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38–208 PDF 2007

FULL COMMITTEE HEARING TO CONSIDER

LEGISLATION UPDATING AND IMPROVING

THE SBA’S CONTRACTING PROGRAMS

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

OCTOBER 4, 2007

Serial Number 110-50

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 3

Braley, Hon. Bruce .................................................................................................. 4

WITNESSES

PANEL I: 

Preston, Hon. Steven C., U.S. Small Business Administration ........................... 5

PANEL II: 

Styles, Angela, Crowell & Moring .......................................................................... 23

Sharpe Jr., Joseph, The American Legion ............................................................. 25

Dorfman, Margot, U.S. Women’s Chamber of Commerce .................................... 28

McCracken, Todd, National Small Business Association ..................................... 30

Denlinger, Steven, U.S. Hispanic Chamber of Commerce ................................... 32

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 41

Chabot, Hon. Steve .................................................................................................. 43

Braley, Hon. Bruce .................................................................................................. 45

Preston, Hon. Steven C., U.S. Small Business Administration ........................... 47

Styles, Angela, Crowell & Moring .......................................................................... 51

Sharpe Jr., Joseph, The American Legion ............................................................. 58

Dorfman, Margot, U.S. Women’s Chamber of Commerce .................................... 64

McCracken, Todd, National Small Business Association ..................................... 68

Denlinger, Steven, U.S. Hispanic Chamber of Commerce ................................... 73

(V) 

(1)

FULL COMMITTEE HEARING TO CONSIDER 

LEGISLATION UPDATING AND IMPROVING 

IMPROVING THE SBA’S CONTRACTING 

PROGRAMS 

Thursday, October 4, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

2360, Rayburn House Office Building, Hon. Nydia 

Vela ́zquez[Chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Shuler, Cuellar, Braley, 

Clarke, Ellsworth, Sestak, Hirono, Chabot, Bartlett, Akin, and 

Davis. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. Good morning. I’m pleased to call this 

hearing to order. 

Today’s hearing will review legislation to strengthen small firms’ 

ability to secure federal contracts. Action to update and modernize 

this initiative is long overdue. 

In Fiscal Year 2006 the federal government purchased a record $410 billion in goods and services. Unfortunately, the reality is that 

little was purchased from small businesses. Government buyers 

continue to turn to just three percent of the nation’s companies, 

large corporations, for nearly 80 percent of their work. This makes 

little sense when it is small businesses that provide the best value 

of the taxpayer’s dollar. 

In an effort to rectify this imbalance, the SBA’s contracting programs were developed to give newer, less established businesses an 

entry point into the federal marketplace. However, a number of 

these initiatives have not been modernized for decades, and as a 

result, small firms are falling behind. 

The purpose of today’s hearing is to examine legislation that will 

start to turn this around. There are four critical programs that we 

intend to address: 8(a), HUBZones, the Women’s Procurement Program, and the Service Disabled Veterans Contracting Initiative. 

Each of these efforts play a vital role in helping various segments 

of the small business community to break into the federal marketplace, and it is clear that as they stand today, these programs are 

failing to accomplish this intended mission. 

2

It is my goal to insure that this legislation accomplishes two primary purposes. First, these programs must operate in a way that 

maximizes taxpayers’ value. 

Second, each initiative must be implemented in a manner that 

increased the efficiency of the federal procurement marketplace. To 

insure that taxpayers’ interests are protected, the proposed legislation takes several important steps. 

Given recent occurrences of fraud, this bill prohibits the award 

of a contract if the business owner lacks integrity. It also requires 

that there are both prime and subcontracting goals for each SBA 

contracting program, as well as annual reporting on employment 

and income for all participants. 

Together these changes will enhance the quality of participants 

and weed out any bad actors in SBA contracting programs. In an 

effort to maximize the efficiency of each of these initiatives, the bill 

standardizes several key elements. The most important area this is 

accomplished is with regard to the soul source limitation, the level 

at which contracts can be awarded without competition. 

Above these, companies will be required to compete for contracts. 

This will provide much needed clarity to the agencies employing 

these programs. 

Another major issue is the need to modernize these programs. 

Right now there is concern that many of the companies that have 

graduated from the 8(a) company are actually receiving work. In 

order to reverse this, we have required the SBA to get back into 

the contracting process. 

The proposal also updates the net worth limitation so that companies can continue to grow stronger while maintaining their 8(a) 

status. 

At long last the Women’s Procurement Program will be implemented. We propose that the SBA has 90 more days to finish the 

studies and studies of studies until such time as the SBA finishes 

agencies will be able to determine what industries are under represented. 

Further, we suggest that the SBA should use a broader definition 

of under representation so that programs are not so narrow as to 

only help an estimated 500 businesses. 

During our September 19th hearing, the SBA concurred that the 

HUBZone program is flawed and subject to widespread fraud. We 

have proposed a number of actions to mitigate this problem, including on site verification of businesses, limitation on offices outside 

of HUBZones, and insuring that the benefits of contracts awarded 

through the program go to low income areas. 

We have also heard the concerns of the veterans community and 

are proposing to require the SBA to implement its responsibility 

under Executive Order 13360. Little action has been taken to date 

and these businesses deserve more. 

We have also suggested that companies that falsely represent to 

be owned by service disabled veterans are subject to civil penalties. 

This is not different than what is in current law for every other 

business that misrepresents itself. 

With this legislation I am confident that we are taking an important and long overdue step to modernize the SBA contracting programs. These initiatives all have record levels of participation, and 

3

these business owners deserve more than what they are just getting. 

I look forward to continuing my collaboration with the Ranking 

Member, Mr. Chabot, and I now yield to him for his remarks. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you, Madam Chair. 

And good morning and thank you all for being here as we examine the craft of the Small Business Contracting Improvements Act 

of 2007. This legislation that we are going to be discussing today 

modifies government contracting programs authorized by the Small 

Business Act. 

I would like to thank Chairwoman Vela ́zquez for holding this 

hearing and each of the witnesses, including Steven Preston who 

is the head of the Small Business Administration, and all of the 

witnesses for taking the time to provide important testimony to 

this Committee. 

As early as World War II, Congress recognized that a strong 

economy and industry base requires a robust small business economy. More than 60 years ago Congress created the Smaller War 

Plants Corporation to purchase goods and services from small businesses acting as subcontractors. 

At the end of the Korean conflict, the Small Business Administration was created to provide assistance to small businesses. One 

aspect of that policy and the one we are examining today is the requirement that small businesses be awarded a fair proportion of 

contracts for the purchase of goods and services by the federal government. 

Despite the extra assistance from the SBA, small businesses 

owned by socially and economically disadvantaged individuals, 

women, service disabled veterans, and those located in historically 

under utilized business zones do not receive their fair proportion of 

contracts to sell goods and services to the federal government. 

If federal contracting is to benefit the entire small business sector, agencies must do better in dealing with these targeted small 

business groups. The legislation before us today will rectify some 

of the problems associated with the operation of these programs. 

However, I believe that some aspects of this legislation need modification to avoid undue regulatory burdens on small businesses. 

Furthermore, there are some parts of the legislation that simply 

need clarification to remove ambiguities that could make implementation difficult. 

Finally, I look forward to hearing from the witnesses on other 

suggestions that could better integrate these targeted programs 

into the overall federal procurement process. 

Again, I thank the Chairwoman for holding this important hearing and look forward to working with her as the final piece of the 

Small Business Act reauthorization moves through the legislative 

process. 

And I yield back. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Chabot. 

And I would like to recognize now Mr. Braley, Chair of the Subcommittee on Contracting and Technology, for an opening statement. 

4

OPENING STATEMENT OF MR. BRALEY 

Mr.BRALEY. Thank you, Madam Chairwoman. 

As Chairman of the Small Business Subcommittee on Contracting and Technology, I have a special interest in the issues we 

will be discussing today. In our first Subcommittee hearing, we 

heard witnesses representing women-owned businesses describe 

how the federal government was failing to keep its commitment to 

them. They talked not only about the five percent goal for womenowned businesses not being met, but also how the Women’s Procurement Program, which was enacted in 2000, has yet to be implemented by the SBA. This is a disgrace. 

I also want to talk about the HUBZone Program. Established in 

1997, this program promotes community development for low income or high unemployment areas. In Iowa’s First Congressional 

District there are 21 HUBZone areas. 

One thing I like about the legislation we’re discussing today is 

that it prohibits the use of HUBZone preference for construction 

contracts that are further than 150 miles away from the recipient’s 

HUBZone. I want to be sure that the work being done in these 

zones is truly contributing to the local economy. 

By law, federal organizations are required to support small businesses. However, over the past five years, total government contracting has increased by 60 percent, while small business contracts have decreased by 55 percent. This suggests that the SBA’s 

procurement initiatives are not bringing work from the large business’ share to the small business share, but rather are forcing 

small businesses to compete for an increasingly smaller piece of the 

pie. It is essential that small businesses have access to the over $400 

billion per year federal marketplace. The Small Business Contracting Improvements Act nicely complements H.R. 1873, the 

Small Business Fairness in Contracting Act, a bill I introduced in 

April that passed later in the House on May 10th by an overwhelming bipartisan vote of 409 to 13. 

My bill will give small businesses more opportunities to compete 

for federal contracts, raise the small business federal contracting 

goal from 23 percent to 30 percent. This means that all of the programs we discussed today will have greater opportunities to compete for federal contracts. 

As we have heard, small businesses are the driving force for job 

creation in this country, and we must insure that these businesses 

not only remain healthy, but they have the support they need to 

grow. This Committee needs to work together to make sure that 

small businesses are not shut out of the federal marketplace. 

Unfortunately, my State of Iowa ranks 48th in terms of government contracting dollars awarded to small businesses. Small businesses are the backbone of the communities within my district in 

Iowa, as they are in most congressional districts. Allowing them a 

fair opportunity to bid on federal contracts can bring economic vitality to these towns and cities. 

I am pleased that we will continue our discussion on this important subject and send a clear message to small business owners 

that they will finally receive a fair opportunity to compete for and 

win federal contracts. 

5

I want to thank our witnesses for taking time from their busy 

schedules to join us today. 

ChairwomanVELA ́ ZQUEZ. We are going to start with our first 

panel. I want to welcome—is there any other member who wishes 

to make an opening statement? Sorry. 

So we are going to start with our first panel, and I want to welcome the Administrator of SBA, Mr. Steven Preston. He has held 

this position since July of 2006, and I welcome him again back into 

this Committee. 

Thank you very much. 

STATEMENT BY THE HONORABLE STEVEN C. PRESTON, 

ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION 

Mr.PRESTON. Thank you, Chairwoman Vela ́zquez, Ranking Member Chabot, members of the Committee. 

We at the SBA are committed to creating an environment where 

under served and economically disadvantaged groups will flourish 

and enter the federal marketplace with fair access to federal contracts. We have taken many actions to advance that objective, and 

I will briefly outline a few of them here today. 

First of all, as you all know, we have changed rules on certification to make sure that small businesses are, indeed, the ones getting small business contracts, the first ever rule change in that 

area. 

Secondly, with the joint request of me and the White House Office of Federal Procurement Policy, federal agencies spent months 

reviewing 11 million contract actions from the past two years to 

cleanse the database of miscoded contracts. Those were incorrectly 

reported as small business contracts. Almost five billion of misrepresented contracts have been cleaned out of the database for 

2005 alone. We need to feel confident that the data we’re using is 

correct so that we can prevent those from happening in the future. 

In addition, we are holding federal agencies accountable for hitting their goals. In fact, just a couple of months ago, we released 

the first ever small business procurement score card. We rated 

agencies red, yellow or green on goal achievement and progress. 

The score card will help agencies measure their achievement in 

small business contracting and increased transparency and accountability while working with federal agencies to achieve mandates. 

I am very proud of the progress we have made in those areas, 

but we are not stopping here. We continue to pursue further opportunities that may be less visible to the Committee internally at the 

SBA. We have increased training for our field staff to enable them 

to improve outreach and improve support for small business clients 

and refocused our PCRs on their primary responsibility, identifying 

small business opportunities at the federal agencies. 

In fact, almost 1,500 SBA employees in various functions have 

received a full week of training in the past several months with an 

approximately 90 percent strong approval rating on the part of employees in terms of the quality of the training. This is very important to pushing the mission of the agency forward and our ability 

to serve well. 

