hold agencies accountable for achieving the two key aims of this

plan—that is to eliminate unnecessary bundling and to mitigate

the consequences of justified bundling—we really need to have output measures, things like how many contracts were subjected to

bundling reviews? If it was justified, determined to be justified,

what actions were taken and how did those actions translate into

business opportunities for small businesses, either subcontractors,

or as members of small business teams, whatever the mitigating

actions were?

So we would like to see more quantitative analysis to really get

at how are small businesses affected by the actions and decisions

that are made?

Ms. STYLES. If I can address that, we actually in our first draft

of the contract bundling reports, we sent it out to the agencies for

comments. It included extensive data requests for information.

Based on the comments from the agencies in the very short time

frame that we were giving them to report, which was about a fourweek time frame at that point, they asked that the first report be

process-oriented and then subsequent reports include extensive

data. And before we go out with that, I am very happy to share

that with GAO and others so we can ensure that we are asking for

the right data, that we can actually at the end of the day measure

our success.

Chair SNOWE. What time frame would be required to measure

success for agencies? What would you think would be an adequate

time frame, Mr. Cooper? I see what you are saying, they have identified the process, but the question is now what are the results?

Mr. COOPER. I agree with Ms. Styles that not a lot of time has

passed and what we are seeing right now are some preliminary indicators of actions being taken by the agencies. I will take a guess.

I would like to see in six months from the time the plan was announced what actions have really been taken and try to measure

whether those actions are producing the desired outcomes.

Chair SNOWE. Is it your impression that these contracts are getting larger and larger?

Mr. COOPER. There is no question that the federal procurement

environment has changed dramatically in the last 10 years. I think

the Office of Federal Procurement policy’s report did a really good

job of describing those changes. We have much, much larger contracts, they are lasting much, much longer, and small businesses

are not able to compete for many of those new contract vehicles.

The plan is designed to address that. As Ms. Lee said, the task

orders and GWACs and GSA schedule contracts will be included

now but we need some time to see how they are going to be addressed.

Chair SNOWE. Will they be required to provide a justification or

are they going to be restricted by the need for unnecessary bundling?

Ms. STYLES. They will have the same requirements.

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Chair SNOWE. All accountable to the same regulations?

Ms. STYLES. Yes.

Chair SNOWE. Are they going to be subjected to these nine

points?

Ms. STYLES. Yes.

Chair SNOWE. So no one is escaping that requirement?

Ms. STYLES. No.

Mr. COOPER. And the effect of that is a much larger number of

contracts and dollar value of contracts will be subject to the requirements.

Chair SNOWE. Would you say that there is anything omitted in

this nine-point plan?

Mr. COOPER. No, I think the plan is very positive. It is the first

federal-wide plan to address the issue of contract bundling, so I

think the Office of Federal Procurement Policy and all the agencies

that supported that should be complimented for trying to come up

with a constructive way to address the issue.

Chair SNOWE. Are there best practices that could be identified

that could be adopted government-wide? I think that is the other

issue. I know you are talking about alternative strategies and having joint ventures, and so on, but if it is done on an ad hoc basis

it is very difficult to institutionalize.

When you see the trends in procurement in government, it is almost a disincentive to work in small business. I mean the way the

system is designed now, to be faster and less expensive; I disagree

with that because I think you are never going to maximize the savings by consolidating so many contracts into very large contracts.

You never know whether you could get a cheaper contract right

here, for example, in the District of Columbia than you can nationwide because you are eliminating small businesses in the local communities. The reduction in acquisition personnel, has made this a

very difficult process.

So I would think that a good approach would be to identify those

best practices and adopt them uniformly. It makes it easier and

you synchronize the entire Federal Government, rather than just

saying well, on an ad hoc basis this might work, that might work,

depending on what you do. If you could sort of make it far more

systematic, knowing what does work for alternatives so that they

could be adopted within the agencies.

Mr. COOPER. There is a provision in the plan for identifying best

practices and disseminating those to the federal agencies. Again we

are so early in the process.

Ms. STYLES. And a key area of that for me is in the subcontracting arena. We really have ad hoc procedures from agency to

agency dealing with prime contractors, subcontracting plans, and

compliance with those plans, as well as incentivizing prime contractors to follow their plans. I think it is one area that we can

really make a difference, share best practices among agencies, and

make sure that there is not a difference from agency to agency, it

is not different at the Department of Defense than it is at Veterans, that if you are a prime contractor you go in, you know what

the requirements are for your subcontracting plan without regard

to what industry you are in and that you are incentivized to follow

that plan.

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Chair SNOWE. Mr. Barreto, do you know of any practices that you

think would be beneficial to adopt government-wide that would

help small businesses?

Mr. BARRETO. As a matter of fact, we have also requested from

the agencies their best practices. We are asking them to submit

that to us this month. So that is something that we are evaluating.

I agree. I think there needs to be some consistency. At the same

time we need to also understand that different agencies have different issues that they are dealing with, the DOD, for example, at

this point in time, as opposed to other agencies. We have seen some

great leadership in certain agencies that we work with. The Department of Housing and Urban Development has a 50 percent

goal for small business procurement. In other words, they want 50

percent of all their procurement to go to small business, and they

have been very aggressive about championing that.

I know that we have worked very closely with NASA, the head

of NASA in the months prior on identifying best practices and

there is a real commitment there.

I can also tell you that one of the big complaints that we get from

small businesses all the time is the fact that not only is it complicated and cumbersome and there are disincentives but also it is

very difficult to access these decision-makers. Oftentimes they feel

that the only opportunity that they have to really compete for federal contracts is if they are based here in Washington, D.C. Well,

that is impossible. Most small businesses cannot afford to have offices in Washington, D.C.

That is one of the reasons that we at the SBA have instituted

the very exciting initiative that I mentioned, the matchmaker,

where we are actually taking federal agencies all across the country to meet one on one with small businesses. Contract Bundling

is really a big issue for them. Not only are they concerned about

the percentages that we are talking about but also the decline in

the actual number of contracts that have been let over the last 10

years. I can see the drastic drops from the charts that are behind

you.

