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S. HRG. 110–373

ACCESS TO FEDERAL CONTRACTS: HOW TO LEVEL

THE PLAYING FIELD

FIELD HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

October 29, 2007

Printed for the use of the Committee on Small Business and Entrepreneurship

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

(II)

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JOHN F. KERRY, Massachusetts, Chairman

CARL LEVIN, Michigan

TOM HARKIN, Iowa

JOSEPH I. LIEBERMAN, Connecticut

MARY LANDRIEU, Louisiana

MARIA CANTWELL, Washington

EVAN BAYH, Indiana

MARK PRYOR, Arkansas

BENJAMIN L. CARDIN, Maryland

JON TESTER, Montana

OLYMPIA J. SNOWE, Maine

CHRISTOPHER S. BOND, Missouri

NORMAN COLEMAN, Minnesota

DAVID VITTER, Louisiana

ELIZABETH DOLE, North Carolina

JOHN THUNE, South Dakota

BOB CORKER, Tennessee

MICHAEL B. ENZI, Wyoming

JOHNNY ISAKSON, Georgia

NAOMI BAUM, Democratic Staff Director

WALLACE HSUEH, Republican Staff Director

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CONTENTS

Page

OPENING STATEMENTS

Cardin, The Honorable Benjamin L., a United States Senator from Maryland . 1

Sarbanes, The Honorable John P., a United States Representative from Maryland ........................................................................................................................ 53

WITNESS TESTIMONY

Jenkins, Calvin, Deputy Associate Administrator, Office of Government Contracting and Business Development, U.S. Small Business Administration,

Washington, DC ................................................................................................... 9

Martoccia, Anthony, Director of Small Business Programs, Office of the Secretary of Defense, U.S. Department of Defense, Arlington, VA ....................... 16

Rigas, Michael J., Deputy Associate Administrator, Office of Small Business

Utilization, General Services Administration, Washington, DC ...................... 30

Frazier, Wayne R., Sr., President, Maryland-Washington Minority Contractors Association, Baltimore, MD ......................................................................... 47

Green, Hubert ‘‘Petey’’, President, Prince George’s County Black Chamber

of Commerce, Oxon Hill, MD .............................................................................. 54

Martinez, Ricardo, President, Maryland Hispanic Chamber of Commerce, and

CEO, Project Enhancement Corp., Germantown, MD ...................................... 61

Forbes, Melvin, President and CEO, Wilkerson Sports Enterprise, Forbes

Consulting and Associates, Largo, MD .............................................................. 73

Larsen, Carmen Ortiz, CEO, AQUAS, Inc., Bethesda, MD ................................. 77

Adams, Timothy, President and CEO, Systems Application and Technologies,

Inc., Largo, MD .................................................................................................... 82

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Adams, Timothy

Testimony .......................................................................................................... 82

Prepared statement .......................................................................................... 85

Cardin, The Honorable Benjamin L.

Opening statement ........................................................................................... 1

Prepared statement .......................................................................................... 4

Post-hearing questions posed to:

Calvin Jenkins ........................................................................................... 94

Anthony Martoccia .................................................................................... 94

Michael J. Rigas ........................................................................................ 95

Forbes, Melvin

Testimony .......................................................................................................... 73

Prepared statement .......................................................................................... 75

Frazier, Wayne R., Sr.,

Testimony .......................................................................................................... 47

Prepared statement .......................................................................................... 50

Green, Hubert ‘‘Petey’’

Testimony .......................................................................................................... 54

Prepared statement .......................................................................................... 58

Jenkins, Calvin

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 12

Responses to post-hearing questions from Senator Cardin .......................... 94

Page

IV

Larsen, Carmen Ortiz

Testimony .......................................................................................................... 77

Prepared statement .......................................................................................... 80

Martinez, Ricardo

Testimony .......................................................................................................... 61

Prepared statement .......................................................................................... 64

Martoccia, Anthony

Testimony .......................................................................................................... 16

Prepared statement .......................................................................................... 18

Responses to post-hearing questions from Senator Cardin .......................... 94

Rigas, Michael J.

Testimony .......................................................................................................... 30

Prepared statement .......................................................................................... 32

Responses to post-hearing questions from Senator Cardin .......................... 95

Sarbanes, The Honorable John P.