6

Within the HUBZone program, we are taking steps to insure that 

those participating in that program are following the rules. We are 

committed to reviewing five percent of all certifications through a 

full scale program of examinations. We are either implementing or 

have already implemented all of the recommendations from the Inspector General’s 2006 report. 

SBA has acted to reduce misrepresentation and miscoding of 

HUBZone awards. In the past contracting authorities failed to 

verify HUBZone status of the awardees for HUBZone contracts. To 

resolve this, we currently have a regulation pending before the 

FAR Council that will require firms to test to the HUBZone status 

not only at the time of bid, but also at the time of award. 

This regulation will help resolve both miscoding and the certification issue. At the same time, the federal procurement database 

is being reconfigured to block any entry for HUBZone firms that do 

not have the required certification. 

In addition, SBA is working with our agency colleagues to educate contracting officials on the simple steps that they need to take 

to verify HUBZone status. 

In the 8(a) Business Development Program, we have taken a 

number of steps to improve the processes, to eliminate the backlogs 

of processing 8(a) and STB certifications, to increase the flow of 

firms into the program quickly and easily, as well as to approve 

oversight of the program. 

The agency has revised its partnership agreements which delegate 8(a) contract execution function from the SBA to various federal procuring agencies to clarify their roles and their responsibilities for monitoring contract compliance of and performance by 8(a) 

firms. 

Agencies will now be held accountable for meeting all SBA regulations as well as FAR regulations. Our goal is to broaden the access to 8(a) contracts to more program participants and insure that 

firms and agencies are using the program properly. 

Now I would like to comment briefly on the legislative proposals 

from the brief outline that we received. SBA would be opposed to 

the elimination of that delegation of authority as proposed. Agencies, we believe, need a streamlined process for making 8(a) 

awards. Since the delegation of authority was created in 1998, the 

program has grown nearly 40 percent. Without this authority, SBA 

and the agencies will be required to return to the laborious process 

of passing letters of intent back and forth. 

Out of concerns about significant delay, SBA would suggest 

amending the process rather than eliminating it, and as I mentioned before, SBA has already redrafted the agreement with the 

agencies. 

Regarding the net worth standard, SBA has not found that the 

current 250,000 level is a barrier to entry in the program. The program participation stands at an all time high. Applications are 

coming in steadily. While studies have shown that index for inflation since the time it was instituted, the standard would be approximately 550,000, we do have concerns over a blanket $750,000 

minimum. 

7

I must also point out that our Inspector General has repeatedly 

expressed concerns over the nature of economic disadvantage and 

our existing definition. 

SBA is concerned over the proposal to require on-site evaluations 

before a firm’s second contract in the HUBZone program. We do 

foresee significant cost and logistical challenges in implementing 

that program effectively. The FAR regulation SBA has pending will 

improve accuracy significantly, and that will require attestation of 

HUBZone status at the time of an award of any contract. 

However, consistent with the Committee’s concern, SBA is committed to pursuing greater enforcement and assessment of penalties against firms that violate the program rules. We’re equally 

concerned about the other provision in this title restricting the 

award of HUBZone construction contracts outside of a 150 mile radius from the HUBZone’s primary location. 

Depending on the state or the location of the HUBZone, this 

would effectively eliminate any HUBZone firms from competing for 

work at all. For example, a HUBZone construction firm on a Native 

American reservation would potentially be unable to bid on contracts in the nearest city. 

We have no objection to the provisions included in the veterans 

portion of the proposal. False certification affects all firms, and obviously SBA does not object to the codification of the terms of President Bush’ executive order. So we’re committed to implementing 

that order. 

And then finally, we do have concerns about the proposal for increase in the sole source award authority to ten million. This provision has the potential to create a significant pool of large sole 

source contracts that would be outside the reach of most small 

businesses. If the Committee’s concern is to reduce this disparity 

in the 8(a) program, we would not suggest this approach because 

creating that authority we think is only likely to increase the gap 

between small and large 8(a) firms. 

So that completes my testimony, and I would be happy to answer 

any questions at this time. 

[The prepared statement of Mr. Preston may be found in the Appendix on page 47.]

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Preston. 

Mr. Preston, SBA is opposed to conducting background investigation on companies participating in SBA contracting programs. Yet 

according to your testimony, because of the unique relationship between SBA and 8(a) companies, they must have this reviewed. 

That’s what you stated in your testimony. 

So if they lack character, they will not be approved. The SBA 

does not do this with the HUBZone applicants. A company associated with the recent bribery scandal, Shirlington Limousine, has 

an owner with a long list of convictions, 62 pages. He had plead 

guilty or been convicted for crimes such as robbery, attempted auto 

theft, bail jumping, receiving stolen goods, drug possession and contempt of court. 

How did this company, who would not be approved into the 8(a) 

program with this record get approved into the HUBZone Program? 

8

Mr.PRESTON. As you know, in most of these other programs the 

contracting officers at the agencies have the primary responsibility 

for understanding the firm that they are dealing with and their capability to provide services. 

We manage the 8(a) program. It is a very different program. It 

is a business development program. We have these people for nine 

years potentially, ten under your rules. It is our responsibility to 

oversee those companies, and we provide very extensive support of 

them. 

And so I think the 8(a) program is different than these contracting designations in the other subgroups. 

ChairwomanVELA ́ ZQUEZ. Mr. Administrator, help me understand 

this. When you talk about the unique relationship between the 8(a) 

and the agency, I thought that the agency delegated that authority 

in 1993. 

Mr.PRESTON. We are delegating contracting authority to them. 

ChairwomanVELA ́ ZQUEZ. Yes. 

Mr.PRESTON. We continue to run the 8(a) program. We continue 

to do their annual certifications. We continue to provide business 

development services. We continue to work actively with those 

firms in helping them find federal contracts, both through our business development specialists and our PCRs. 

And, by the way, the agency spends over $30 million administering this program to support these people. 

ChairwomanVELA ́ ZQUEZ. If you continue to provide all that you 

claim you are providing, the agency is providing for the 8(a) programs, then how could you explain that in 2006 the universe of 

8(a) companies were 12,262 enrolled in the 8(a) program, yet 93 

percent of those companies did not get anything and only seven 

percent got work? 

I believe that your agency has taken, you have taken yourself out 

and no longer work with those companies to make sure that they 

get the federal contracts. 

Mr.PRESTON. Well, ma’am, I think that data may be extrapolated 

from a very small sample, and we are pulling that data together 

to look at the full picture. We do not believe that the number is 

that small. 

And what I would tell you is we are taking many actions. It is 

very important for us, you know, to allow these people to get a fair 

showing in the federal contracting picture. 

ChairwomanVELA ́ ZQUEZ. I hear you, but I want for you to hear 

me. This is your report. These are your numbers. In 1999, there 

were 6,409 8(a) company. Only 31 percent got work. In 2006, things 

are getting worse. Only seven percent got work. So something is 

not working there. 

Mr.PRESTON. I think you need to read the footnotes in that report and understand what it says and the standard sample that it 

was taken from. We are going down the road of getting full data 

on this, but it’s a heavily manual process, and we would be happy 

to provide that to the Committee when we get it. 

ChairwomanVELA ́ ZQUEZ. Let me ask you: would you oppose the 

provision that will require background checks for all the companies, including the HUBZone? 

9

Mr.PRESTON. I do not have a comment on that right now. I apologize. I did not know that there was a provision that—

ChairwomanVELA ́ ZQUEZ. SBA does not have a position regarding 

a provision that will help without criminals? 

Mr.PRESTON. For us to provide background checks on every one 

of those firms that want to get a qualification for any one of our 

programs would be a very significant undertaking, and I feel the 

need to look into it more before I give you a comment. 

I think I need to understand more broadly what it means to the 

contracting picture. Our understanding of what you all are proposing did not include that from my understanding. 

ChairwomanVELA ́ ZQUEZ. Well, we are talking about background 

check now required to all the companies and on-site reviews of 

those companies in the HUBZone program. You have two Inspector 

Generals reports, one that was conducted in 2003 that identified 

definitively fraud in the HUBZone program, and then another one 

in 2006 where the inspector general concluded that virtually no improvement, except that there are more companies in the program, 

but no improvement in dealing with the issue of fraud. You’ve got 

a problem. It has got to be fixed. 

And if the agency is not doing it, the Committee will do it. 

Mr.PRESTON. Well, I think we have taken a number of actions 

since then, and I think it is also important to understand when you 

look at that data that when we do examinations on HUBZone firms 

and when we ask them to recertify, there are many reasons why 

they do not recertify and most of them have nothing to do with 

fraud. 

Many of these firms do not exist any longer when we go for the 

recertifications. Many of them aren’t getting federal contracts 

through set-asides. So they choose not to recertify. 

In addition, we have taken many actions, some of which I described in my testimony, that we think significantly tighten up the 

process around HUBZone, and I should also mention that we have 

met with our IG, and we are in concurrence and acting on every 

single one of those recommendations. 

ChairwomanVELA ́ ZQUEZ. Yes, and I heard for the first time today 

in your testimony that you talk about a regulation, and this is in 

reference to your concern on the on-site examination. And you said 

that could be duplicative of pending regulations. 

This is the first time that I heard that you are working on regulations, if the implementation of those regulations will take as long 

as the regulations to implement the Women’s Procurement Program, seven years. 

Mr. Administrator, the 8(a) program requires an owner to have 

a personal net worth of less than 250,000 to enter and cannot exceed 750,000. The Deputy Administrator indicated that the SBA 

was going to propose legislation to raise this threshold. Because 

this concern has not been addressed for nearly 30 years, the Committee intends to act. 

Do you believe, and just give me an answer, yes or no, that the 

current net worth limitation is out of date? 

Mr.PRESTON. The current net worth limitation has not been updated for many years, and if it is your intent to provide a higher 

threshold, then I suppose it is. 

10

ChairwomanVELA ́ ZQUEZ. Does the SBA believe that kicking companies out of the 8(a) program because they have exceeded an arbitrary net worth limitation is fair? 

Mr.PRESTON. Ma’am, I think that we need to look at what your 

objectives in the program are and set a net worth limitation based 

on that. My understanding of the language is that it is designed 

to represent economic disadvantaged, and I think we have to understand what we think economic disadvantage is. 

That is different than just keeping people out of the program. 

There is a construct there statutorily that we need to kind of work 

through. 

ChairwomanVELA ́ ZQUEZ. But also we should be not penalizing 

companies for doing much better and growing their companies. 

Mr.PRESTON. We are not. 

ChairwomanVELA ́ ZQUEZ. And with today’s economy, I just want 

to ask you. In today’s economy is $750,000, isn’t that just too low? 

Mr.PRESTON. Ma’am, well, first of all, the $750,000 is net worth 

excluding equity in the home and excluding equity in the business. 

So the net worth level is in most cases going to be dramatically 

higher. 

Secondly, I think the way the statute reads is we are looking at 

personal economic disadvantage, but it is applying it to a business 

program. So as a business person sitting here, you know, I think 

we have got a little bit of a mismatch, frankly. 

So if you are asking me what describes personal economic disadvantage, I would tell you that most of those people are going to 

be in the top ten percent net worth in our country. 

If you are asking me what puts somebody in a competitive position, as in overall business against other businesses in that area, 

I think it is an entirely different analysis. But my understanding 

is that is not what the statute leads us to. 

ChairwomanVELA ́ ZQUEZ. Why is that your understanding? 

Mr.PRESTON. I believe that is what it says, individual economic 

disadvantage. 

ChairwomanVELA ́ ZQUEZ. Does the SBA concur that an owner of 

a construction company, given that it is a very capital intensive 

company, needs a higher net worth than the owner of a janitorial 

service company? 

Mr.PRESTON. We are not talking about the net worth of the company. Your proposal is the net worth of the individual in addition 

to the net worth of the company. So I think those are two different 

discussions. 

ChairwomanVELA ́ ZQUEZ. We are talking here and my question to 

you is the owner of a construction company. We are talking about 

the individual net worth. I am not talking about the construction 

company itself. 

Mr.PRESTON. I think if you are asking about the competitiveness 

of the construction company owned by an individual, you need to 

look at the capitalization of that company when you are considering its ability to compete effectively. 

And that is my initial comment, is I think we are sort of talking 

about apples and oranges. 

ChairwomanVELA ́ ZQUEZ. No, those are not apples and oranges, 

Mr. Preston. 