So that is one of the reasons that we have been proactive in engaging some of these agencies and also giving them opportunities

to be able to do this kind of outreach. It takes one more challenge

away from both the federal agencies which sometimes have difficulty identifying what firms are qualified to do the kinds of contracting they need, and also from the small businesses who find it

very difficult and very expensive to do business with the government.

We have already had three sessions. They have been very successful. We plan on doing about another seven more this year. This

is one way that I think that we can contribute to the solution. We

also would be glad to share the best practices we receive from the

agencies at the end of this month.

Chair SNOWE. Well, what did you learn from small businesses at

these procurement forums? What did you hear most frequently in

terms of doing business with the Federal Government?

Mr. BARRETO. We have heard a lot of horror stories about what

it is like doing business with the government. One lady said to me,

‘‘I tried to get a government contract for years and years and

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years.’’ And she said, ‘‘I finally got a government contract.’’ She

said, ‘‘It cost me $50,000 to get this contract and it was a contract

for $25,000. So that is not a good return on investment.’’

What they have told us is that they are very excited about some

of the things that they are seeing. They are excited about the leadership that they see coming from Washington. They tell us it is the

first time in a long time that this kind of focus, this kind of attention has been placed on small business contracting and they do not

take that for granted. Oftentimes they have felt that when we talk

about federal procurement, that it is kind of a stepchild of the

things that we do. In other words, it is not a high priority.

The things that we are doing right now are the beginning of our

renewed focus. Small business oweners also tell us when we meet

with them in the field that whenever you can put them in a room

with 10 or 15 decision-makers and their products and services have

been qualified as being acceptable to those agencies that the

chances for them doing business are incredible. They tell us when

we see them in these procurement matchmaking sessions, it would

take them a year if they were lucky enough to get those same

kinds of quality appointments.

I think we are taking some very significant steps in the right direction. Again, it is early in the process and a very determined and

vigilant focus on this issue, a continuous focus, is going to be required for us to really make the change that is required.

Chair SNOWE. Mr. Cooper and Ms. Styles, is there anything

wrong with the definition of contract bundling in statute? I know

it has been changed on six different occasions but do you think that

the definition as it stands is currently acceptable?

Ms. STYLES. Well, the definition certainly did not cover multiple

award contracts like the schedules. It did not preclude us covering

them in the regulation, but it was not specific enough in the first

place to cover those types of contract vehicles, which is why you see

us out with a recommended change to the definition in the regulations.

Mr. COOPER. I would just add to that that I know there are concerns about the definition, but I think what this plan is really

aimed at is good management and accountability and leadership.

And I think if you can get that in place it will go a long way to

addressing some of the concerns that we have been talking about.

Chair SNOWE. Do you think that this plan is inclusive of the direction that would be successful for opening the doors to small

business?

Mr. COOPER. Yes, I believe it can be.

Chair SNOWE. It can be.

Mr. COOPER. The real test here, though, is getting this message

down to the contracting officers and the program people who establish the requirements and that is where it all starts. Those are the

people you have to influence. If you can reach that level and get

information about whether it is making a difference, then I think

it has a chance of success.

Chair SNOWE. To that point, Ms. Lee, since you represent the Department of Defense which has approximately two-thirds of the federal procurement budget, how does the Department of Defense go

62

about doing that and getting that message down to the acquisition

offices and procurement officials?

Ms. LEE. I agree that is absolutely fundamental. We so frequently talk about the contracting officer doing this and certainly

they are key, but you are absolutely right; it is the program official;

it is the people who define the requirements that need to be aware

and conscious of small business and that is where some of the

matchmaking helps because they get to meet those people and see

their capabilities and their ideas and their innovations.

So getting that together at the requirement stage and then making sure we carry it through contracting is absolutely essential. We

are doing things like the authority, the commitment, some training,

and then, of course, metrics and measuring how we do that. So it

has to be a broad scope across the department.

Chair SNOWE. Is the definition too open-ended in terms of judgment, that is, in terms of scope and geography and size and so on?

Does it create any problems with assessing what constitutes bundling and what does not?

Ms. STYLES. I think it all depends on the regulatory implementation of the definition. We consider it to be workable and something

that we can apply in the regulatory environment and then take

that from there in terms of management accountability.

Chair SNOWE. I definitely think the plan that has been presented

by the Administration is very important and I certainly want to applaud the Administration’s leadership under, Mr. Barreto and Ms.

Styles, of the for offering this proposal. I think the key is trying

to find the easiest, most consistent, most workable, most effective

path to incorporating small business into the procurement process

and how best that can be accomplished. Obviously we want to support what is working. We need to identify what will work and we

want to be vigilant in addressing those things that cannot work the

sooner the better. When we can get that snapshot of the effect of

this nine-point plan we can move forward in ensuring that small

business is part of the procurement process.

When do you think we can get an accurate snapshot?

Ms. STYLES. We are measuring most things that we are doing

right now in the President’s management agenda as of July 1,

2004. So my guess is that we will have metrics in place before July

of this year and we will be able to measure it over that period of

a year before July of next year. But we will have it on a quarterly

basis, so we will have a good idea of the trends before then.

Chair SNOWE. Obviously I can use the Small Business reauthorization as a vehicle, as well, to address the issues that I can within

my legislative jurisdiction with respect to that reauthorization. I

am certainly going to use that as a vehicle for doing so, so those

things that we think could strengthen the process that has been offered by the President on this issue, will move in a uniform direction to try to address this government-wide.

Again, I just want to thank all of you and I will be looking forward to working with you in the future on this issue.

Mr. BARRETO. Thank you very much.

Chair SNOWE. Our second panel this morning will provide testimony for and about the small business community trials and travails with contract bundling. Leading this panel will be Mr. Eric

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Adolphe, the Chief Executive Officer for OPTIMUS Corporation in

Silver Spring, Maryland. Mr. Paul Murphy of Eagle Eye Publishers

will testify about the impact of contract bundling from a statistical

standpoint in the small business community.