Opening statement ........................................................................................... 53

COMMENTS FOR THE RECORD

Aguinaldo, Joe, Owner, J. Aguinaldo Group, Inc. ................................................. 98

Bowie, Terry, Managing Partner, Ingalls Lumber & Supply, LLC ..................... 100

Christiansen, Nicholas V., Sr., President and CEO, Eagle Technologies, Inc. ... 101

Cunningham, William Michael & Creative Investment Research, Inc. .............. 108

Fay, Tim, Fay Communications, Inc. ..................................................................... 118

Genwright, Melvin, President, Power Cleaning Services, Inc. ............................ 125

Jenkins, Luwanda W., Special Secretary, Maryland Governor’s Office of Minority Affairs ........................................................................................................ 126

Lawson, Chris, President, Insuraty, Inc. ............................................................... 128

Lumpkins, Nancie, CEO/President, Imagine One Technology & Management,

Ltd. ........................................................................................................................ 129

McRae, Randy, Central Prince Georges, CDC ....................................................... 132

Supporting documents ...................................................................................... 134

Pence, Robert, President, Lakota Technical Services, Inc., and Shirley D.

Collier, CEO, Optemax, LLC ............................................................................... 160

Supporting document ....................................................................................... 162

Rekemeyer, Darryl D., Director, Fort Detrick Business Development Office ..... 165

Thurman-Custis, Saundra, Principal, Crystal Enterprises, Inc. ......................... 168

Women Impacting Public Policy ............................................................................. 169

Zhu, Jerry, Ph.D., President, UCSoft ..................................................................... 175

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ACCESS TO FEDERAL CONTRACTS: HOW TO

LEVEL THE PLAYING FIELD

MONDAY, OCTOBER 29, 2007

UNITED STATES SENATE,

COMMITTEE ON SMALL BUSINESS AND

ENTREPRENEURSHIP,

Washington, D.C.

The Committee met, pursuant to notice, at 1:00 p.m., in Library

Special Collections Room 2202, Thurgood Marshall Library, Bowie

State University, 14000 Jericho Park Road, Bowie, Maryland, Hon.

Benjamin L. Cardin, presiding.

Senators present: Cardin.

Representatives present: Sarbanes.

OPENING STATEMENT OF THE HONORABLE BENJAMIN L.

CARDIN, A UNITED STATES SENATOR FROM MARYLAND

Senator CARDIN [presiding]. The Senate Committee on Small

Business and Entrepreneurship will come to order, and I want to

thank you all for being here at Bowie State University. I particularly want to thank our Chairman John Kerry for allowing me to

bring a hearing to Prince George’s County, Maryland, and Bowie

State University on the issues of small business, minority, and

women-owned businesses, to look at the efforts being made by Federal policies and agencies, because our Committee is looking at

ways of strengthening the programs to achieve our goal of offering

more opportunity for small businesses and for minority and

women-owned businesses and this hearing will play a very important part of our committee record.

I am going to put my opening statement into the record, without

objection, and since there is no other member of the Committee

here to object, I shouldn’t have any trouble with my unanimous

consent requests.

[Laughter.]

Senator CARDIN. Without objection, we will be placing in the

record all of the statements of the witnesses that are on both panels and the statements that have been submitted for the record and

we would ask our witnesses to summarize their testimony or proceed as they see fit in order to make the points that they believe

are important points to be made.

Senator CARDIN. I particularly want to thank all the witnesses

on both panels for being here. I think that we have a well-balanced

presentation from the government agencies that are responsible

and have major roles to play in government procurement that afVerDate 11-MAY-2000 18:09 May 14, 2008 Jkt 040541 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\SBA\40541.TXT CELINA PsN: CELINA
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fect minority and small businesses as well as from individuals who

have real life experience here in Maryland with these programs.

I want to again congratulate and thank Senator Kerry, our

Chairman, for his commitment in this area. He has been very active in having hearings in Washington and encouraging us to have

field hearings and in working in areas that will strengthen the programs and deal with these problems that we have.

I don’t think I need to talk too long to the audience that we have

here today as the importance of small business to the economy of

our country. It represents one-third of the new patents that are

coming from small business. Sixty percent of our new job growth

comes out of the small business community. It is a very important

part of Federal contracting, and as a result, goals have been set as

to the amount of procurement that we anticipate from small businesses. We will talk about those goals today, as to whether we are

meeting those goals and whether these goals are the right goals for

our country.