11

Mr.PRESTON. Ma’am, if I have a construction company that has 

got five million in net worth or 20 million in net worth and the individual has 100,000 in his bank account or an individual that has 

got a million in his bank account but no net worth in the construction business, you know, I think those are two different analyses. 

And that is why I am perplexed by the question. 

ChairwomanVELA ́ ZQUEZ. Doesn’t he have to personally guarantee 

the bonds? Doesn’t he have to personally guarantee the loans? 

Mr.PRESTON. In many cases, but you are asking me about competitiveness. 

ChairwomanVELA ́ ZQUEZ. Let’s go now and talk about a program 

that we have been talking since I do not know; I just cannot recall, 

but this is a question that I hate to ask and I know that you hate 

to answer, but here we go again, Mr. Preston. 

The regulations to implement the Women’s Procurement Program have been in OMB under a 90-day review since March 21st, 

more than six months. In your testimony before this Committee on 

February 8th, I asked when the program will be up and running. 

You told me that you hoped to be through the regulatory process 

this last summer. 

And your Deputy Administrator was here on September 19th 

again, and I asked the same question, and I have heard every excuse in the book as to why this program is not up and running. 

So tell me why this Committee should not take action at this 

time to get this program implemented? 

Mr.PRESTON. Well, I agree that it is taking a long time, and it 

is taking too long, and it is taking longer than certainly we expected it would. And so I share your frustration, and I understand 

it. 

I will tell you that in spite of these delays, we have had many 

people in our agency heavily dedicated to try to get this thing 

across the line, and we committed to work hard to get the RAND 

study done. That happened. We promised you or we told you we 

hoped to make it public when it came out. We made it public right 

away. We put preliminary rules in the interagency process in April, 

and we have been working on it very hard since then. 

Yesterday we resubmitted a proposed rule to the interagency 

process, which incorporates everything. Our understanding is based 

on the issues that have to be addressed, our understanding is that 

under the Administrative Procedures Act we need to go to proposed 

rule, and so it’s back in the interagency process. 

And we will continue to do everything we possibly can to support 

the 24 agencies that need to review it and the other departments 

in the federal government to help them through the process. 

ChairwomanVELA ́ ZQUEZ. Will that mean that the 90 days—

Mr.PRESTON. That means that—

ChairwomanVELA ́ ZQUEZ. —clock will start again? 

Mr.PRESTON. —the 90 days clock starts ticking again, and then 

it will be available for public comment. 

ChairwomanVELA ́ ZQUEZ. You are lucky I am not the previous 

Chairman. Mr. Manzullo used to threaten witnesses here, including the CMS Administrator, to bring their toothbrush and toothpaste until things got done. Maybe we need to start adopting that. 

12

Let me ask you a final question now. In November of 2005, the 

U.S. District Court for the District of Columbia found that SBA 

had unreasonably delayed implementation of this program. The 

court found that, and I quote, ‘‘the defendants have sabotaged, 

whether intention or not, the implementation of a procurement program which will have and will likely benefit women-owned businesses.’’

Given that two years ago the court determined that SBA had unreasonably delayed and there is still no program, I ask you again: 

why should Congress not act? 

Mr.PRESTON. Well, I am not telling you not to act, ma’am, and 

I understand you have—

ChairwomanVELA ́ ZQUEZ. We will. 

Mr.PRESTON. —provisions in your bill. 

ChairwomanVELA ́ ZQUEZ. We will. 

Thank you, Mr. Preston. 

And now I recognize Mr. Chabot. 

Mr.CHABOT. Thank you, Madam Chair. 

Mr. Preston, welcome back to this Committee once again this 

year. 

Mr.PRESTON. Back home. 

Mr.CHABOT. I know. I know you have been here a number of 

times this year yet, and we appreciate your cooperation in being 

here. 

ChairwomanVELA ́ ZQUEZ. I think that he enjoys it. 

Mr.CHABOT. I think he thoroughly enjoys it, Madam Chair. 

[Laughter.] 

Mr.CHABOT. Well, Madam Chair mentioned about bringing toothbrushes and toothpaste and things. I would just remind the Administrator that Proctor & Gable, P&G, is headquartered in my district 

in Cincinnati. One of their brands is Crest, of course. 

Mr.PRESTON. But they are not a small business. 

Mr.CHABOT. They are not a small business, but we like them 

nonetheless. 

Just a couple of things. Going back to the Shirlington Limousine 

issue, isn’t the issue in that matter a failure of the contracting officer to find that firm was not responsible? They were not a responsible bidder under the federal acquisition rules? 

Mr.PRESTON. That is exactly right. That responsibility lies with 

the contracting officer. 

Mr.CHABOT. Okay. Thank you. 

And would you please explain the detailed procedures that the 

SBA uses in reviewing HUBZone applications? 

Mr.PRESTON. Well, in reviewing a HUBZone application, in reviewing a new purchase, okay, so that if a HUBZone company 

wants to purchase or—I am sorry—to sell goods or services to the 

federal government, first of all, they have to be entered in the contracting registry, the central contracting registry. 

Then they need to submit information with respect to their payroll, their location, various other information that shows that they 

qualify for HUBZone status, if there are NAIC codes, various other 

things. 

Then the FAR requires that before they actually bid on a contract, they have to attest once again to their eligibility. The new 

13

rule we are proposing requires them then to attest one more time 

to their eligibility before they actually get an award, and then now 

based on upgrades to the system, a contracting officer, if he or she 

puts that data into the federal contracting system as a HUBZone 

firm and it is not registered as a HUBZone firm, it will not take 

it anymore. So there is a block in the system to validate that. 

If there is an award, the agency, the SBA, and other firms bidding on the contract have the ability to protest any awards if there 

is concern that they do not comply with the requirements. 

Mr.CHABOT. Thank you. 

Let me shift gears a little bit here. Would you discuss briefly the 

constitutional considerations that are required when implementing 

a gender based contracting program? 

Mr.PRESTON. Well, I am neither a lawyer nor a constitutional 

scholar. So it is hard for me to get into a whole lot of detail there, 

but I do know that based on the Adarand decision a number of 

years ago, any gender or race based programs do receive a relatively high level of scrutiny to determine their eligibility for it 

under the Constitution. 

But I unfortunately cannot provide for you the criteria for the 

specific considerations that are undertaken in that process. 

Mr.CHABOT. But there are constitutional issues because of previous Supreme Court cases that one has to take into consideration—

Mr.PRESTON. Exactly, yes. 

Mr.CHABOT. —when putting together one of these programs. So 

you cannot necessarily just do what you want to do. You have to 

really comply with existing case law or it will be thrown out. 

Mr.PRESTON. That is true. 

Mr.CHABOT. Or law suits, et cetera. 

Mr.PRESTON. That is true. 

Mr.CHABOT. Next, what steps is the SBA taking to insure participation by the targeted groups in federal government procurement? 

Mr.PRESTON. Oh, well, I think we have made a lot of progress 

on that just in the last number of months. I mentioned a lot of the 

overview, kind of the oversight issues, the pre-certification, cleaning up the data, and the score card. You know, the score card we 

are actually already beginning to see a response by a number of 

federal agencies coming to see us to say, you know, we are not 

happy with the rating we got. What can we do to improve it. 

In addition, specifically for categories that they are not hitting, 

for example, if an agency isn’t hitting HUBZone or SDB, we are 

working with those agencies giving them electronic tools, giving 

them other support specifically to help them hit those numbers. 

We have rolled out a new electronic tool that helps agencies 

input their location, the NAIC code, and the preference group, and 

they can get a list of companies that qualify that has just been in 

place for a few months that is a whole new tool that is out there. 

Once again, we have retrained our entire field network to do 

more outreach to the individuals, to the small businesses, and refocused our PCRs to focus entirely on working with those federal 

agencies to hit those numbers, and so you know, it is oversight. It 

is technology, and it is really kind of arms and legs and better 

training for our people. 

14

Mr.CHABOT. Thank you. 

Do you know what the track record is or the failure rate or the 

success rate of those firms once they leave the 8(a) program? Is 

that something that your agency could provide for us? 

Mr.PRESTON. I do not. I do not know the failure rates. We may 

have that statistic. I just do not know. 

Mr.CHABOT. I see you staff members nodding that we can get 

that provided. 

Mr.PRESTON. They do. 

Mr.CHABOT. So I would like to get that at some point, as detailed 

as possible. 

Mr.PRESTON. Okay. 

Mr.CHABOT. So that we can consider that as well. 

And finally, just one more question. Has anyone ever examined, 

to your knowledge, the cost benefit ratio of these programs? In 

other words, is the government getting sufficient return in terms 

of job growth, that type of thing, given the resources expended to 

operate all of these programs? 

Mr.PRESTON. I don’t know that the review has ever taken place. 

I know in many of our programs we will look at jobs created. I 

know we do that for our lending programs. 

I am looking back at my staff to see if historically—that is right. 

HUBs only have jobs created, right? Yes. 

We have jobs created for HUBZone, but more broadly, I do not 

think we have actually done a hard cost benefit analysis. 

Mr.CHABOT. Would you have your staff check and see if there are 

any studies out there that we may have access to? I am not suggesting that we spend more money for studies like that at this 

time, but I would be interested to see if anybody, perhaps some colleges or something—

ChairwomanVELA ́ ZQUEZ. Would the gentleman yield? 

Mr.CHABOT. Yes, I would be happy to yield. 

ChairwomanVELA ́ ZQUEZ. Maybe the Inspector General report has 

some of the data since they concluded that after three years the 

HUBZone companies are ineligible. So in terms of job creation we 

question how many. 

Mr.CHABOT. So if we could get that, thank you very much. 

Reclaim my time. 

Mr.PRESTON. Thank you. 

Mr.CHABOT. And then yielding it back. Thank you. 

ChairwomanVELA ́ ZQUEZ. Mr. Braley. 

Mr.BRALEY. Thank you, Madam Chairwoman. 

Mr. Preston, my first encounter with you was when you testified 

in front of us in February, and I will have to be very candid and 

tell you why I was impressed with your testimony. You seemed to 

have a level of commitment to resolving some of the longstanding 

problems of your agency that from my contact with other committee members was sorely missing in your predecessor. 

But when you tell this Committee that you share our frustration 

wit the lack of progress on the Women’s Procurement Program, I 

do not believe you. When we had the Women’s Chamber of Commerce here for the first Subcommittee hearing of Contract and 

Technology, this entire room was packed with frustrated women 

15

who own their own businesses who have been waiting far too long 

for progress on this program. 

And when you told us that the regulatory process for the women’s procurement program would be completed by the end of the 

summer, I think most of us assumed that the traditional end of 

summer is the autumnal equinox, which occurred on September 

23rd, at 5:51 a.m., Eastern daylight time. 

So the fact that you are here today telling us that the Administrative Procedure Act is going to cause further delays, which is part 

of the regulatory process you knew about when you made that representation to us, I just do not find your explanation plausible. And 

I would like you to explain to us what you as the Administrator 

of the Small Business Administration are going to do between now 

and the next 90-day period to insure that this program receives the 

resources, the attention from the top down to make it happen. 

Because, quite frankly, the fact that this rule was released one 

day before your testimony here I find remarkable. 

Mr.PRESTON. Well, I would be remiss to imply that my one year 

of work on this rule would be similar to seven years of frustration 

among the affected parties. So I share your frustration. I would not 

imply that it is to the same extent because obviously many of these 

years preceded my participation in it. 

I think if you spoke with my policy staff, they would tell you that 

there is nothing higher on their agenda, that they have pushed 

harder on or have been more engaged with or been pushed on 

harder by me than this rule. 

I have spent a tremendous amount of time with my counterparts 

around the federal government on this issue personally, and I will 

continue to do that, and I will continue to do that over the next 

three months. 

It is a complicated set of issues, and—

Mr.BRALEY. It has been a complicated set of issues for seven long 

years. 

Mr.PRESTON. It has been, and we have had a number of 

missteps, and we have had the RAND study since April, and that 

now has put in motion a whole other set of activities. 

The other thing I do have to remind you of is I never said it 

would be done by the end of the summer. I said I hoped it would 

be, and I specifically said in my testimony I cannot give you a hard 

time line on that. 

So I just want to make sure to state before this body that it was 

never a hard commitment on my part. I committed to do everything 

I could to move the process forward. I have done that, and I will 

continue to do that. 