Also, we have Mr. Robinson, who is a Defense Logistics Manager

for the Massachusetts Manufacturing Extension Partnership and

he is appearing today at the invitation of Senator Kerry. His background includes 25 years working in the defense industry and also

with Maine’s Procurement Technical Assistance Center. I welcome

you, Mr. Robinson.

In addition, we have Ms. Kuc here to represent Women Impacting Public Policy, an organization with more than 300,000 womenowned small businesses.

I welcome all of you here this morning to provide testimony on

contract bundling. I appreciate your insights on this critical issue

to the small business community.

Mr. Adolphe, why don’t I begin with you. You can summarize

your statements and I will include your entire statement for the

record.

STATEMENT OF ERIC A. ADOLPHE, CHIEF EXECUTIVE

OFFICER, OPTIMUS CORPORATION

Mr. ADOLPHE. Madam Chair, I would like to thank you for your

leadership in helping to strengthen America’s small business community and for focussing today’s hearing on contract bundling,

which is a key contractual challenge we in small business face.

As founder and CEO of a rapidly growing 8(a) business, I am

honored for the opportunity to testify before you today. My company, OPTIMUS Corporation, is a strong example of the entrepreneurial spirit that built this nation. As a leading public safety technology company founded in 1992, we employ approximately 150

people today. I founded OPTIMUS after several years of technology

development for the FAA when I received a Small Business Innovative Research Grant that led to the creation of an award-winning

safety inspection software system for NASA. We now have a half

a dozen products focussed on public safety and we provide a significant amount of information technology services for a number of federal agencies.

Of course, our success did not come overnight. Along the way I

faced homelessness and near bankruptcy. And although this is not

a hard knocks story, it is important to point out that small disadvantaged businesses simply confront a lot of obstacles. Unfortunately, current contract bundling practices can add even more burdens because they do not enable a level playing field for small businesses. To make matters worse, even though many large omnibus

contracts are awarded partly on the pledge to subcontract a certain

amount of work to small business, for all practical purposes there

is no legal recourse for small contractors when these pledges are

not upheld.

Due in large part to these factors, small businesses like

OPTIMUS are essentially shut out of numerous federal contracts

and each time this happens we lose between $50-$75,000 in bid

and proposal funds. We have faced the situation many times and

we now find ourselves competing against large contractors for tasks

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that are valued at less than $2 million, traditionally the bread and

butter of most small businesses.

Because of our ongoing efforts to partner with many of these

large firms, there are certain recent examples that would not be

appropriate for me to cite today so I am going to detail a situation

that occurred several years back which clearly illustrates the negative repercussions of contract bundling.

A number of years ago the EPA bundled all of its software development requirements into one omnibus contract. Thus one large

government contractor handles millions of dollars worth of work

whether or not they are the right firm to do the job. The EPA informed this omnibus contractor they were not meeting their goals

for small business allocations by a very large margin and needed

to do so to ensure exercise of the next option year on their contract.

This firm complained that they could not find small contractors

qualified for the job.

However, the EPA was familiar with OPTIMUS and recommended us to this company. We subsequently expended our limited resources pursuing business with this firm. They agreed we

were a perfect fit and we were offered a $200,000 subcontract. As

a result of our progress report back to the EPA small business advocate there was a recommendation to exercise the option year of

that contract. They did this because they believed the contractor

had upheld its end of the small business promise but after the option was exercised we never heard back from them.

Moreover, because the option year was exercised, the EPA told

us that there was not much they could do at that point. Now we

are pretty much locked out of doing software development work for

the EPA despite our expertise. We can manage call centers for

them but we cannot deliver innovative cost-effective systems like

we did for NASA.

And, as this example illustrates, this practice does not just affect

small business growth. It can keep government from getting the

best technology for the job and cause agencies to settle for less at

higher prices.

I want to conclude by saying that there have been great strides

of improvement and solid examples of contracting best practices;

for example, the Broad Information Technology Services II, BITS

II, SPIRIT and Hub Zone GWAC contracts being contemplated by

the FAA, Coast Guard and GSA respectively. The SPIRIT procurement provides the same scope of services for small and large businesses. Thus everyone has an opportunity to participate. And the

FAA and GSA have taken it even further by reserving their competition for small businesses only, helping to ensure that small

businesses are not in reality competing against large business subcontractors.

I have several other comments with regard to best practices and

accountability I would like to share if time permits. At this time

I would like to conclude by saying that I look forward to many

more similar changes to help small businesses continue to grow

and expand and I thank you for the opportunity to share this important information with you today.

[The prepared statement of Mr. Adolphe follows:]

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Chair SNOWE. Thank you, Mr. Adolphe. I am sorry I mispronounced your name earlier.

Mr. Murphy.

STATEMENT OF PAUL MURPHY, PRESIDENT,

EAGLE EYE PUBLISHERS

Mr. MURPHY. Good morning, Madam Chair, and thank you for

this opportunity to address this critical issue to small businesses

in the federal marketplace.

The number and size of bundled contracts issued by federal agencies has now reached record levels. The small businesses are receiving disproportionately small shares of the work on bundled contracts. Most bundling is occurring as a result of the accretion of

dissimilar tasks on existing task and delivery order-type contracts,

and this trend is favoring large businesses.

Between 1992 and 2001 federal agencies reporting to the U.S.

General Services Administration’s Federal Procurement Data Center issued a combined 1.25 million prime contracts worth nearly $2

trillion. Eagle Eye’s measure of bundling has determined that

$106,000 or 8.6 percent of these contracts were bundled and that

they accounted for $840 billion or 44.5 percent of reported prime

contract dollars during this period.

Over this same 10-year period, 8(a) minority- and women-owned

businesses, small and disadvantaged firms, and other small businesses won a combined 60.7 percent of the 1.25 million prime contracts. However, their share of bundled awards was 48 percent,

nearly 13 percentage points lower. Similarly, the small firm dollar

share of all prime contracts was 18.1 percent again over this 10-

year period, but it dropped to 13 percent for all bundled contract

dollars. And by contrast, large firms won 27 percent of all prime

contracts and 37 percent of the bundled contracts. This translated

into large firms winning 67 percent, two-thirds of all prime contract dollars and 75 percent of all bundled dollars.