In 2006, SBA went through the issues concerning contracting

goals and looked at whether we have achieved those goals and

there was a report that showed that we had not met those goals.

I know there is some disagreement as to how it is calculated and

I look forward to clarifying those points perhaps at this hearing.

Let me go through very quickly some of the obstacles I think we

face in achieving the goal of providing opportunities for small businesses and minority and women-owned businesses. One is the issue

of bundling, and I hope that we will have a chance to talk about

bundling, because in 2004, there was a GAO report that urged SBA

to disseminate best practices to maximize small business contracting opportunities with Federal procurement. I am interested

as to how much progress has been made since that 2004 GAO report. Bundling has clearly been an area that has presented challenges to whether we are achieving our objectives for small business.

I also want to look at the issues concerning how prime contractors treat their subcontracts. I must tell you, I favor more prime

contracts going to small businesses. I think that would solve a lot

of the problems, so I hope that we can do that. But in the meantime, there have been many circumstances brought to my attention

of where prime contractors have used small businesses for procuring contracts and then have been very suspect as to using those

subcontractors or paying them on time. I want to talk a little bit

about that today.

I want to talk about the 8(a) program and its growth over the

last several years and whether the Administration’s budget is adequate to meet the challenges of Section 8(a) programs.

We are meeting here in Prince George’s County, which I think

is noteworthy. Prince George’s County has, I think, one of the most

significant African-American populations in the country. It is a

strong community. It is actively involved in business ownership,

start-up companies, educational attainment, home ownership, capital formation. It is here. Plus, it is closely located in proximity to

the Nation’s capital. Now, that should be the formula for great opportunity for expansion, and yet I don’t think that potential has

been met. It also should be an area that is prime for Federal faciliVerDate 11-MAY-2000 18:09 May 14, 2008 Jkt 040541 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\SBA\40541.TXT CELINA PsN: CELINA
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ties and Federal leases. Its leasing cost is less than the other areas

within the metropolitan area. And yet, I am not satisfied with the

progress that has been made here.

We have new opportunities. The BRAC process should be providing additional opportunities. How will the BRAC process, and I

particularly appreciate that we have a representative from DOD

that perhaps can talk a little bit about how BRAC will work into

the opportunities for small businesses.

So we have our work cut out for us and I very much look forward

to hearing the testimony from our witnesses and I can assure you

that it will be reviewed by the Committee and part of our record

in trying to come up with the right type of policies to achieve our

objectives will be based on testimony provided here.

[The prepared statement of Senator Cardin follows:]

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Senator CARDIN. I do want to acknowledge some people who are

in the audience that are here representing some of my colleagues.

I saw Terrance Taylor, who is here representing Congressman

Hoyer, and I appreciate Terrance being here. Trudy Perkins, who

is representing Congressman Elijah Cummings. We have Julius

West representing Congressman Chris Van Hollen, Nicole Schultz

representing Senator Barbara Mikulski. Luwanda Jenkins is here

in her capacity as the Special Secretary for Minority Affairs in the

State of Maryland and we appreciate her being here, along with

Assistant Secretary Herbert Jordan. So we welcome all of you that

are here and we will now proceed with the first panel.

The procedures that we use in our Committee allows the witnesses an opportunity to present their testimonies. We are using

a 7-minute clock today. Then we will have time for questions that

I will be presenting that some of you have asked for me to ask, and

I will be using those questions.

So if we might, we will start first with Calvin Jenkins, who is

the Deputy Associate Administrator for Government Contracting

and Business Development. Calvin Jenkins was appointed Deputy

Associate Administrator for Government Contracting and Business

Development of the U.S. Small Business Administration in October

2005. He is the Small Business Administrator’s top career senior

executive for government contracting and business development

programs. Mr. Jenkins is responsible for overseeing the administration of the umbrella office with jurisdiction over the agency’s Offices of Technology, Size Standards, Government Contracting, Business Development, 8(a), and Small Disadvantaged Business Certification.

Mr. Jenkins, welcome. You may proceed.

STATEMENT OF CALVIN JENKINS, DEPUTY ASSOCIATE ADMINISTRATOR, OFFICE OF GOVERNMENT CONTRACTING AND

BUSINESS DEVELOPMENT, U.S. SMALL BUSINESS ADMINISTRATION, WASHINGTON, DC

Mr. JENKINS. Thank you. Chairman Cardin, thank you for inviting me here today to Bowie State University to testify. Bowie State

plays a key role in educating future business owners in this country, so I am particularly pleased to be here today to discuss the role

the U.S. Small Business Administration plays in supporting the

small business community within the Federal marketplace.