Mr.BRALEY. One of the other things that we talked about at your 

first appearance here this year were the PCR increases that were 

being contemplated by the agency. Do you remember that? 

Mr.PRESTON. Yes. 

Mr.BRALEY. And when Deputy Administrator Carranza appeared 

before us last week, she brought some very nice, fancy charts showing where those PCRS were going to be placed. Did you ever see 

those charts? 

Mr.PRESTON. I haven’t seen the charts, but I have seen the list 

of where those are located. 

16

Mr.BRALEY. Okay, and when I talked to you during that hearing 

in February, I specifically asked you based upon the fact that I 

come from a state that ranks 48 in terms of federal contracting dollars, whether you were going to commit to devoting a PCR to my 

state and other states who do not have access to the benefit of that 

type of program. 

Are you aware of whether one of those PCRs is being placed in 

Iowa? 

Mr.PRESTON. Sir, Iowa has no major federal contacting activities, 

and the way it works is the PCRs are physically located where the 

agencies are. Iowa does have four procurement technical assistants, 

which specifically are experts that work with small businesses to 

get those contracts. Iowa also has dedicated personnel in our Iowa 

district office, which are business development specialists, that 

work specifically with small businesses to help them in the contracting picture. 

But the PCRs do not work with small businesses. They are 

housed at the federal agencies with major buying activities, and my 

understanding is there are no major buying activities located in 

Iowa. So our focus has been reaching out to the small businesses 

there because that is what is going to provide the most support to 

them. 

Mr.BRALEY. Well, my time has expired, but we will continue to 

revisit that topic. 

ChairwomanVELA ́ ZQUEZ. Mr. Bartlett. 

Mr.BARTLETT. Thank you very much. 

Welcome, again, sir. I live about 50 miles from here and I have 

to get up early to get down here for an eight or nine o’clock meeting, and so when I leave the farm at 6:20 in the morning, I have 

to be able to put my clothing on quickly. And so in each of my suits 

are the essentials. I carry a Constitution in one of my pockets and 

I carry pens and paper and so forth. 

And the pen I pulled out to write my notes with this morning 

says, ‘‘HUBZone contracting, it is good for America.’’ That just happens to be the pen that is in this suit. There are different pens in 

different suits. 

Mr.PRESTON. Confidential. 

Mr.BARTLETT. HUBZone is, indeed, good for America, and I notice that it is sort of under attack now by this Committee. The first 

HUBZone contract in the whole United States was in my district. 

I have a number of HUBZone contractors in my district. I have a 

whole county which is a HUBZone, and HUBZone businesses have 

started there which is employing people at three and four times the 

mean salary, the average salary in that district. 

All of the other programs of which I am very supportive help people. The HUBZone program helps not only people. It helps whole 

areas because we really are upgrading these areas when these 

HUBZones move in. 

I know that there are some problems in certifying that they are, 

in fact, HUBZones. There are two ways that we could make sure 

that nobody is cheating. One way is to do what some are suggesting, to have you certify all of these companies and do recertifications. Since there are very many of those, that would be enormously expensive, would it not? 

17

Mr.PRESTON. It would be very expensive. 

Mr.BARTLETT. We would have to increase your staff. 

Let me ask you. What is wrong with pure surveillance? The people who are most interested that nobody cheats is the other guy 

who submitted a proposal and did not get it because the cheater 

got it. 

Shouldn’t we encourage them to report that and what is wrong 

with that as a way of monitoring this? 

Mr.PRESTON. I do not think that there is anything wrong with 

that. In fact, we get hundreds of cases a year filed through that 

mechanism. 

Mr.BARTLETT. Would that not be the cheapest, most effective way 

to make sure that only legitimate firms get these contracts? 

Mr.PRESTON. It is a very efficient way to do it because you have 

people that are familiar with the other firms, familiar with the contract specifically, and it then results in our specifically following up 

on a concern. 

ChairwomanVELA ́ ZQUEZ. Would the gentleman yield? 

Mr.BARTLETT. I would be happy to. 

ChairwomanVELA ́ ZQUEZ. Two things. The program is not under 

attack. Fraud is under attack. 

Two things. In terms of protest and self-policing, that could be 

done. The problem is we have for 10,000 companies only 20 or 25 

projects to this date. 

Yield back. Thank you. 

Mr.BARTLETT. Thank you. 

But we ought to encourage them to protest. Protesting should not 

be a stigma. You know, if there is something wrong, why we should 

encourage them to protest. 

I came here as one of maybe—I do not know—maybe 35 or so 

people in the Congress who belong to NFIB before I came here. I 

was, among other things, in a former life a small business person. 

I have a lot of small businesses in my district, and I have a lot of 

protests in my district. So I am very familiar with those. They 

come to our office, and we try to mediate a number of those things. 

Is this one of our newest programs? 

Mr.PRESTON. It is one of the newer programs. It is about ten 

years old. So it is not brand new. 

Mr.BARTLETT. Are there not growing pains with most of these 

new programs? 

Mr.PRESTON. There are growing pains with new programs, and 

I think we have a long way to go to improve the effectiveness of 

this program, and I think a lot of it is in our sights. 

Mr.BARTLETT. Well, I am glad to hear the Chairwoman state that 

HUBZones are not under attack; that what is under attack is fraud 

and, of course, there is nobody who is more interested in making 

sure there is no fraud in the HUBZone programs and the legitimate contractor’s net program, right? 

Mr.PRESTON. That is right, and I think it is important to understand that when you look at the statistics of firms that have not 

recertified or not completed the work on examinations, many of 

these firms are no longer in business, specifically the ones during 

the IG review. 

18

One of the biggest concerns I have is when you look at the firms 

that are coded as HUBZone, somewhat around ten percent of them, 

of the contract value, was gotten through set-asides. Most of them 

either came in through a different program or they were small 

businesses who won it in a small business competition. 

So the federal agencies actually are not using the program as actively to bring in HUBZone firms specifically, and as a result, when 

we go out there to do a recertification or do an examination, a lot 

of these firms do not even bother sending us the paper work because they are not seeing the benefit from that aspects of the program. 

So I think we actually have to get out there and encourage usage 

of the program more because I think that is what is going to make 

it viable. 

Mr.BARTLETT. Thank you very much. They have been very effective in my district. 

Mr.PRESTON. That is good to hear. Thank you. 

Mr.BARTLETT. And most of the government agencies are falling 

far, far short of the goal, and we appreciate your attention to this. 

Thank you very much. 

ChairwomanVELA ́ ZQUEZ. Time has expired. 

Mr. Shuler. 

Mr.SHULER. Madam Chair, thank you for holding this hearing 

today. 

You know, if you instate this toothbrush/toothpaste policy, you 

know, I think we create some real revenues through a reality TV 

show. I think we have all seen Big Brother 1 through 8 now. So 

I think there may be some really good merits to creating some revenues. 

I do have one question though in all seriousness. A little over a 

year, have been as the Administrator. How much longer is it going 

to take for you to truly feel like you have been here long enough 

to not saying make a difference, but truly get some of the problems 

and issues, and I am not asking you to step on the toes of your 

predecessor, but to truly be able to implement some of the processes that really need to be implemented? 

Because seven years is a long time, and I think we would all 

agree that is unacceptable. And obviously you see a tremendous 

amount of emotions that is play a part in this. 

I commend the Chairwoman because she has certainly made this 

Committee what it should be, and I know it is putting excess work 

on your entire staff partly because of what people did not do before. 

Mr.PRESTON. Well, to answer—

Mr.SHULER. How long is it going to take? I mean I have only 

been here nine months. Okay? So it is still a learning process as 

we go along, just as I am sure you are learning through this process. 

How long is it going to take for you to truly feel like you are 

going to get your feet up underneath you to be able to truly manage this the way you want it to see, and that we as a Committee 

do not have to every time you show up here feel like things are 

going really bad? 

Because right now from all looks of it, it is really bad. 

19

Mr.PRESTON. Yes. Well, I would tell you that we have made incredible progress in this agency, and unfortunately for better or 

worse when we were up here in front of the Committee, we are 

generally addressing problems. 

But I will tell you, and I think you all understand it, we have 

made remarkable progress in the disaster operation of this agency 

which affects your district obviously. We are in a dramatically better position to serve disaster victims in this country. 

When I go down to the Gulf of Mexico, people hug us. People in 

that area are constantly telling us what a remarkable transformation we have made. We are hearing it from legislators from 

both sides of the aisle, from citizens. 

I was down there doing a television interview. I had the cameraman and the producer come up to me. I had no idea they were even 

borrowers. I was down there for the second anniversary. In our 8(a) 

program we are making tremendous progress. 

Eight (a) firms when they were coming into our program a year 

ago had backlogs, very long backlogs to get into the program. We 

worked through most of those backlogs. We are now giving every 

one of them somebody on the phone to help them. We have simplified the process. We are giving them tools to help them get 

through it more quickly. That is happening. 

We have rolled up any number of new lending products to bring 

in more small businesses, and behind the scenes if you look at the 

operations of this agency, we have dramatically improved our efficiencies, the quality of our processes, our focus on the customer. 

And the other thing, and I should not be talking about this 

ahead of time, but 15 months ago we were the agency in the federal government that had the lowest morale of any federal agency. 

We are going to be sending out a new survey in about 15 days, and 

we will be sharing the results with you, and I cannot hide anywhere. Okay? Because that was finished the day before I came in, 

the last survey. We are asking the exact same questions, and we 

will provide that to this Committee, and then we will get to see 

how we have done with the employees. 

So I would tell you I think we have done a tremendous amount, 

and I do not want any of that progress to in any way be diminished 

by the work we still have to do. 

Mr.SHULER. And there is a lot of work to do and continue your 

hard work because I know that this Committee will keep you accountable for the hard work and to truly get to the point that we 

can feel that it is not every time that you come to this hearing that 

it is always the bad news because we have a Chairwoman that 

truly cares. 

Mr.PRESTON. Well, I truly think most of the issues that we are 

addressing are issues that the Chairwoman discussed with me before I came into the job, and really I think we are addressing the 

issues that are most important to this Committee. 

We do not always agree on how to get there, but I really believe 

we are. 

Mr.SHULER. Very good. 

Chairwoman, I yield back. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Ms. Clarke. 

20

Ms.CLARKE. Thank you very much, Madam Chair, Ranking 

Member Chabot. 

Mr. Preston, in, I guess, response to Congressman Braley’s question I feel certainly his frustration as well. I was under the impression that earlier this year you had talked about a deadline of September 30th as well. 

Maybe I was under the wrong impression, but somehow that 

came across as a benchmark or a goal. What you have done today 

is made it a fluid situation. Now I hear that the program’s regulations are still being reviewed by 24 federal agencies and you do not 

know when contracts will be set aside for women-owned businesses 

in the federal procurement process. 

At this stage, I believe that, you know, there is a real blockage 

there, and so the question I have is do you believe that the SBA 

and by extension the federal government is discriminating against 

women-owned businesses. 

Mr.PRESTON. No, ma’am. I think if you look at what has happened in the last year or so, we completed the RAND study. We 

made it public. We submitted—

Ms.CLARKE. Can I just ask? You mentioned the RAND study. So 

is everyone sort of just holding in place until studies are done? 

What type of work is happening within the agency, within the people who you employ that it is contingent upon the RAND study? 

This is seven years, seven years. Let me just say this. Black’s 

Law Dictionary defines discrimination as differential treatment, especially failure to treat all persons equally when no reasonable distinction can be found between those favored and those not favored. 

Here we have an administration that for seven years has not implemented any part of the program. Women-owned businesses are 

under represented as many as 87 percent of all industries in the 

federal marketplace. That has cost women- owned businesses about 

six billion in contracts. 

If that were any other part of our society, I think we would be 

hearing so much more of an outcry. We have made a commitment 

to women-owned businesses seven years ago, seven years ago, and 

the sense of urgency has turned into a fluid, well, we will have 

RAND study. I mean, where is the urgency for getting this done 

and how do you feel comfortable coming back to this Committee 

time after time with excuse after excuse, you know, and not come 

with anything tangible that says the commitment is there? The 

commitment is there. 

You are not representing a commitment to this, and I think that 

has to be the most frustrating part. So I want you to really think 

about the definition of discrimination and think about whether, in 

fact, you know, your intent does not match your act. 