In fiscal year 2001 both the number of bundled contracts and the

amount of bundled contract dollars were the highest in 10 years.

During fiscal year 2001 agencies awarded 105,000 out of 177,000

prime contracts to small businesses or 59.3 percent. However, the

small business share of bundled contracts was 52.7 percent and the

small business share of all bundled dollars just 16.7 percent. Overall, the government reported awarding 20 percent of all prime contract dollars to small firms in 2001.

The larger number of tasks required to fulfill bundled contracts

and the consequent increase in the dollar size of these contracts favors large firms and larger small businesses while inhibiting the

ability of small or new firms to bid for and win new federal contracts.

Our regression analysis shows that for every increase of 100 bundled contracts there was a decrease of 60 contracts to small business and for every additional $100 awarded on bundled contracts

there was a decrease of $12 to small business. At a level of $109

billion in fiscal year 2001, bundled contracts cost small businesses

$13 billion. This is making it increasingly difficult for small firms

to compete and survive in the federal marketplace.

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We found that bundling is being driven by growth in bundled

contracts in the other services sector. Just over one-half of manufacturing awards came on bundled contracts during the 10-year

study period even though only 6.4 percent of the sector’s contracts

officially were classified as bundled. Bundled contracts accounted

for 46 percent of the R&D spending and 43 percent of obligations

for other services.

It was the construction sector, though, that showed the biggest

growth in bundling, 157 percent between 1992 and 2001. It also

showed a significant 10 percent decline in small business participation. Both sectors showing overall declines in bundled dollar

shares, R&D and manufacturing, showed moderate sustained

growth in small business participation. Other services grew significantly in bundled dollar share and in the share of small business

market participation.

The most frequently used contract vehicles for bundling are GSA

schedules, multiple award contracts, BOAs and indefinite delivery/

indefinite quantity contracts, IDIQs. Over the 1992-2001 period, 59

percent of all GSA scheduled contracts were bundled, accounting

for 97 percent of the dollars awarded on schedules. Sixty-four percent of the dollars on BOAs and 60 percent of the dollars on IDIQs,

57 percent of the dollars on multiple award contracts, and 47 percent of the dollars on mods to those IDIQs were obligated on bundled contracts.

The new official bundled contract indicator collects a small fraction of the information about bundling. We strongly encourage you

to consider broadening the definition of bundling to include a process that we call accretive bundling, the addition of dissimilar tasks

to multiple-award IDIQ-type contracts. This new bundled contract

indicator is based on a narrow definition of bundled contracts

adopted as part of the 1999 Small Business Reauthorization Act

and we think that it needs to be broadened. Instead of exclusively

focussing on the bundled historical contract requirements, it needs

to look forward and deal with the issue of accretive bundling.

Thank you.

[The prepared statement of Mr. Murphy follows:]

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Chair SNOWE. Thank you, Mr. Murphy.

Mr. Robinson.

STATEMENT OF MICHAEL E. ROBINSON, DEFENSE LOGISTICS

MANAGER, MASSACHUSETTS MANUFACTURING EXTENSION

PARTNERSHIP

Mr. ROBINSON. Thank you, Madam Chair.

A great obstacle to small businesses is contract bundling and

there are two approaches that I would like to talk about. One is

the current Administration approach and the other is a bill, S.

2466, that Senator Kerry offered up on May 7, 2002.

In contrasting the two approaches, one area that deserves comment involves the amount of the thresholds at which unbundling

actions are initiated. The Administration proposal would begin

these actions at $7 million for DOD, $5 million for NASA and $2

million for the civilian agencies. While this is far better than the

current $10 million level, it is a substantial increase from those

listed in S. 2466, introduced by Senator Kerry on May 7, which

would require actions commencing at any consolidated or bundled

contract in excess of $2 million, regardless of agency.

The difference in thresholds may seem inconsequential. However,

if you look at a small machine shop with 10 employees, average

sales perhaps $300-$800,000 a year, if they look at a contract of $2

million over two years they effectively have to double their sales.

They can do this by adding a shift and a little bit of overtime and

they can make this work. A $7 million threshold is almost a tenfold

increase in sales. This prohibits the small manufactures from bidding on a contract of that magnitude. Two-thirds of all the machine

shops in Massachusetts have less than 20 employees.

The Administration proposal does provide for small businesses to

work together in an activity known as teaming. S. 2466 had some

desirable specific protections to small business teaming arrangements.

The six New England MEPs have formed a nonprofit Manufacturing Supply Chain Consortium to assist DOD in tapping into

New England’s underutilized manufacturing community through

teaming arrangements. The six-state integrated virtual manufacturing model will continue the program’s success by increasing both

the quantity and quality of teaming arrangement opportunities,

providing a larger, more diverse cross-section of small and medium

enterprises from which to draw for the purpose of forming the

teaming arrangement scenarios. A large and diverse cross-section

of SMEs is necessary to satisfy the broad range of DOD procurement requirements in the critical areas of cost savings, high quality, quantity and on-time delivery across a broad range of the DOD

demand spectrum.

Now defense work is very important for the manufacturing sector. In Massachusetts alone we have experienced a 44 percent decline in DOD orders and lost thousands of manufacturing jobs. The

Metropolitan Boston Statistical Area boasts the third largest manufacturing employment in the country, higher than Cleveland,

Pittsburgh and Detroit.

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tinuation of this trend may lead to a point where the small manufacturing sector is unable to support surge demand and rapid

ramp-ups such as are being experienced at this moment when we

are at the brink of war in the Middle East.

Not only is defense work vital to SMEs but in turn, the capacity

to support our war-fighters with our domestic industrial base

should be of equal importance to the DOD. If the United States had

off-loaded manufacturing capacity to China in the 1930s it is very

likely we would have lost the Second World War. We find ourselves

in a world of shifting alliances and uncertain partners. With that

backdrop, do we not want to control the means to our own national

defense?