As Maryland prepares for an influx of new jobs that will continue

into the State as a result of the 2005 Base Realignment and Closure Commission recommendations, the SBA stands ready to provide small businesses with the tools that they need to succeed in

the Federal contracting arena.

The primary way by which SBA provides assistance to minorityowned businesses in the Federal marketplace is through the 8(a)

Business Development Program. This program offers a broad range

of assistance to firms deemed to be socially and economically disadvantaged. Today, there are about 8,867 firms participating in the

8(a) program, with Federal contract dollars of $12.5 billion in fiscal

year 2006. In Maryland, 8(a) participants received over $1.5 billion

in contracts in 2006. As SBA provides 8(a) participants with business development training through our 7(j) training program, this

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training consists of 80 workshops in 40 different cities and is being

conducted by Unlimited Services Systems Management and Consulting, a small business located in Largo, Maryland.

Through the various small business programs, the Federal Government has made significant progress towards achieving its small

business goals. In fiscal year 2004, women-owned small businesses

grew from $5.5 billion to $11.6 billion in fiscal year 2006. Servicedisabled veteran small businesses grew from $554 million to $2.9

billion in fiscal year 2006. Firms located in the HUBZone increased

from $1.6 billion to $7.2 billion in fiscal year 2006. And overall,

small businesses grew from $50.1 billion to $77.6 billion in fiscal

year 2006.

The SBA takes its responsibility for oversight of contracting activities very seriously and has taken a number of steps to remedy

deficiencies found by the GAO. For instance, SBA has revised the

partnership agreement to clarify Federal agencies’ roles and responsibilities for monitoring contract compliance of and performance by 8(a) participants. SBA has also increased training to field

staff responsible for working on contracting issues, including the

8(a) Business Development Program. In addition, the agency is exploring possible regulatory changes that will strengthen the program and increase SBA’s overall capabilities.

SBA recognized the need to improve management and efficiencies of its business development programs and has requested $500,000

in fiscal year 2008 budget to examine how best to serve the 8(a),

HUBZone, Small Disadvantaged Business communities, and

women-owned and service-disabled veteran-owned small businesses

while not restricting the success of any one program.

SBA is also working with the Office of Management and Budget’s

Office of Federal Procurement Policy to carry out a number of improvements to the Federal contracting programs. These initiatives

include working with agencies to ensure that their small business

contracting numbers reported to the Federal Procurement Data

System Next Generation is accurate. The integrity of the data reported to Congress and the public is critical to instill confidence in

the Federal contracting system.

A great example of the progress being made in this area is SBA’s

recent publication of the first biannual Small Business Procurement Scorecard. The scorecard is a method of ensuring that Federal agencies provide maximum practical opportunity for small

business in the Federal marketplace, especially those characterized

as socially and economically disadvantaged. Consistent with contracting goals, it reflects current performance and, more importantly, progress Federal agencies are making in improving such

performance. The new scorecard used the same approach as the

President’s Management Agenda scorecard to ensure that agencies

have clear goals and action plans that the agencies are regularly

assessed on their performance. Data integrity is a key element. Additionally, the scorecard is an important tool to both increase procurement opportunities for small businesses while more accurately

measuring each individual agency’s results. This scorecard, along

with the advances made in the Federal Procurement Data System,

are significant steps in adding transparency and greater accuracy

to the Federal procurement process.

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As you know, the President issued an Executive Order to address

the issue of contract bundling. SBA is committed to this policy and

is working with all Federal agencies to ensure compliance with this

policy and create opportunities for small business in the Federal

procurement market.

As part of this effort, SBA is redefining roles and responsibilities

so that the Procurement Center Representatives, or PCRs, can devote more time to finding opportunities for small businesses with

procurement agencies. SBA’s district offices and its resource partners will focus on providing training and counseling to get small

businesses positioned to compete for Federal contracts. Currently,

there are 52 Procurement Center Representatives serving small

businesses throughout the Federal marketplace. We have begun to

implement a plan to increase the number of PCRs to 66 by the end

of fiscal year 2008.