Mr.PRESTON. Well, ma’am, I take great exception with any implication that I am showing any discrimination in this process. So let 

me just tell you right now that if that is what you are implying, 

I am offended by your comment, and I would have to protest it 

strongly. 

I would also tell you that women’s procurement—

Ms.CLARKE. Let me say that I am offended and the women of 

America are offended—

Mr.PRESTON. I do not know how you can imply—

21

Ms.CLARKE. —that seven years—listen. 

Mr.CHABOT. Madam Chair. Madam Chair. 

Ms.CLARKE. If the shoe fits—

Mr.CHABOT. Point of order. Madam Chair—

Ms.CLARKE. If the shoe fits, you need to wear it. 

Mr.CHABOT. —point of order. 

ChairwomanVELA ́ ZQUEZ. Would the gentlewoman suspend. 

Mr.PRESTON. Totally, totally unacceptable on your part to imply 

that. 

Mr.CHABOT. Madam Chair, isn’t it the policy of this Committee 

that the witnesses be permitted to answer the questions? 

ChairwomanVELA ́ ZQUEZ. That is correct. 

Mr.PRESTON. Okay. Six years before I came in here I would say 

you may not have seen a whole lot of tangible activity. Study had 

to be done before any under represented industries could be designated. The study was done. The study was made public. We submitted a rule for interagency clearance. Unfortunately, we have to 

resubmit based on various issues. We have resubmitted today. That 

is going into clearance again. Those are all action points. 

Also, in the last year we saw women’s procurement go up a billion and a half. That is 15 percent increase from ’05 to ’06. We continue. We are now in the process with federal agencies because the 

women’s goal is not being hit specifically identify women-owned 

businesses as a category that they need to improve on. We are actually in the process of negotiating memoranda of understanding 

specifically around women-owned businesses and other categories 

that have not been met. 

In addition, we have rolled out a tool that helps other agencies 

find women-owned businesses that meet their qualifications. So we 

have taken action. 

Now, I spent 24 years in the private sector. Far be it from me 

to opine on why after a year in the government it takes a while 

to get stuff done. I could wax eloquent on that for many hours and 

we would all have to bring our toothbrushes. 

ChairwomanVELA ́ ZQUEZ. Would the gentle lady yield for a second? 

Yes. Mr. Preston, if the SBA’s regulations are implemented, what 

would be the process to get them into the Federal Acquisition Regulations? 

Mr.PRESTON. The process from here on out is we are in the interagency process. When that is completed, it will go out for public 

comment. Everybody will have an opportunity to look at what the 

rule says, to comment on it. My understanding is, you know, and 

I would prefer to bring in my legal experts on this, it is approximately a three-month process, and after that we would then take 

those comments and implement them in the Federal Acquisition 

Registry. 

ChairwomanVELA ́ ZQUEZ. Okay. Now I recognize Ms. Hirono. 

Ms.HIRONO. No questions. 

ChairwomanVELA ́ ZQUEZ. Okay. Let me ask you a question about 

the HUBZone program. You expressed in the testimony and you 

stated that the HUBZone construction contract limitation provision, you were concerned about it, and I just want to ask you if a 

company is performing work more than 150 miles away, the odds 

22

are that it is hiring employees and renting equipment elsewhere. 

This does not benefit the company’s HUBZone, the reason they got 

approved into the program in the first place. 

So explain to me how a contract far away benefits the HUBZone 

of a company who got into the program because of their location 

in a particular zone? 

Mr.PRESTON. I think it is a very fair concern. I think our concern 

around that has primarily to do with companies in rural areas that 

cover a large range of activity. 

I was in North Dakota last week, which I should mention to you 

is launching what we think may be an alternative to Low Dock. 

You and I can talk about that later, but many of those companies 

travel far, and specifically I mentioned in my testimony companies 

located on Indian reservations. So it is primarily for companies in 

areas where we think they travel a long way. 

In addition, those companies may send people to those job sites 

far away. So those people may still be located in those HUBZone 

areas. 

ChairwomanVELA ́ ZQUEZ. I hear you, and I just would like to ask 

you that you and us work together on this issue about the rural 

communities, because I think it is a valid point. 

Mr.PRESTON. Yes. 

ChairwomanVELA ́ ZQUEZ. But I could not accept the fact that if 

we have a HUBZone company located in Southeast here in D.C. 

that could get a construction contractor 150 miles away, meaning 

Virginia Beach. It is going to benefit the people there, not the low 

income community that it was targeted to benefit, and that is the 

problem that we have. 

Winter Park in Florida or in Utah, it is not supposed to be that 

way. 

Mr.PRESTON. Well, they still would need to have 35 percent of 

their employees from HUBZones, and the one thing I would say is 

even if they are performing work in an area further away, it does 

allow them to hire people from HUBZones close to that job site. 

ChairwomanVELA ́ ZQUEZ. Well, and you mentioned the hiring and 

the job creation of that company, HUBZone company, for that community, but is that the business? The only requirement as far as 

employment of people from HUBZones far away from the company’s home zone is that the business attempt to maintain employment of 35 percent of the company’s employees from HUBZones. 

So given this, can you provide some insight as to how we can be 

assured that HUBZone companies performing contracts a long way 

from their home zone will hire HUBZone residents? 

Mr.PRESTON. Well, I know before the award is accepted, they 

have to test, not yet, but in our proposed rule, they would have to 

test that they met their HUBZone requirements. I unfortunately 

cannot comment on that, and recognizing a loophole here, I think 

it is something we need to understand. 

ChairwomanVELA ́ ZQUEZ. Because you know that is one of the 

points raised by the Inspector General. 

Mr.PRESTON. Right. 

ChairwomanVELA ́ ZQUEZ. Mr. Chabot. 

Mr.CHABOT. Thank you, Madam Chair. 

23

Just one final point. Administrator Preston, you have been asked 

a lot of questions this morning. Are there any clarifications, anything you want to expound upon that you think that might make 

any of your testimony more clear, anything that you do not think 

came out right that you would like to comment on? 

Mr.PRESTON. You know, I think much of what we are working on 

is to make this agency more effective in reaching out to small businesses, and specifically this group of small businesses that we 

talked to today. You know, our effectiveness is heavily influenced 

by how we are training our people, the kind of outreach we are 

doing, the support we are giving to the other agencies, the way we 

are holding them accountable, and I just want to reinforce that we 

have made, I believe, a lot of progress on a number of fronts. We 

will continue to do that. 

And I would also like to commit to all of you here any time you 

want us to come over and meet with you informally to go through 

any of the initiatives, to show how we are doing, we would welcome 

those opportunities. 

Mr.CHABOT. Thank you. Thank you very much. 

I yield back, Madam Chair. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Preston, and the Administrator is excused. But before you leave, I want to thank you. 

I know this is not easy, and especially I know that you have been 

before this Committee too many times, but it is important, and the 

message is clear, you know. Before oversight was not conducted by 

this Committee, and I intend to make the agency better for the 

business community, and I am not going to abdicate the responsibility of this Committee to hold hearings so that we can make sure 

that people are accountable and that we are all doing what is right 

on behalf of taxpayers, but most importantly, the small business 

community that we represent and that we are committed to serve. 

Mr.PRESTON. Thank you. 

ChairwomanVELA ́ ZQUEZ. With that, you are excused. 

So the Committee is going to be in recess, and we are going to 

go to vote, and then immediately after the votes we will resume. 

[Recess.] 

ChairwomanVELA ́ ZQUEZ. The Committee hearing resumes. 

And we are going to start with the second panel. The next witness is Ms. Angela Styles. Ms. Styles, now in private practice with 

Crowell & Moring, was the Administrator for the Office of Federal 

Procurement Policy within the Office of Management and Budget 

from 2001 to 2003. 

Welcome. You have five minutes to make your presentation. 

STATEMENT OF ANGELA STYLES, PARTNER, CROWELL & 

MORING 

Ms.STYLES. Chairwoman Vela ́zquez an d Congressman Chabot, it 

is an honor to be here today. I also have three very special guests 

with me here today. I have my daughter and my son and our au 

pair from Brazil, my daughter Ellie Styles, my son Rett Styles, and 

Jennifer Madina del Mada, who is from Brazil on the State Department program. 

ChairwomanVELA ́ ZQUEZ. Welcome. 

Ms.STYLES. Thank you very much. 

24

I have been a passionate defender of small business both inside 

and outside the government, and it really does give me great pleasure to be here today. I only wish that I had a more positive story 

to tell you. 

Our patchwork system for small business contracting just is not 

working, and it is not working for anybody, our country small businesses, our federal contracting officers, our federal agencies, or the 

U.S. taxpayer. We have created such a complex amalgamation of 

laws, regulations, and policies that even the best of lawyers are 

really struggling to figure out the maze right now. 

Now exactly then can we expect small businesses with limited resources or contracting officers at the GS-12 and GS-13 legal to understand this hodgepodge system? There is a reason that fraud, 

abuse, and even simple errors are on the increase. Very few people 

understand the system. There are not resources at SBA to understand the questions, and those who do understand it can manipulate it to their benefit. 

In essence, we have half of the contracting officers spending double the money in a constantly changing and complex regulatory environment with little training on small business issues. 

On the small business side, the complexity of the programs is a 

significant barrier to entry. Many small businesses give up trying 

to understand the regulatory complexities or make significant errors in application with little help from SBA. Those inclined to 

commit fraud or to abuse the system have a complex and changing 

structure within which to hide their misdeeds. It is not a wonder 

that the system is experiencing problems. 

And while many of the legislative changes you are considering 

today are perfectly targeted at solving real problems, there will be 

unintended consequences of adding a new layer of complexity that 

our over burdened federal contracting work force will have difficulty implementing and small businesses will have difficulty understanding. 

Frequent changes to these programs also make it difficult to 

identify and ferret out fraud and abuse in the system, but let me 

give you a few real world examples that I have found in the practice of law very recently. 

Last week I got a call from an old client of mine. She is an 8(a) 

firm, and she had just bid on nine different contracts that had been 

sent to her from one contract specialist. The RFPs, the requests for 

proposal, had been sent from the contract specialist’s home E-mail. 

Almost simultaneous with those RFPs the contract specialist sent 

requests for this 8(a) company to buy Hawaiian candles and to host 

a Hawaiian candle party for her as well. 

Lo and behold, when my 8(a) client ignored and properly ignored 

the Hawaiian candle request, seven contracts in a row were awarded to a Hawaiian company. Each award to the Hawaiian company 

was cents lower than my 8(a) client’s offer, and it was not until she 

complained about the abuse that she was actually awarded one of 

those nine contracts. 

I can also tell you that I get a number of calls from large businesses because they have been contacted by one person, 8(a) companies, that have a deal to supply a federal agency with a particular product. The 8(a), this one individual, acts as a passVerDate 0ct 09 2002 09:39 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38208.TXT LEANN
25

through for the large business. The 8(a) does nothing but act as a 

pass- through. The large business gets a sale. The agencies meet 

their small business numbers, and the only loser there is really the 

taxpayer. 

But what is driving this problem? It is legal but I think abusive. 

There is a lot of pressure on the agencies to meet their small business goals and they find ways to do it, some of which I think we 

would all consider to be improper and abusive. 

And I do not think the goal of the 8(a) program is to enrich one 

individual by passing through a product without adding value, but 

that is the reality of the small business contracting world for small 

businesses, one that seems, I think, almost accepting of the abuse. 

So what can we do to solve these problems? I do not have a 

magic wand, but I do think you can simplify the process. You can 

reduce the barriers’ entry, eliminate the vast opportunities for 

error and fraud, and eliminate the ridiculous numbers of representations and certifications our small businesses must make every 

day. 

The best place to start is what I reference as a single automated 

point of entry, a place where a small business could go, enter the 

data about their company, and find out whether they are actually 

small and what programs for which they are eligible to certify that 

the information they have supplied is accurate and complete and 

seek approvals of their joint ventures and mentor-protege agreements. 

Without monumental effort, SBA should be able to take this 

data, verify the information submitted, and give it to contracting 

officers electronically through the central contractor registration. It 

sounds simple, and frankly, it is and should be simple. It takes out 

multiple layers of process and room for error and abuse on the 

small business side and the federal contracting side. 

I think the barriers’ entry should be low. The statutes and regulations should be clear and easy to understand, and the information regarding these programs should be accurate. 