The shrinking small manufacturing base will support our national policies, will answer the call to arms. As advocates for small

business, now it is our turn to respond to support small manufacturers and answer the call to keep this sector, which is vital to the

economic health of the nation, from being buried in an avalanche

of contracts that are so large that they are unable to participate.

Regardless of the language chosen to modify contract bundling

activities, it is going to take time and effort to ensure small business participation. We applaud that Senator Kerry and the Administration have offered inputs to begin to address the problem. We,

the Mass MEP, stand ready to deliver the solutions to small manufacturers in the field.

Thank you for the opportunity to testify before the Committee.

[The prepared statement of Mr. Robinson follows:]

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Chair SNOWE. Thank you, Mr. Robinson.

Ms. Kuc.

STATEMENT OF CAROL KUC, REPRESENTING WOMEN

IMPACTING PUBLIC POLICY

Ms. KUC. Good morning, Madam Chair. I am testifying today on

behalf of Women Impacting Public Policy, which represents 430,000

women and minorities in business nationwide. I serve as WIPP’s

procurement chair and am pleased to appear before the Committee

on this very important issue.

We commend the Committee for holding this hearing because our

WIPP members have told us that federal contracting is a top priority. A recent survey we conducted found 94 percent of respondents are ready and capable to bid on federal contracts. The survey

also revealed nearly a 95 percent gap between actual Federal Government contracts awarded to women-owned businesses and those

businesses willing to bid in the procurement arena. Our survey respondents stated that if the federal contract process were simplified with more realistic and attainable opportunities, they would

submit bids. In addition, a growing percentage, from 80 percent a

year ago to 90 percent, believes the current system does not offer

equal opportunities for women-owned and minority-owned businesses.

WIPP’s survey also found that 98 percent of our members believe

federal contracting unbundling would encourage women-owned

businesses to compete for contracts. After all, women-owned businesses are the fastest growing segment of all small business. Contracts awarded to women-owned enterprises have only minimally

increased from a 1992 benchmark of 1.3 percent while womenowned companies have grown 14 percent.

In the year 2000, Public Law 106-554 authorized federal agencies

to designate contracts for women-owned businesses. This law was

designed to assist agencies in reaching the 5 percent goal of awarding federal contracts to women-owned businesses. To date that law

has not been implemented. Our 430,000 members are still waiting.

WIPP’s membership has run head into a new way of bundling by

the Air Force by its e-procurement site, AFWay. This is a good example of the problems small businesses incur while trying to compete for federal business. In short, it is a Catch–22. If you want to

do business with the Air Force you have to be in the AFWay system as a vendor, but the Air Force has to choose you as a vendor.

In order to be chosen as a vendor you have to have had a previous

contract with the Air Force and there is no mechanism by which

you can apply to get into the AFWay system.

Can AFWay be fixed? Of course it can. The Air Force could decide to designate a portion of its business as women-owned, SDB,

8(a) certified, et cetera. The Air Force could decide to require substantial subcontracting to those same groups from its primes.

Another story we would like to share with you from one of our

members addresses a culture among contracting offices within

agencies that even unbundling cannot fix. As the Committee

knows, a company, if not awarded the winning contract, is entitled

to an inquiry. Through this process the company who bid but was

not awarded the contract can find out from the agency the winning

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price and design of the winning bid. When our woman-owned company asked for the information, the contracting officer said, ‘‘If you

challenge this you will never see another RFP come your way.’’

We would be remiss if we also did not share with you a story

from an information technology company with regard to working

with a prime contractor. This unfortunately is not an isolated case

and must be addressed with increased oversight.

A very large prime contractor solicited a woman-owned company

to be a subcontractor on a sizable contract with the Federal Government. However, to be an eligible subcontractor, the company

needed to secure a security clearance for an employee. This subcontractor was told that a contract was waiting for the subcontractor

when the security clearance was obtained. As the Committee

knows, securing a security clearance is not a short and easy process. This small company of 15 employees spent considerable time

planning for implementation of the contract, such as budget and

employee time, and resources were spent obtaining the security

clearance. When the security clearance came through the subcontractor called the prime—ready for work—but there was silence on

the other end. The prime will not even return the subcontractor’s

calls.

We offer the above examples, and there are many more, to highlight the fact that reform is long overdue. WIPP has made a number of recommendations to our policy-makers with regard to federal

contracting and offer them to the committee for its consideration.

We urge the Office of Federal Procurement Policy to publish a

monthly scorecard on awards to small businesses. Reward prime

contractors who use small businesses by using incentives. WIPP

would be pleased to host a forum with contractors from across the

country to encourage incentives. Let us give the SBA and the

OSDBUs the authority and the resources they need to review subcontracting plans. We suggest creation of an influence credit for

prime contractors who actively influence their lower-tier subcontractors to pursue small business subcontracting.

Clean up the CCR, Pro–Net and GSA small business databases.

The Federal Government should require verification of those claiming to be small businesses. We suggest that all contracts over

$100,000 be reviewed for small business participation.

We advocate that a federal certification should also be created

and accepted by states and localities, as well. This will save small

businesses significant time and money.

In closing, we want to commend Chair Snowe for holding this

hearing and the Administration’s leadership on this critical issue.

WIPP also commends the leadership of Senator Kerry on these

issues.

It is clear, Madam Chair, that contract bundling must be eliminated and changes made to the current way federal agencies treat

multiple award contracts. This government must be held accountable to the people it serves.

I would be pleased to answer questions.

[The prepared statement of Ms. Kuc follows:]

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Chair SNOWE. Thank you, Ms. Kuc, and I thank you for all those

recommendations. We will certainly evaluate them. We want to do

everything we can to make this process more efficient and more accessible to small businesses.

Obviously, Mr. Murphy, you have indicated based on your analysis, the trends have obviously moved in the opposite direction and

they have never been higher in terms of the number of contract

bundling that has occurred at the federal level. Is that correct?