SBA is also in the process of implementing a new size recertification rule. This new regulation requires small businesses to recertify their size standard on long-term contracts at the end of the

first 5 years of a contract and thereafter whenever a contract option is exercised. Recertification is required for short-term contracts

when a small business is purchased or merged with another business. When contractors can no longer certify their small business

size standards, buying activities may no longer count them as part

of their procuring agency’s small business goals. Ultimately, the

new size recertification rule will ensure that more accurate data

and further support our efforts to receive more prime contracts

throughout the Federal Government.

This will conclude my testimony before the Committee. Thank

you for the opportunity to come to Bowie State University to discuss these issues important to Maryland’s small businesses, and I

look forward to answering your questions.

[The prepared statement of Mr. Jenkins follows:]

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Senator CARDIN. Thank you for your testimony.

I do want to acknowledge that Dr. Burnim was here, the President of Bowie State University and—oh, he is still here. Dr.

Burnim, thank you, again for your hospitality here. I know this is

a busy weekend with homecoming——

Mr. BURNIM. Yes, indeed, but it is our pleasure to have you here.

Senator CARDIN. Well, thank you. We really appreciate the courtesies that have been shown here at Bowie. As I told you privately,

you are doing great work here and we are very proud of the work

being done here at Bowie State University.

Mr. BURNIM. Thank you.

Senator CARDIN. Our next witness will be Mr. Anthony

Martoccia. Anthony Martoccia is the Director of the Department of

Defense Office of Small Business Programs. Mr. Martoccia has

served in a number of procurement management positions at the

Department of Defense, NASA, and the Department of Transportation. Most recently, he was the Associate Administrator for Government Contracting and Business Development at the U.S. Small

Business Administration. He served as the Chief Advisor to the

Small Business Administration who is responsible for providing direction, oversight, and policy to all Federal small business contracting programs.

It is a pleasure to have you here, Mr. Martoccia.

STATEMENT OF ANTHONY MARTOCCIA, DIRECTOR OF SMALL

BUSINESS PROGRAMS, OFFICE OF THE SECRETARY OF DEFENSE, U.S. DEPARTMENT OF DEFENSE, ARLINGTON, VA

Mr. MARTOCCIA. Thank you, sir. Chairman Cardin, good afternoon. I am Tony Martoccia, the Department of Defense Director of

the Office of Small Business Programs. Thank you for inviting me

to discuss the Department’s small business programs. I welcome

the opportunity to participate in this hearing because this is a topic

that is clearly important to me.

My testimony will encompass challenges and ongoing initiatives

within the DOD small business program. We have many challenges

facing the small business program. One you mentioned, contract

bundling. Contract bundling occurs when requirements that were

previously or could have been performed by small businesses are

consolidated into a single procurement, resulting in an acquisition

that is unsuitable for award to a small business. Any Defense acquisition strategy that uses bundling or consolidation of requirements must undergo a rigorous and thorough review to get approved to consolidate or to bundle a particular requirement.

Subcontracting—DOD contracting offices must ensure that prime

contractors put forth their best efforts to achieve their small business subcontracting goals. Contracting officers must challenge any

Small Disadvantaged Business subcontracting goal that is less

than 5 percent. A Small Disadvantaged Business goal of less than

5 percent must be approved one level above the contracting officer.

Competition—competition is the preferred method of acquiring

goods and services. The Department’s preference for competitions

extends to the Small Disadvantaged Business and 8(a) procurements involving 8(a), Alaska Native corporations, and others. Noncompetitive acquisition strategies are the exception to the norm,

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and the rationale for not using competitive techniques must be justified.

Alaska Native corporations—the Government Accountability Office noted that oversight was an area of vulnerability under 8(a)

ANC contracts. DOD discussed the GAO’s findings during the 2007

Small Business Training Conference. The military departments

have also stepped up their training efforts with respect to this initiative.

Now I would like to focus on some ongoing initiatives to increase

opportunities for Small Disadvantaged Businesses in DOD procurement. Minority Contract Enhancement Program—my office has

awarded a contract to a minority-owned 8(a) firm for the development and support of a DOD Minority Enhancement Program to assist small minority-owned businesses, including 8(a) participants.

Training the acquisition workforce—the Department has placed

increased emphasis on educating the acquisition workforce in key

areas of small business contracting.

DOD’s Small Business Community of Practice—my office, in collaboration with the Defense Acquisition University and the military departments, developed a Small Business Community of Practice to provide an easy to use online source of small business program information for the acquisition workforce.