That concludes my prepared remarks, but I am very happy to answer any questions you may have. 

[The prepared statement of Ms. Styles may be found in the Appendix on page 51.]

ChairwomanVELA ́ ZQUEZ. Thank you. 

My understanding is you will have to leave? 

Ms.STYLES. Well, we have a plane to catch. I can stay until about 

1:15. 

ChairwomanVELA ́ ZQUEZ. Our next witness is Mr. Joseph Sharpe. 

He is the Director of the Economic Commission for the American 

Legion. The American Legion was established in 1919 and has 

three million members in nearly 15,000 posts worldwide. 

Welcome, sir. 

STATEMENT OF JOSEPH SHARPE, JR., DEPUTY DIRECTOR OF 

ECONOMICS, THE AMERICAN LEGION 

Mr.SHARPE. Thank you. 

Madam Chairwoman and members of the Committee, thank you 

for this opportunity to present the American Legion’s view on the 

26

role that legislation could play in increasing procurement opportunity. 

ChairwomanVELA ́ ZQUEZ. Excuse me, Mr. Sharpe. Can you bring 

the microphone closer to you? Thanks. 

Mr.SHARPE. Currently, the American Legion seeks and supports 

legislation to require a five percent goal with set-aside and sole 

source authority for federal procurements and contracts for business owned and operated by Service disabled veterans and businesses owned and controlled by veterans. This includes those small 

businesses owned by Reserve component members who have been 

or may be called to active duty or may be affected by base closings 

and reductions of our military forces. 

The American Legion has encouraged Congress to require reasonable set-asides of federal procurements and contracts for businesses owned and operated by veterans. the American Legion supported legislation in the past that sought to add Service connected 

disabled veterans to the list of specific small business categories receiving three percent set-asides. 

Public Law 106-50, the Veterans’ Entrepreneurship and Small 

Business Development Act of 1999, included veteran-owned, small 

businesses within federal contracting and subcontracting goals for 

small business owners and when thing goes for the participation of 

small businesses and federal procurement contracts. 

Agency compliance with Public Law 106-50 has been minimal, 

with only two agencies self-reporting that they have met their 

goals, and that is the VA and SBA. In 2004, President Bush issued 

Executive Order 13360 to strengthen opportunities in federal contracting for Service disabled, veteran-owned businesses. 

Some of our recommendations have been, one, to create an interagency task force. The American Legion supports the creation of an 

interagency task force made up of the Administrator of SBA and 

one additional representative of SBA; also representatives of the 

VA, DOD, DOL, GSA, and OMB, and four representatives of veteran service organizations that should be appointed by the President. 

The task force should be charged with developing proposals regarding (a) increased capital access; (b) increasing access to federal 

contracting/subcontracting; (c) increasing the integrity of certification of status as a small business concern of a Service disabled 

veteran, or small businesses controlled by veterans; (d) reducing 

paper work and administrative burdens on veterans in assessing 

business assistance; and finally, making improvements relating to 

support veteran business development. 

The task force must send an annual report to the Senate and 

House Small Business Committees and Veteran Affairs Committees. 

Another recommendation is to incorporate Executive Order 

13360 into SBA regulations and standard operating procedures. 

The American Legion agrees with the recommendations given from 

the SBA Advisory Committee on Veteran Business Affairs, FY 2006 

report, and it states the SBA needs to reemphasize implementation 

of Executive Order 13360 and establish it as a federal procurement 

priority across an entire federal sector. Federal agencies need to be 

27

held accountable by the SBA for their implementing that executive 

order and the progress toward the three percent goal. 

The SBA needs to establish a means to monitor agencies’ 

progress and where appropriate establish a vehicle to report or otherwise identify those that are not in compliance and pursue ongoing follow-up. 

Also, to achieve the SDVOB procurement goal contained in the 

executive order, the SBA must identify all agencies affected by the 

executive order under the directive of Congress. Then the SBA 

should assist those agencies to develop a demonstrated, measured, 

strategic plan and establish realistic reporting criteria. 

Once the information is received, SBA should disseminate that 

data to all agencies, veteran service organizations, and post its 

findings on the SBA web site as a bellwether of program progress. 

We would also like to make some changes to the sole source contracting methods to provide parity among special emphasis procurement programs. 

The SBA should take immediate appropriate steps to promulgate 

regulations to revise 13 CFR 125. The proposed revision would 

eliminate existing restrictions on the award of sole source contracts 

to SDVOBSes, such as the Rule of Two. The change would mirror 

13 CFR 124, Part C, which applies to 8(a) program participants 

and states. 

In order to be eligible to receive a sole source 8(a) contract a firm 

must be a current participant on the date of the award. Accordingly, adopting this language would eliminate all restrictions on 

sole source awards to small disabled veteran- owned businesses. 

ChairwomanVELA ́ ZQUEZ. Your time is up, but I will give you an 

extra 45 seconds to summarize whatever is left. If not, during the 

question and answer time, you will be able to make any other 

points that you might not be able to make now. 

Mr.SHARPE. In conclusion—

ChairwomanVELA ́ ZQUEZ. Yes. 

Mr.SHARPE. —the American Legion appreciates this Committee’s 

attempt to restructure many of the important small business programs within the SBA which will result in a tremendous benefit for 

veterans. 

Currently the veterans community is the only community that 

represents every social, cultural, small business group within SBA. 

There are presently 10,451 registered Service disabled veteranowned small businesses, of which 3,300 are minority and 1,300 are 

women. 

The American Legion is looking for a program that works for all 

small businesses and which would make an immediate demonstrative impact on federal procurement. 

Madam Chairman, this concludes my statement. 

[The prepared statement of Mr. Sharpe may be found in the Appendix on page 58.]

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Sharpe. 

Our next witness is Ms. Margot Dorfman. Ms. Dorfman is the 

CEO of the U.S. Women’s Chamber of Commerce based in Washington, D.C. The USWCC represents 500,000 women-owned companies throughout the country. 

28

And you will have five minutes to make your presentation. Welcome. 

STATEMENT OF MARGOT DORFMAN, CEO, U.S. WOMEN’S 

CHAMBER OF COMMERCE 

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

and members of the House Small Business Committee, I am honored to be here today speaking on behalf of the millions of small 

business owners across America to discuss updating and improving 

the SBA’s small business contracting programs. 

And while our constituents are women, they are also included in 

HUBZones, 8(a)s, and Service disabled veterans. In a recent hearing before this Committee, Ranking Member Chabot asked me 

what principal changes I would make in order to remedy some of 

the failings of the SBA. 

Well, my view is that many of the challenges we see come from 

a failure of leadership and commitment of the SBA. It is also clear 

that there are several areas in which Congress can help the process 

of improvement through legislative action. 

As these programs are facilitated by the SBA and assessed by 

this Committee, it is critically important that the Committee observe three things: the quality and commitment of the implementation by the SBA; the quality of expected outcomes; and the consequences of the unexpected outcomes. 

In looking at women-owned small business programs, the Small 

Business Administration has shown a lack of commitment to the 

women’s program that this very Committee has designed. It has 

been nearly seven years, and it sounds like it will be more than 

seven years since this legislation has become law, and we are still 

waiting for the regulations to be published, the list of under represented industries to be published, and the FAR updated so that 

agency leaders may effectively leverage this program. 

In the interim, the SBA has stated many times that their web 

site Women’s Office and matchmaking sessions are more than 

enough to serve women small business owners. Unfortunately, the 

statistics do not support this assertion. 

Women own one-third of all businesses in the United States and 

more than 50 percent of all small businesses, but we still only secure 3.4 percent of all contracting dollars. I call upon this committee today to take action. The SBA has tried every way possible 

to avoid compliance with this law. Simply writing letters to the 

SBA does not help. Calling SBA leaders into this hearing has not 

helped. So now I strongly urge you to establish very clear legislation that compels the SBA to implement this program. 

The method of collecting and assessing the data was made clear 

by the NAS. The RAND study collected the data and reported the 

women-owned small businesses are under represented in federal 

contracting in over 87 percent of all industries. 

Again, I ask you to compel the SBA to implement this seven year 

old law. 

For the 8(a) program, we are not seeing broad based activity in 

the 8(a) program. A lot of emphasis is placed in signing business 

up as 8(a) contractors, but now we need the SBA to work diligently 

29

with these businesses and with agency leaders to achieve the real 

8(a) goals. 

We need to increase the net worth provisions and the time businesses may stay in the 8(a) program so that they can reach the 

level of size and strength and survive after they graduate the 8(a) 

program. 

Our HUBZone program, of prime concern with the HUBZone program has been the validity of HUBZone contractors and the inappropriate leveraging of the HUBZone designation when performing 

work clearly well outside of the HUBZone. We need to tighten up 

the process for being designated as HUBZone. 

Additionally, there are several small business contracting issues 

that I believe should be addressed. Transparency, I strongly encourage you to require that the SBA provide a much deeper reporting that shows the true representative of diversity of contracts 

going to small businesses. We need to measure the total number 

of small businesses receiving contracts by agency and small business program and the disbursement of these contracts by size and 

location. 

The size standards. I encourage you to require annual reporting 

on employment and revenue for all SBA small business contracting 

programs. We need to assure that the firms taking par in small 

business programs are small. 

The goals. I encourage you to push goaling more deeply by requiring the establishment of prime contract and subcontracting 

goals for each SBA program within each agency. 

Accountability. We need to hold agencies accountable at the top 

level, starting with the Secretaries and including the program managers. 

Integrity of contractors. Given the large amount of fraud we have 

seen in small business programs and federal contracting in general, 

I encourage you to require a background of integrity to take part 

in any SBA small business program. 

And finally, effective implementation of small business contracting programs. I hear time and time again from agencies, small 

business, and contracting personnel that the small business contracting programs are challenging and time consuming. Consequently, the small business contracting programs are not utilized 

to their fullest extent. 

I encourage you to consider this when drafting legislation. 

I thank you for the opportunity to make these views heard before 

this Committee, and I applaud your diligence on behalf of small 

business and hope you will act now to improve the SBA small business contracting programs. 

[The prepared statement of Ms. Dorfman may be found in the 

Appendix on page 64.]

ChairwomanVELA ́ ZQUEZ. Thank you, Ms. Dorfman. 

Our next witness, Mr. Todd McCracken. Mr. McCracken is the 

President of the National Small Business Association. 

Established in 1937, NSBA is the oldest small business organization in SBA’s advocacy, such as more than 150,000 companies 

around the nation. 

Welcome, sir. 

30

STATEMENT OF TODD McCRACKEN, PRESIDENT, NATIONAL 

SMALL BUSINESS ASSOCIATION 

Mr.MCCRACKEN. Thank you very much. 

We appreciate the chance to be here, and with your consent I 

will submit my written record as the statement and just try to 

summarize in the interest of time. 

Federal procurement is an enormous challenge and issue of importance to the small business community nationally as you know 

and as you have identified, but small business participation is also 

crucial to a healthy federal procurement process, from that point 

of view as well. 

Small businesses provide high quality goods and services to federal contracting agencies and infuse the federal procurement system with much needed competition. 

In turn, the federal government invests in the most dynamic and 

innovative sector of the U.S. economy. Although small businesses 

comprise 99.7 percent of all employers, firms in the U.S. employ 

over half of all private sector employees, and you know all the rest. 

They only receive a small fraction of federal contracting dollars and 

a tiny sliver of federal research and development investment. 

In 2006, small companies received just 19 percent of federal contracting expenditures, according to data compiled by Eagle Eye 

Publishers, and according to the SBA, the percentage of federal 

contracting dollars going to small businesses in 2006 was just 22.8 

percent, and that is clearly insufficient. 

We are pleased that this Committee and now the House of Representatives has passed H.R. 1873, which takes many steps, we 

think, to expand the size of contracting opportunities for small 

companies, and we think that is a crucial goal because as we often 

see in hearings like this, what we see are competing programs in 

the small business community, competing with one another for federal dollars, and we think that is rather unfortunate because we 

need to find ways to increase the opportunities for all small companies, not simply figure out who should be first in line among the 

small business community. 

While those rules we think have to be clear and they have to be 

fair, we are hopeful that we can expand opportunities for all small 

companies and not just some at the expense of others. 

So we hope that you will keep that in mind as you move forward 

as well. 