Mr. MURPHY. Absolutely. It has especially accelerated since the

mid-1990s. With the advent of the procurement reforms it has become a lot easier for this process of accretive bundling to occur on

schedules and IDIQs and multiple-award-type schedules and this

has worked to the disadvantage of small firms.

Chair SNOWE. Is it your understanding that these contracts are

for an even greater period of time? Do you have any analysis that

has been done on that? If these contracts are for longer and longer

of periods of time for 10 or 20 years, obviously it then would omit

smaller businesses these contracts.

Mr. MURPHY. Oh, absolutely. If you look at, for instance, GSA’s

schedule contracts which get automatically renewed if they are

being utilized properly, they can last for 10 or 15 years. The bigger

companies have larger sales staffs and can market these contract

vehicles aggressively to numerous agencies and just outnumber

small businesses in their presence at buying activities around the

country.

Chair SNOWE. You were suggesting adjusting the definition of

contract bundling because it is more narrowly defined in statute

and does not include the whole idea of assembling accretive tasks.

I gather that this is becoming much more of a pattern on the part

of procurement offices. Is that what is happening? They are just assembling more and more dissimilar tasks?

Mr. MURPHY. Yes. We define a bundled contract as any contract

exhibiting different product service codes, different types of contract codes and different places of performance on it and this process of accretion on these contracts is accelerating.

Chair SNOWE. So what would you define as accretion? What

makes it different from what is in the current definition?

Mr. MURPHY. The current definition is strictly historical in nature in that it points to this contract and that contract that occurred in the past. They were combined and competed in such a

way as to prevent small business from bidding on it. And there are

just so many contracts, in our opinion, that can be identified in this

manner and once they are identified as bundled, they would never

be bundled again, so it seems like over a period of time, the number of bundled contracts could conceivably be reduced, become

smaller by that measure.

And in fact, we see, based on this process of accretive bundling

that, in fact, bundling is becoming more and more prevalent.

Chair SNOWE. I am certainly going to look at that. I wish I had

asked that of the first panel because I think that is certainly something we have to examine if that is becoming much more of a pattern and a practice that is another avenue for excluding small businesses.

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Mr. Adolphe, what has your relationship been with the Small

Business Administration in terms of your experience?

Mr. ADOLPHE. Actually, my experience with the Small Business

Administration has been very good. We found the office in Baltimore to be very helpful. They are very efficient and they often become our advocates when agencies are doing things that we think

are detrimental to our business. So we have had a very good relationship with the SBA.

Chair SNOWE. You cited two programs that you thought were excellent in terms of best practices. Do you think that there is more

that we ought to be incorporating in terms of best practices in law?

Mr. ADOLPHE. Absolutely.

Chair SNOWE. Ms. Styles indicated that one of the points in the

nine-point plan on the part of the Administration is to identify best

practices. I think that it would be important to also solicit the

views of small businesses and their experience with specific programs that are beneficial and should be adopted as best practices.

Mr. ADOLPHE. Absolutely. Thank you. If we look at what the

FAA is doing and we look at, for example GSA and the hub zone

GWAC, what they have done is they have limited those bundled

contracts to small businesses only and, in fact, large businesses

cannot even participate as a subcontractor.

What that means for us is when we compete for a task order, we

are not competing with a large subcontractor on somebody else’s

team. We know when we are competing with a small business, we

are competing with a small business, not the resources of a megacompany. We feel that is a best practice.

There are also other things that we have found that we think

would be very beneficial. When I looked at the definition of bundling and I looked at what some of the agencies were doing, I found

that agencies were doing a lot of things that were being described

as bundling and using justifications, like ‘‘We need to bundle,’’ or,

interoperability or national security. I believe that with today’s

technology and today’s developers, there are enough businesses out

there that specialize in developing technologies to make other disparate systems talk.

So, I think it sometimes could be disingenuous when agencies are

talking about interoperability as a reason for bundling. Looking at

what some of these other agencies are doing to help to unbundle

and spur innovation I think would be very helpful.

Chair SNOWE. Mr. Adolphe, you obviously had a bad experience

and cannot cite others for fear of retaliation.

Mr. ADOLPHE. Absolutely.

Chair SNOWE. Which is regrettable. And Ms. Kuc, you made reference to the same issue and another example of a woman-owned

business, which is really a sad commentary on where we stand

today, fear of retaliation. But can you tell me, do you think there

is a good way for us to address the issue of where a prime contractor does involve small businesses in the process of submitting

a bid to an agency and then, of course, as you found out—and I

think you mentioned, as well, Ms. Kuc—the contractor then does

not contact the small business after it has received the award.

Mr. ADOLPHE. Thank you for that question. What is interesting

is that under FAR 15 USC 637(d)(4)(f), it actually directs the agenVerDate 03-FEB-2003 10:57 Apr 13, 2004 Jkt 091188 PO 00000 Frm 00095 Fmt 6601 Sfmt 6601 D:\DOCS\91188.TXT SSC1 PsN: SSC1
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cy to seek liquidated damages when these firms fail to meet these

objectives and are, in fact, willful in that. I understand that the

government or these agencies lack the resources but I think the

first time an agency actually exercises that option, I think it is

going to raise a lot of eyebrows and people are going to be more

careful about their teaming agreements and adhering to these

goals.

I think secondly, I would advocate—the GSA maintains a website

that provides a list of all contractors that are suspended or

debarred. I would advocate that a list be generated, as well, for

companies that do not meet these small business requirements and

have that list be posted so that when other agencies are looking to

do business with these companies, they now have a list, similar to

the list of debarred firms, and they will know that these folks either are or are not doing what they claim in their proposals.

It will also be an opportunity for small businesses, like

OPTIMUS, to go to that site and when the small business is approached by a firm on the site they will know these guys do not

do what they claim.

Chair SNOWE. Ms. Kuc.

Ms. KUC. Madam Chair, yes, I know of evidence of women-owned

businesses who have found after a contract has been let, found

years later that they were listed in the subcontracting plan as subcontractors. These women were never contacted by the primes,

never knew that they were listed as a subcontractor. We must find

a way that we can verify that those people who are listed as subcontractors are actually subcontractors.