Small business size standards—the Defense Department is concerned that a number of size standards critical to defense industries have not kept pace with the U.S. economy. Early this year,

DOD met with representatives from SBA and the Office of Federal

Procurement Policy to discuss the issue at length. All parties

agreed that a comprehensive review of size standards is needed.

Procurement Technical Assistance Centers—we have many Technical Assistance Centers to help small businesses provide a road

map to do business in the Federal marketplace. We have one such

located at the University of Maryland in College Park.

Base Closure and Realignment Act, BRAC—while the Department does not have a small business program that specifically addresses BRAC, DOD was actively involved in the passage of a law

to designate all military installations affected by BRAC as

HUBZones. Providing maximum opportunity for small business is

always a primary consideration in any acquisition strategy, including procurements to fulfill BRAC requirements.

I would also like to mention that the Deputy Under Secretary for

Defense for Acquisition and Technology, the Honorable Dr. James

Finley, is a strong proponent of the Department of Defense small

business program. Working together, we obtained senior DOD leadership commitment to promote small business programs within the

Department.

Today, I have provided a brief overview of a number of DOD

issues and initiatives that affect minority-owned small businesses.

I appreciate the Committee’s continued interest and oversight of

DOD’s small business program and look forward to your questions

and any comments you may have that will guide us towards working more effectively with small businesses. This concludes my testimony. Thank you.

[The prepared statement of Mr. Martoccia follows:]

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Senator CARDIN. Thank you very much, Mr. Martoccia.

We will now hear from Michael Rigas, who is the Deputy Associate Administrator for Small Business Utilization at the General

Services Administration. He is responsible for assisting the Associate Administrator in monitoring and implementing small business policies and managing small business programs. Prior to his

appointment at GSA, Mr. Rigas was at Mellon Financial Corporation and Brown Brothers Harriman and Company, where he managed client relations, streamlined operations, and created efficiencies across global operations.

STATEMENT OF MICHAEL J. RIGAS, DEPUTY ASSOCIATE ADMINISTRATOR, OFFICE OF SMALL BUSINESS UTILIZATION,

GENERAL SERVICES ADMINISTRATION, WASHINGTON, DC

Mr. RIGAS. Thank you. Good afternoon, Chairman Cardin. Thank

you for the opportunity to appear before you today to discuss access

to Federal contracts for small businesses. I am pleased to be here

this afternoon.

I am also happy to be here today at Bowie State University because it is the home of the Procurement Acquisition Center of Excellence. As the premier acquisition agency of the Federal Government, GSA’s mission is to help Federal agencies better serve the

public by offering at best value superior workplaces, expert solutions, acquisition services, and management policies.

Within GSA, the Office of Small Business Utilization works to

ensure that small businesses, small disadvantaged businesses,

women-owned, HUBZone, veteran-owned, and service-disabled veteran-owned small businesses have ample opportunities to compete

in GSA procurements. We know that small businesses are the engine of our national economy and that they bring to the market

new and innovative solutions to government challenges, and a successful and strong small business community is integral to job creation, community empowerment, and economic revitalization.

GSA works hard so that small businesses have every opportunity

to participate in the Federal procurement process, and as an agency, we actually exceed the small business goals Congress has set.

The Small Business Act established an annual goal of awarding 23

percent of prime contract dollars to small businesses. At GSA, over

32 percent of all prime contract procurement dollars go to small

businesses. That impressive result is nearly 40 percent higher than

the statutory goal of 23 percent.

But the story of GSA’s support for small business doesn’t end

with our own direct GSA contracting. GSA has a strong record of

supporting small business contracting throughout the Government

through government-wide acquisition contracts and the GSA

Schedules Program. The Schedules Program offers Federal agencies

a broad range of products and services from private sector vendors

and suppliers at prices that have been negotiated by GSA and meet

accepted levels of expertise, performance, and best value. Its ordering process makes it easier for GSA and other agencies to reach

small businesses. And I am happy to report that 80 percent of the

companies which have been awarded GSA schedules contracts are

small businesses. The Schedules, in short, offer small businesses

an expansive avenue of potential work in the Federal Government.

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In fiscal year 2005, through GSA’s Schedules Program, Federal

agencies awarded over $12 billion in Schedule orders to small businesses. That amount increased to over $13 billion in fiscal year

2006, which is approximately 37 percent of all prime contracting

Schedules spending government-wide going to small businesses.