Specifically, one of the issues I think that you have tried to address in this hearing and, I think, legislation that you are thinking 

about is the issues of fraud. So I would like to talk about that a 

little bit more as well. 

Large businesses too often are the real recipients and executors 

of federal contracts ostensibly awarded to small companies. I think 

Ms. Styles alluded to some of that earlier and one particular instance, but there are many others as well. Up to a third of the 

SBA’s list of top 100 small business contractors in 2005 were actually large businesses, according to Eagle Eye, again. 

Additionally, more than 20 percent of the respondents to our own 

internal survey reported losing out on a federal procurement opportunity that instead went to a large firm that had been identified 

as a small business. 

31

So allowing large companies to masquerade as small for the purposes of obtaining federal protections intended for the nation’s 

small businesses is an affront to the will of Congress, a breach of 

the trust of the American people and to the infringement of the 

principles of fair play and competition. 

We welcome efforts to combat fraud in SBA’s small business contracting programs, including actions such as on-site verifications 

and geographical limitations and civil penalties for firms found to 

have falsely represented themselves as service disabled veteranowned. 

In addition to combating it, NSB urges enforcement against companies committing fraud. Since 1988, the Small Business Act has 

provided for felony convictions up to ten years, criminal fines of 

$500,000, mandatory three- year debarments, and forfeitures for 

companies determined by the SBA to have misrepresented their 

small business status. Prosecution under these provisions has been 

lacking, however and the SBA rarely rules on whether companies 

have misrepresented their small business status. This should 

change and SBA urges prompt prosecution for companies found to 

have fraudulently claimed small business status, and SBA also can 

use increased authority for the SBA to disbar large contractors that 

fraudulently identify themselves as small businesses. 

Despite being the world’s largest buyer of goods and services, the 

federal government of the United States remains something of an 

unknown commodity to America’s small businesses, and that gets 

at points that have been made by earlier speakers as well. 

Specifically, Ms. Styles talked about the complexity of the system, and that continues to be an enormous barrier preventing a lot 

of small businesses from even considering getting into federal procurement, and that is something I think we should address as well. 

There are lots of correlations between federal procurement system and the tax system. We talk a lot about the tax gap and how 

people are cheating and the core crux issue there is the overwhelming complexity of the tax system. 

People make a lot innocent mistakes, and people who are out to 

do wrong find it very easy to do that and hide it. And I would submit to you that the procurement system is reflective of that as well, 

and we think about ways that we can simplify and make things a 

lot clearer. 

Thank you very much. 

[The prepared statement of Mr. McCracken may be found in the 

Appendix on page 68.]

ChairwomanVELA ́ ZQUEZ. Thank you. 

Our next witness, Mr. Steven Denlinger. Mr. Denlinger is in personnel of the Latin American Management Association and is testifying today on behalf of the U.S. Hispanic Chamber of Commerce. 

The Chamber represents 2.5 million Hispanic-owned companies, 

small business companies. 

Welcome, sir. 

32

STATEMENT OF STEVEN DENLINGER, PROCUREMENT POLICY 

CONSULTANT, U.S. HISPANIC CHAMBER OF COMMERCE 

Mr.DENLINGER. Thank you, Madam Chairman and Representative Chabot. 

It is an honor to testify before you today in representing the 

United States Hispanic Chamber of Commerce and LAMA. We are 

here in full support of the Small Business Contracting Program Improvements Act of 2007. We submit our full statement for the 

record. 

I would like to talk briefly about four points, two of which are 

not addressed by the legislation. 

First, delegation. A decade or so ago SBA delegated contract 

oversight to the federal agencies because of the tremendous logjam 

in getting paperwork processed by the SBA. It was just frustrating 

the contracting officers throughout the federal government. 

We welcomed that at the time. I personally have spent a tremendous amount of time trying to solve these kinds of problems in advocacy for our members. So I am personally familiar with it. 

At the same time, I do agree that it is time to revisit this issue 

because SBA has essentially abandoned its business development 

function with respect to the contracting process, and more and 

more 8(a) contracts are falling into the hands of fewer and fewer 

companies. 

While we do that, we need to keep in mind two very important 

things. One is the massive SBA staff reductions will make it even 

more difficult for SBA to engage in business development as compared to ten years ago. 

Secondly, acquisition reform has made it far more easy for federal agencies to contract with firms across the board through existing contracting vehicles, and anything that makes the 8(a) program 

a slower contracting process is going to make the 8(a) program less 

attractive and less competitive in the present federal marketplace. 

So the question is: what do we want SBA to do with respect to 

business development, and what can SBA do with existing staff? 

I want to talk a little bit about PEA. We recommend that PEA 

be applicable to all federal agencies. PEA is one of those tools that 

is not very well understood and that has been ineffectively utilized. 

We recommend that the federal agencies, including DOD, be specifically required to use PEA in two instances: instances wherein 

individual federal buying activities are not meeting the contracting 

goals assigned to them by federal statute or by the SBA. 

And when I say individual procuring activities, there is somewhere between 1,000 and 2,000 individual procuring activities 

across the country. 

And secondly, in instances wherein the federal buying activities 

have poor track records of contracting with minority businesses in 

technical areas, such as IT, precision manufacturing, telecommunications based maintenance, environmental remediation, and so 

forth. 

SDB set-asides. They were suspended during the Clinton administration while the administration was assessing the impact of the 

Adarand Supreme Court decision on federal government procurement preference programs. The SDB set- aside program, of course, 

has now been reinstated after all these years. 

33

We believe that as implemented in the past, it meets the strict 

scrutiny requirements of the Adarand decision, and therefore, the 

SDB set-aside program should be reinstated. 

Lastly, I want to touch on the issue of the impact of Alaska Native corporations on the 8(a) program. This is a contentious issue. 

I realize that, and I just want to share a few thoughts with you. 

You will find in the attachment to this testimony a summary that 

we presented last week before another committee of the Congress. 

Basically what we are looking at is the series of special privileges 

that have crept into the 8(a) program through a number of amendments over the years that have now rendered this program out of 

control. ANCs are not small, impoverished tribal businesses struggling to survive in remote villages in Alaska. ANCs are billion dollar corporate conglomerates that have thousands of employees, 

hundreds of subsidiaries and affiliates and hundreds of offices scattered across the United States, in some cases across the world. 

There really are two 8(a) programs, the special rarified privileged 

world of the 8(a) ANCs and then the rest of the portfolio. The disparities between the ANC program and the regular 8(a) program 

are sometimes quite dumbfounding. 

For example, to participate in the 8(a) program, the net worth of 

a normal applicant may not exceed 250,000. Yet a billion dollar 

ANC can participate in the 8(a) program virtually automatically. 

There are many more examples. 

In addition, a normal 8(a) company can receive sole source contracts up to and only up to 3.5 million. Yet an ANC can receive sole 

source contract awards of any size, and there are many sole source 

awards to ANCs of 100 million, 250 million, 500 million and a billion. 

The notion that a billion dollar corporation with 1,000 employees 

and dozens of corporate offices across the country can be an 8(a) 

participant and receive billion dollar sole source contracts totally 

discredits, in our opinion, the original purposes of the 8(a) program. 

Congresswomen Vela ́zquez, several years ago, you characterized 

bundling as the number one public enemy of small business, and 

we agreed with that, and I have used that statement on many occasions. 

What we have allowed to happen is a bundling mechanism that 

sits right smack in the middle of the 8(a) program. The 8(a) program was not designed as a subcontracting program for 8(a) companies to be supplicants to ANCs for subcontracts. The 8(a) program was designed as a program that would give small disadvantaged businesses across the board participating in the portfolio access to the privilege of participating in federal prime contracting. 

That concludes my testimony, Madam Chairman. Thank you so 

much. 

[The prepared statement of Mr. Denlinger may be found in the 

Appendix on page 73.]

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Denlinger, I would like to address my first question to you. 

In 2006, and you were here, I believe, when the Administrator was 

testifying, only seven percent of companies participating in the 8(a) 

34

got work as a result of their being in the program. Ninety-three 

percent of companies got nothing. 

In 1999, one-third of the companies got work. In your view did 

the SBA delegation of its authority to enter into contracts to other 

agencies contribute to this problem? 

Mr.DENLINGER. Oh, absolutely. No question about it. Yes, that is 

the oversight that SBA needs. 

ChairwomanVELA ́ ZQUEZ. If we required the SBA to get back into 

the contracting process, do you think this problem would start to 

be corrected? 

Mr.DENLINGER. Yes, but we have to address the under staffing 

issues. That is critical. 

ChairwomanVELA ́ ZQUEZ. Yes, that is one of the issues that we 

have been dealing with in terms of the budget submission and the 

Administrator coming before this Committee and saying that the 

budget is sufficient when we saw what happened in Katrina. The 

response of the federal government, particularly SBA with their 

disaster relief program. We saw what it means to have a budget 

that is totally inefficient. 

Mr.DENLINGER. May I just say that the main thing I think SBA 

needs to do is to make sure that companies coming into the portfolio, into the program have an opportunity to secure the smaller 

contracts that the federal agencies tend to award to other more experienced firms. 

ChairwomanVELA ́ ZQUEZ. Mr. Denlinger, I am sure you heard my 

exchange with Administrator Preston regarding the need to raise 

the 8(a) personal net worth limitation. The SBA is opposed to raising this limitation to 750,000 at program entry. What kind of effect 

does the 8(a) program’s personal net worth limitation have on the 

growth of the small, minority-owned company? 

Mr.DENLINGER. Our opinion has always been that the $250,000 

net worth level encouraged only the weaker companies to come into 

the portfolio, and so we have long advocated, as you know, an increase in the personal net worth for entry into the 8(a) program. 

Let me say also keep in mind the purpose of the net worth ceiling is to establish an eligibility, an economic eligibility, disadvantaged eligibility for the program. We do not think that should be 

applied during the program. So we think that the net worth ceiling 

should be eliminated for participation. 

We want companies to become as strong as they can. Owners 

have to rely on their own personal bank ability, their own personal 

net worth in order to finance the growth and development of their 

companies. 

ChairwomanVELA ́ ZQUEZ. So how do you respond to the concern 

that a large percentage of the population has a net worth below 

these limitations? 

Mr.DENLINGER. That is a good question. I think if we look at it 

in the context of a business development program, it makes all the 

sense in the world. We have got to understand that people have to 

have good, strong net worths in order to succeed and in order to 

be bankable. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Sharpe, in the legislation the Committee is considering we 

have included a provision to require the SBA to carry out its obliVerDate 0ct 09 2002 09:39 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38208.TXT LEANN
35

gation under Executive Order 13360. In your view, when the SBA 

complies with these requirements, will this increase the likelihood 

that Service-disabled veterans will be more successful in winning 

contracts? 

Mr.SHARPE. Yes, I do, and that has been a big issue with SBA. 

We want to see them more proactive. We want to see them more 

active as far as monitoring agencies and clients, and I think by 

doing that, all veterans will be better off. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Ms. Dorfman, should the Committee intervene now to insure that 

the Women’s Procurement Program is implemented? 

Ms.DORFMAN. I would say yes because after today, hearing that 

it is going to be delayed at least three more months and knowing 

what that entails after the fact, we need some sort of assistance. 

The Administrator mentioned that, gee, women-owned firms got a 

million dollars this past year in contracts and isn’t that wonderful, 

but the reality is if you multiply out what we have lost over the 

last seven years, that is $42 billion, and subtract one billion dollars, then you have got $41 billion that we have lost and that number will continue to grow. 

ChairwomanVELA ́ ZQUEZ. Is it the concern of the U.S. Women’s 

Chamber of Commerce that there is the possibility that the SBA 

will not implement the Women’s Procurement Program at all, or if 

it does, that it will not be done properly? 

Ms.DORFMAN. Absolutely. We have seen stonewalling from the 

beginning. It has been seven years. We have watched the deadlines 

self-imposed come and go, and I do not suspect that the behavior 

will change. We absolutely need some sort of assistance to get this 

done. 

ChairwomanVELA ́ ZQUEZ. What will be the effect if the administration fails in implementing the Women’s Procurement Program? 

What effect will that have? 

Ms.DORFMAN. Women-owned firms will continue to lose the billion dollars of revenues annually. That impacts not just their business but their families, their communities because they hire even 

men who have families. 

So this is not a woman’s issue. This is a community issue, and 

it is the country’s issue because, again, the whole growth of the 

economy is dependent on small business growth. 