This is quite simple. All these primes have to do is list the e-mail

of the subcontractors and perhaps the contracting officers or the

small business program managers, whoever is overseeing the subcontracting plans, could then just verify by e-mail that they are indeed a subcontractor of that prime.

Chair SNOWE. Well, I find it rather amazing that they would include the name of subcontractors—

Ms. KUC. Goes on all the time.

Chair SNOWE. [Continuing.]—Which have not been approached

by the prime contractor?

Ms. KUC. That is correct.

Chair SNOWE. Mr. Murphy.

Mr. MURPHY. It is a well known fact that small businesses are

used a window dressing to win contracts where the agencies are requiring small business participation. And, there may be a simple

solution to this and, that is, why not require a contract clause in

every contract involving subcontracting that specifies that the

prime contractor will not be paid unless and until they can prove

they have met their subcontracting goals and make that part of the

contract and require an audit of that contract’s subcontracting

goals if there is any question. Or maybe even have a form that the

prime and the sub are both required to sign indicating that they

have met their obligations to one another.

Chair SNOWE. Good point. I will certainly look at that. I think

that it is a critical issue, not to mention the expense. Even if you

get involved in the process at the onset you still may tapped as a

subcontractor after the prime contractor receives the award. I am

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concerned about all the time and money that is spent just to be

part of that process initially and then to be omitted ultimately; or,

to have the prime contractor use your name, the name of your company, and then not even to be approached or to be asked by the

prime contractor. It’s pretty audacious.

Mr. Robinson, I know you strongly back Senator Kerry’s legislation and I am interested in the provision about establishing a uniform threshold of $2 million.

Now you heard the response by the earlier panel, Ms. Styles and

others—

Mr. ROBINSON. Yes, I did.

Chair SNOWE. [Continuing.]—About lowering that threshold, because I think the current threshold—I do have concerns with the

current thresholds and the multiple levels because I do think it

does omit—I think the thresholds are far too high, given what the

average size of the small business contract is, let alone the average

size of the prime contract.

Why do you think $2 million would be a better threshold as a

uniform standard government-wide?

Mr. ROBINSON. $2 million would still allow for some efficiencies

in buying. I mean we are asking all the buying agencies to do more

with less. But it still gives the average small, 10- to 20-person

manufacturer a chance to actually be able to meet a two- or threeyear contract at $2 million. A two-year contract at $7 million is

probably out of his range or her range at that point in time. It just

is too big.

The current level, I think, is $10 million and that is far too large.

I think you had some statistics about the average size of a contract

being $140,000 or something along those lines, so it has to be in

relationship to that.

Chair SNOWE. Would others agree? Did anybody have any comments on that in terms of redefining the threshold at a different

level? Would it make a difference?

Ms. KUC. Hopefully it will make a difference.

Mr. ROBINSON. It could be an evaluated threshold that each year

becomes evaluated based on the size of the contracts and the participation. In other words, if $2 million does not yield a reasonable

amount of small business participation, then it goes down and it

floats down a year until small businesses are participating in the

contracts. That is another approach to this. It is a little bit harder

for the Administration or Executive Branch.

Chair SNOWE. You also, in that legislation, have specific protections for teaming arrangements. Could you expand on that about

protections for teaming arrangements? I think teaming arrangements are very important and critical to including small businesses. Has it been your experience that those teaming arrangements need that kind of protection in law?

Mr. ROBINSON. Sometimes if you get teaming arrangements between two fairly large small businesses then they start to become

treated as a large business. As Senator Kerry indicated in his legislation, regardless of the aggregate mass of the companies, they

would remain small businesses and be entitled to the protections

that small businesses get and I think that that was significant. I

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did not notice those comments in the Administration’s proposal

when I read it.

Small businesses are kind of at a disadvantage when they are

out there competing with companies with a lot more resources and

marketing abilities and they need help. Teaming is a great way for

them to participate in contracts that might be too large for them

to do by themselves and that is what we are working on and trying

to develop that.

Chair SNOWE. Is it your experience, Mr. Murphy—would you

know, Ms. Kuc—is teaming used consistently government-wide or

is it sporadic?

Ms. KUC. First of all, the contracting officers need to understand

teaming arrangements. I personally know of some potential contractors who were denied contracts because they did present a

teaming arrangement. Contracting officers do not favor teaming arrangements.

Chair SNOWE. Why would that be the case?

Ms. KUC. They seem to see it as a weakness of either one or both

of the partners or multiple partners. They do not seem to see it as

a strength. And the contracting officers need to be cognizant of the

fact that teaming arrangements are encouraged by the agencies. I

do not believe that is the case now.

I also would like to state that WIPP supported Senator Kerry’s

legislation and we will continue to support it.

Chair SNOWE. Mr. Murphy.

Mr. MURPHY. Yes, I think there is an issue of timeliness here,

too, that small businesses need more time on a lot of these procurements to put teams together. The problem increasingly is that they

do not know about the opportunities and in my conversations with

OSDBU representatives, the contract officers in these far-flung

purchase offices and buying activities are actively trying to bypass

the involvement of the OSDBUs, that there is a view that the

OSDBU office provides an odious burden on their ability to get a

contract out quickly.

And I have spoken to OSDBUs who are complaining that they

do not have timely access to the opportunities their own contract

officers out in the field are issuing and they therefore are behind

the 8-ball on being able to assist small businesses in developing

teaming relationships in the first place.

Chair SNOWE. So there are not sufficient numbers of personnel

out in the field to help them with that.

Mr. MURPHY. Well, I think it is part of the dynamic of the current procurement environment, where we are trying to do more

with less, we have cut the procurement workforce, they have a lot

of requirements on their desks and they are just trying to move

them off as fast as possible and they view the small business process as time-consuming and burdensome, so they actively try and

bypass it.

So there is this tension between the regions and the central offices in trying to assist small businesses.

Chair SNOWE. There are conflicting dynamics, there is no question, as a result of the trends in the procurement process and you

are right about doing more with less. So as a result, people are

going to pursue the path of least resistance. I mean bureaucracies

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are risk-averse so they are going to do what is going to come easy

sooner and faster and ultimately I think they are not going to use

their creativity and innovation in making sure that small businesses are going to be part of it.