GSA’s Small Business Government-Wide Acquisition Contracts,

or GWACs, are another way GSA supports small business. It gives

me great pleasure to tell you that this year, we awarded our GSA

IT Infrastructure Technology Global Operations, or GITGO, contract to an 8(a) service-disabled veteran-owned small business

headquartered right here in the State of Maryland. We determined

that this opportunity, valued at over $200 million, could be competed among and awarded to small business if those businesses

were given the chance.

This success story for small business is a direct result of the commitment of our administrator, Lurita Doan, to expanding opportunities for small businesses. As one of the few government agency

heads who was an entrepreneur, a former small and minority business owner, and a Federal Government contractor, Ms. Doan is our

agency’s biggest advocate for small business.

One example of her leadership is the MAS (Multiple Award

Schedule) Express Program. Historically, it has taken too long to

review offers and reward contracts under GSA’s Schedules Program. Under the leadership of Administrator Doan, GSA has reduced the amount of time it takes for an eligible small company to

apply for and receive a GSA schedules contract from over 157 days

to 30 days.

We at GSA pledge to continue to improve and to keep fighting

to make sure that any small company with a great idea will have

a much easier path of obtaining a GSA schedule than ever before.

Our Office of Small Business Utilization assists small businesses

by answering the many questions that are submitted by phone, email, letters, and in person. We also conduct hundreds of outreach

events a year across the country for small businesses, including 57

events in the metropolitan DC area last year alone. These conferences open doors to Federal contracting opportunities to small

businesses, and GSA conducts workshops that teach small business

owners how to do business with GSA.

We share the Administration’s view, and I am sure this Committee’s view, as well, that small businesses are the backbone of our

economy and that a healthy small business community contributes

greatly to the health of our national economy.

Mr. Chairman, GSA has a strong record of supporting small business and small business contracting and we look forward to continuing our work to improve on our already impressive performance record with regards to small business contracting.

I thank you for the opportunity to appear before you today and

I will be happy to answer any questions you may have. Thank you.

[The prepared statement of Mr. Rigas follows:]

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Senator CARDIN. Well, thank you for your testimony. I particularly appreciate your pointing out that the Procurement Acquisition

Center of Excellence is here at Bowie State University.

The three of you represent critical agencies and the opportunities

for small businesses in our community. What is done at SBA, what

is done at DOD, and what is done at GSA will literally affect the

ability of companies to be able to grow and expand.

We could argue the percentages. There was a study done in 2006

by Eagle Eye, which you are probably familiar with that said that

we missed our goal on small businesses by 3 percentage points,

which is equivalent to $12 billion, which is not inconsequential. It

is a lot of money.

And then we have the concerns as to whether minority and

women-owned businesses are getting a fair share of the work of

small businesses. In the testimonies that have been given before

the Small Business Committee in the Senate, you look at the capital programs and you see the number of small business minority

companies that are participating and they are not equivalent to

what you would expect it to be. So we are finding problems in the

development of opportunities for minority and women-owned businesses.

I really do appreciate SBA developing a scoring system on their

Web page, where it tries to bring more transparency as to the success and failures of each agency. It is interesting that the two

agencies that are represented here, DOD and the General Services

Administration, are unfortunately both in the ‘‘red’’ category here,

which means that maybe your percentages are OK, but there is

something that needs to be improved, as you indicated through

your own testimony. By the way, ‘‘red’’ is not good.

[Laughter.]

Senator CARDIN. ‘‘Yellow’’ is not that good. ‘‘Green’’ is what we

should be striving for. I think it is helpful to have this scoring system. I thank SBA for starting it and for getting it going. But it

does point out that we need to do better.

So let me first just ask the question, I can tell you, from looking

at the numbers, we need to do better, so why aren’t we? What

changes do we need to make in order to give greater opportunities

to the economic engine of this Nation, small businesses, with particular emphasis on minority businesses? Who wants to take that

on? What changes do we need to make? Mr. Jenkins, do you want

to start?

Mr. JENKINS. Sure, I will start. One of the things that we are

looking at at the SBA, as I mentioned in my testimony, is to

refocus our procurement center representatives. We believe that

they play a very vital role in working with the Federal agencies

and helping identify small business opportunities within their procurement process. We also, by refocusing the PCRs, we are shifting

more responsibilities to our district offices and our resource partners to help us develop and create a pipeline of small businesses

that can meet the needs of the individual agencies.