Women-owned firms represent one-third of all businesses in the 

United States. It just makes sense to assist them in accessing federal contracts. 

ChairwomanVELA ́ ZQUEZ. And this is not a handout. 

Ms.DORFMAN. It is absolutely not a handout. 

ChairwomanVELA ́ ZQUEZ. Mr. McCracken, does it seem reasonable 

to you for the Committee to want to insure that companies who 

participate in SBA’s procurement programs conduct themselves 

with integrity and are of good character? 

Mr.MCCRACKEN. It certainly sounds reasonable, yes. The question, of course, are the definitions of integrity and good character 

and who makes that determination, but assuming that can be done 

in a reasonable way, it is not an unreasonable expectation I do not 

think. 

36

ChairwomanVELA ́ ZQUEZ. In your estimation, how important is it 

that the Committee act decisively when we learn that small business contracting programs are being misused and benefits are actually going to ineligible companies? 

Mr.MCCRACKEN. I think it is pretty crucial because it does contribute, I think, to the overall culture that can pervade the procurement system, and you do wind up with a lot of gamesmanship because there begins to be a feeling, I think, among too many people 

that this is how the game is played and that you figure out how 

to use the system rather than how to provide the best service and 

the best quality contracting at the right time. 

That would be a very unfortunate consequence and, I think, not 

in the long-term interest of the small business community or the 

federal government. So we think it is pretty important that when 

you design programs, that they be designed clearly so that they are 

not easy to abuse and that they are clearly targeted, and that if 

you have to fix some of that going back, it needs to be fixed. 

But I am also very sympathetic to the argument that we cannot 

keep constantly changing these programs either because that creates a great deal of confusion. 

ChairwomanVELA ́ ZQUEZ. I am sorry, but you cannot? 

Mr.MCCRACKEN. Keep changing the programs year after year either because that creates a great deal of complexity and confusion 

that I think leads to the same kinds of abuses you are trying to 

address. 

ChairwomanVELA ́ ZQUEZ. The fact of the matter is that some of 

these programs have not been modernized for the last decade. 

Mr.MCCRACKEN. Right. 

ChairwomanVELA ́ ZQUEZ. Ms. Styles, in your testimony, you have 

suggested severe and tangible penalties for fraud. The problem 

with this is before you can get to the penalties, you have to catch 

someone. The SBA’s Inspector General has reported that 80 percent of HUBZone companies are not eligible three years after they 

have been approved. 

What is your proposal for how we catch these people? 

Ms.STYLES. Well, I think there are two issues. One, there are 

seven people at the SBA that work on the HUBZone program. I am 

not sure how much you can do with thousands of companies and 

seven people. You need to allocate resources to it or you are not 

going to find them. 

And second, when you find them, send them to jail. Refer them 

over to the Department of Justice and make examples of these people. If there are not examples, you are going to have people out 

there that see that there are seven people in the program and then 

they can continue to commit fraud. 

ChairwomanVELA ́ ZQUEZ. Well, again, we go back to the budget 

issue and the problem that we have is that every time the Administrator comes before this Committee to testify on the budget submission and we on this side point to the fact that it is insufficient 

and that for the least five, six years it has been cut by 42 percent, 

they always say that they can do more with less. 

Ms.STYLES. Well, I would add that if you take people out of the 

8(a) program and put them in the HUBZone, then you will start 

having problems in that program. I mean, it is not a matter of 

37

being able to adjust their resources. It is a matter of the Office of 

Management and Budget realizing that they need to commit the 

money, I think. 

ChairwomanVELA ́ ZQUEZ. And for the record, Ms. Styles, I know 

that you are here testifying on your own, but do you represent the 

HUBZone Council? 

Ms.STYLES. Not currently. They were a client at my old firm, but 

they are not a client at my current firm. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Chabot. 

Mr.CHABOT. Thank you. 

Ms. Styles, I will begin with you first. Before I do that, I want 

to compliment you on your children, how good they have been, how 

quiet, and of course, this testimony has probably been riveting for 

them. 

[Laughter.] 

Ms.STYLES. In spite of the Three Musketeer bars that your staff 

gave them. 

Mr.CHABOT. But it is quite amazing how good they have been. So 

my compliments to you. 

Ms.STYLES. Thank you. 

Mr.CHABOT. Give them some treats and all that kind of stuff, 

take them to a show, do all kinds of good stuff. They have been real 

good. 

Your example about the Hawaiian example that you mentioned, 

could you tell us a little more about that and what was going on 

there and how widespread you think that type of thing might be 

in the system? 

Ms.STYLES. Well, I come upon examples like that rather frequently, I hate to say. This one was just a stunning and stark one, 

and my client asked me not to reveal her name, but that I was perfectly happy to use the examples because it was really stunning. 

I mean, you know, you have got this contract specialist at home 

sending out RFPs and then trying to benefit herself through a candle company at the same time, and a small business, you know. I 

mean, this woman knows me personally. She is a friend and has 

been a client for a long time. So she has me to come to say, ‘‘What 

can I do about this? How can I handle that?’’

Well, there are a lot of small businesses out there that will buy 

the candles because it will help them get, you know, the business 

or have no idea what to do in a situation like that, and there are 

a lot. I mean, it is not just the small businesses that may be having 

problems. It is the contracting officers. There are not very many of 

them. They do not have a lot of oversight, and things like this can 

happen with some frequency. 

Mr.CHABOT. Thank you very much. 

And unless the Chairwoman has any additional questions, I 

know you have a flight to catch. 

Ms.STYLES. Thank you very much. 

Mr.CHABOT. So if you have to go at some point, you are welcome. 

Ms.STYLES. I appreciate it. Thank you very much for having me. 

Mr.CHABOT. Madam Chair, did you have anything else you wanted to ask this specific witness? 

ChairwomanVELA ́ ZQUEZ. No, not to her. 

38

Ms.STYLES. Thank you. 

Mr.CHABOT. Thank you very much for your testimony. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr.CHABOT. We appreciate it. 

Mr. Sharpe, if I could go to you next, how would you increase the 

integrity of certifications of eligibility for Service-disabled veterans? 

Mr.SHARPE. Well, I would require those agencies whose job it is 

to do that to actually do it. You know, again, we talk about SBA 

and their lack of resources. We should have the resources available 

so that those agencies that are required to fulfill the law that has 

been already put out there do it, and that is all it takes for them 

to follow the law. 

Mr.CHABOT. Thank you. 

Ms. Dorfman, what further actions is the Women’s Chamber of 

Commerce taking or planning to take or will take perhaps in the 

future to enforce the judgment of the Federal District Court in its 

lawsuit against the SBA? 

Ms.DORFMAN. Right now what we wanted to do is get through 

this hearing and see what was happening here. The statement, 

thinking maybe today would be the day it was going to be implemented, oh, well. At any rate, so at this point we will have to get 

back with our attorneys and talk about what the next steps are. 

Mr.CHABOT. So at this point you are not really sure and would 

not even want to speculate as to what that might be, I assume. 

Ms.DORFMAN. No. 

Mr.CHABOT. I am assuming you wouldn’t want to speculate as to 

what type of things you might consider? 

Ms.DORFMAN. Not at this time, no, but we will be talking with 

our attorneys based on today’s outcome and see what choices are 

to move forward. 

Mr.CHABOT. Thank you. 

Mr. McCracken, you talked about fraud and, you know, large 

businesses masquerading as small business and that sort of thing 

and how prosecutions are lacking. How widespread do you believe 

that this fraud is, for example, the Hawaiian case that we had 

there? And would you like to expound upon that? 

Mr.MCCRACKEN. I can try. And, again, my information unfortunately in terms of how widespread it is at various levels is somewhat anecdotal, but my impression is that certainly in larger doses 

than we would like, and with any kind of whether it is outright 

fraud or what you would think of as just abuse, you know, not 

using the program in the way it was intended or that most of us 

would think that it would be used, I think it is more common than 

I think that a lot of us would like to think. Id o not know that I 

would single out a particular program per se for that because I 

think there are lots of different things going on at different times. 

But I think my biggest concern is not those individual cases. It 

is the culture that it can lead to if left unchecked long term and 

that we could actually have, you know, a political backlash against 

some of the programs that should be and could be and often are 

extremely helpful to small companies. 

So we do have to make sure that they are as straight up as they 

can be and that they are being implemented in the way that we 

39

all expect that they are implemented. So enforcement, I think, is 

a big part of that. 

At the same time, I think a lot of transparency and simplification, as I mentioned before, is a big part of the solution to that as 

well. I think when you were talking with the Administrator you 

talked about the example of how do you catch some of this stuff 

and should we rely on other contractors who see it happening and 

say, well, this guy is not really on the up and up here. Should they 

be reporting that? 

And I think one of the reasons that may not work in all cases 

is because the other contractors themselves may assume there is 

some loophole this guy used to get into the program that they do 

not understand, and there may not, in fact, actually be. So they 

will not report those cases because the system is so complicated 

that a lot of those things people will just shrug their shoulders and 

say, ‘‘Well, what can I do?’’

And I think if we had a clear, transparent, relatively simple system, we could—

Mr.CHABOT. My time is running short. I just wanted to get one 

more question and then I am going to get to you, Mr. Denlinger, 

in just a minute. 

You also referred to the complexity of the tax code as being one 

of the principal problems, and I agree very much with you. Could 

you take maybe 30 seconds to 60 seconds to tell me what the problem is there? 

Mr.MCCRACKEN. Oh, well, I do not know that I can do it in 30 

to 60 seconds, but essentially we think that the code is enormously 

complex. We have this tax gap issue that we have been talking 

about a great deal over the last year or so, and we think too frequently the solutions are, well, let’s ramp up enforcement and do 

a bunch of other things. So we are going to impose a lot of burdens 

on people who are actually complying with the law. 

And we are willing to look at simplifying the tax code because 

that is really at the root of things because it allows people to get 

away with things and hide things and find loopholes that I do not 

think any of us intended to be there. 

And so I could talk ad nauseam about our idea solution to those 

problems and what kind of tax system we ought to have, but it is 

not the one we have now. That is for sure. 

Mr.CHABOT. Okay. Thank you. 

And finally, Mr. Denlinger, it is my understanding that a few 

firms dominate the 8(a) procurement arena. Would the SBA awarding subcontracts provide greater opportunity to a more diverse 

cross-section of 8(a) firms? 

Mr.DENLINGER. Would the SBA awarding subcontracts? I did not 

understand that part of your question. 

Mr.CHABOT. Yes, because of the SBA going back and being the 

prime subcontractor. 

Mr.DENLINGER. Oh, I think that would be a disaster. That tripartite agreement where SBA was the prime contractor of the federal agencies and 8(a) companies were the subs, that is a disaster. 

That is just a formula for chaos. It just cannot work. Please do not 

take us back there. 

Mr.CHABOT. Okay. All right. Thank you very much. 

40

[Laughter.] 

Mr.CHABOT. I yield back. 

ChairwomanVELA ́ ZQUEZ. Mr. Denlinger, in your testimony you 

commented on the importance of on-site reviews or verification to 

insure the eligibility of companies for the HUBZone program. You 

compare it to what is currently done for 8(a). Can you expand on 

this? 

Ms.DORFMAN. Well, as all of us know, the certification process for 

8(a) is very rigorous, very thorough, and our sense is why not apply 

that standard across the board. What we are giving companies in 

these various programs is a tremendous advantage in the federal 

marketplace that ordinary citizens do not have. That demands a lot 

of respect, and I think that everybody should be subject to the 

same type of scrutiny. 

To me it is a no brainer. Let’s have background checks for everybody. Let’s do on-site surveys for everybody. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

I want to thank you all for being here and as you can see, it 

shows the fact that we have not really reauthorized the SBA, the 

Small Business Administration; that a lot of these programs have 

not been modernized; and that we will continue to work with the 

Ranking Member, Mr. Chabot, to make sure that our legislation accomplishes what we really intend to do in terms of responding to 

the concerns and the problems that we are seeing with all of those 

programs. 

And my intention is to try to move this legislation through the 

Committee within this month, in October. 

With that, again, thank you all for being here. Members have 

five legislative days to submit additional materials and statements 

for the record. 

Thank you again. This hearing is adjourned. 

[Whereupon, at 1:20 p.m., the Committee hearing was adjourned.]

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