That is why I think it is so important that the Administration’s

nine-point plan be a workable one and one that is not only monitored but implemented in a systematic way. I think what Mr. Cooper was saying is going to be critical to making sure we have reliable measurements and the information with which to determine

whether or not it is being implemented and ultimately demanding

accountability from those who implement the process.

Do any of you have any objections to what the Administration is

doing, or, to the nine-point plan? I mean do you see any problems

with it? Do you care to comment on it at all?

Mr. Adolphe.

Mr. ADOLPHE. I pretty much agree with everything in the plan.

The only thing that does concern me is discussion about recertifying small businesses each year, I think 10 or 20 years is unworkable but I think one year is an undue burden on small businesses

and things change too quickly. One year we can have a banner

year and the next year could be not so good, and I think to be decertified after a year is going to be burdensome.

I look to how NAICS codes, for example, your participation under

NAICS codes are done where it is a three-year rolling average. I

think that would be something that would be helpful, either that

or a five-year certification I think would be something that would

be very helpful to small businesses.

Chair SNOWE. I appreciate that.

Does anybody else care to comment on the Administration’s plan?

Ms. KUC. I agree.

Chair SNOWE. Do you think they are moving in the right direction?

Ms. KUC. I do.

Chair SNOWE. It is all-inclusive?

Mr. Murphy and Mr. Robinson.

Mr. ROBINSON. Yes, I do think that thresholds need to be examined because I think that the $7 million threshold is much too

large for a small business or even a team to deal with.

Chair SNOWE. Mr. Murphy.

Mr. MURPHY. I think Ms. Styles brings a tremendous breath of

fresh air to small businesses and what a relief to have such a vocal

advocate on our behalf. I think there are a number of things that

could be done to strengthen her effort, if I may.

Chair SNOWE. Yes, go right ahead.

Mr. MURPHY. I think that there is a lot of work that needs to be

done in terms of delivering procurement information in a timely

manner. As a company that has processed the federal procurement

data now for 18 years, I can tell you this is the latest we have ever

gotten fourth quarter 2002 data in our history, in our company’s

history. We are still providing our clients, among whom are several

agencies, third quarter 2002 historical contract data and this is

simply not timely for a lot of the needs of people who are on the

cutting edge of trying to assist small businesses.

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Along the same lines of information provision, the 295 form reporting requirements are a disaster. The 295 form is woefully incomplete. It is inconsistently reported. It is poorly monitored and

in no way provides any valuable information for assessing whether

the small business subcontracting provisions are being met by the

large firms. I think we cannot enforce the subcontracting provisions

without this kind of information.

I take kind of a Jerry Maguire ‘‘show me the money’’ approach

to the small business procurement goals in that initiatives and incentives and reviews are all well and good in enforcement but I

think that at some level we need to assess or address the issue of

perhaps making the 23 percent goal a part of the budget process

so that people have to opt out of the small business goals, rather

than passively wait till the end of the year and tally up what we

have awarded to small businesses and say oh, gee, we did not meet

it this year. Why not make the 23 percent goal part of the budget

allocation process and require agencies up front to say these are

the programs we are putting in to meet our 23 percent goal and

have the OSDBU office as part of that process early on and have

them sign off on it?

And if any programs, for one reason or another, are determined

not to be allocable to small businesses during the course of the

year, force like a zero sum deal where if you take a program out

of your small business allotment you are going to have to put another one back in.

I think that there needs to be a lot more focus on the money aspect of this and I think small businesses will be much more reassured that this is not just going to be an exercise in shuffling paper

but an actual determination that dollars are reaching small businesses the way they should.

I think that we should not raise the small purchase threshold, the open market $2,500 threshold. I think that would work to the

disadvantage of small businesses. It should be kept at $2,500.

I think that we need to strictly enforce the monitoring of purchases between $2,500 and $100,000. We are finding in our data

that a tremendous number, billions of dollars of purchases are

going to large businesses when, in fact, this is money that is supposed to be reserved for small businesses.

And I am really pleased to see OFPP’s and SBA’s initiatives with

regard to the recertification of small businesses annually and I

think this is to be commended, but we have to monitor that carefully. Because of all the acquisition and merger activity that is

going on, we are finding in our database that we are identifying

large businesses that have acquired—small businesses that have

become part of larger businesses months and years in advance of

any indication in the CCR and ProNet databases that they are no

longer small.

And, as I mentioned, I think that we need to broaden the definition of bundled contracting.

Chair SNOWE. I appreciate it. This has been very helpful to the

Committee and I certainly welcome any additional thoughts you

have. This has been very constructive and productive here today

and I really appreciate all the recommendations that you have all

made individually and collectively. I think it will also be very helpVerDate 03-FEB-2003 10:57 Apr 13, 2004 Jkt 091188 PO 00000 Frm 00100 Fmt 6601 Sfmt 6601 D:\DOCS\91188.TXT SSC1 PsN: SSC1
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ful to the strengthening of this process to see what we, as I said

earlier, are doing that works and to reinforce that.

Certainly I will be looking at the SBA reauthorization process

and anything that I can do within that legislative jurisdiction, I

certainly will. I will otherwise certainly advance a lot of the suggestions that you have made in terms of being able to bolster the process that ultimately we hope will work in terms of what the Administration has advanced and initiated on behalf of small businesses.

So, again, I just want to thank you for all of your information

here today and I think that it does confirm that there is no easy

solution to this whole process but I think this is the right step in

the right direction. And much has been done and clearly more

needs to be done and we hope to work together to make sure that

that can happen and become a reality.

So again I want to thank you for your time spent here today.

The record will remain open for two weeks until April 1 for any

further submissions that anybody would like to make. Also, if any

members of the Committee wish to submit written questions to any

of the witnesses, they can file them with the Committee clerk.

The hearing stands adjourned.

[Whereupon, at 11:20 a.m., the hearing was adjourned.]

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