Senator CARDIN. As I understand, you are moving from 58 to 66,

is that the——

Mr. JENKINS. Currently, we have 52 and we will be going to 66.

Senator CARDIN. Is that enough?

38

Mr. JENKINS. We believe it is enough. We are also looking at the

use of technology. We have begun to look at something called

EPCR, Electronic PCR. When you think of 3.5 million—actually,

5.5 million procurement transactions that take place, both with

small and other than small, our physical PCRs are only looking at

a very small percentage of that. With the Electronic PCR, our hope

is that we will look at every single procurement a contracting officer does not wish to set aside for small business and be able to

challenge those.

Senator CARDIN. Well, I must tell you, I am concerned as to the

Administration’s budget requests as it relates to the SBA. You

mention in your testimony the importance of the 8(a) program, and

I think you also mentioned it in your oral presentation. We also

know the 7(j) program, which you mentioned. The Administration’s

budgets for that were reduced substantially, and I guess my concern is I hear you with a commitment to try to improve the service

level so that we can get to the goals that we know are right for

our country, but then I take a look at the budgets that are being

submitted and it doesn’t seem to balance.

Mr. JENKINS. Well, one of the challenges we have is that we are

looking at a program that was created back in the 1960s. Over

time, SBA has looked to improve the 8(a) program. We continue to

look to improve the 8(a) program to make it a viable business development program.

One of our biggest challenges is that the 8(a) program is not a

contracting program. It is a business development program. Our

primary responsibility is to help develop the firms. The use of contracts is just one of many tools. And so we believe we submitted

an adequate budget to the Congress in which we will leverage technology and our resource partners. We will also do a better job in

realigning our staff and we think that will get us to where we need

to be.

Senator CARDIN. Well, that is not true, though, in 7(j), the budget

that was submitted. That actually reduced it substantially.

Mr. JENKINS. Well, it is approximately one-point—we are actually increasing the amount of work we are doing on the 7(j). For

example, last year, we did about 40 cities. Our plan this year is to

make our 7(j) management and technical assistance available to all

68 SBA district offices.

Senator CARDIN. Well, I don’t think it adds up. I hear what you

are saying, and technology can certainly make every agency more

efficient. But with the challenges we are facing, the increased volume alone has been dramatic over the last 5 years of applicants in

these programs. So it seems to me it is difficult to see how that

could be done.

How many of these procurement center representatives ‘‘PCR’’

are going to be in the State of Maryland?

Mr. JENKINS. We currently have coverage for PCR—basically, our

procurement center representatives cover multiple locations and

some remote locations that are isolated pretty much at a particular

base. We have recently reviewed all of the buying throughout the

United States and we have assessed every location that we consider to be a major buying activity. Those major buying activities

are the ones that are on the priority list for a PCR.

39

Senator CARDIN. So the answer to my question?

[Laughter.]

Senator CARDIN. How many PCRs do we have—I will even broaden it. For the District and for Maryland, how many PCRs are we

going to get?

Mr. JENKINS. I believe we are looking at at least adding one. Our

long-term is possibly going as high as three for this particular

area—three additional PCRs. We have since moved our area office

from Philadelphia to Washington, DC because of the amount of volume that goes on here.

Senator CARDIN. So DC will receive——

Mr. JENKINS. At least one in this round and we will look to increase as we——

Senator CARDIN. And Maryland will receive——

Mr. JENKINS. Well, when we say DC, we look at this area as one

area, DC, Maryland, and Northern Virginia.

[Laughter.]

Senator CARDIN. Well, that is ambitious. I mean, there is a lot

of——

Mr. JENKINS. Sure.

Senator CARDIN [continuing]. Of activity in that, what you just

said, particularly adding Northern Virginia to the mix. And Maryland is a State that has—we are here in Prince George’s County,

which is one of the strongest growth areas in our State, but in the

Baltimore region, we also have a need for these services. So it

seems to me—I can tell you, we get numerous requests in our office

of problems that are being confronted on qualifications and legitimacy of contracts and all these other problems and the concerns

of bundling.

I do think that the PCRs you are referring to are going to be very

helpful. I question whether the number, 66 nationwide, will be adequate, considering the challenges we are facing today and sophistication of some of the operators within the procurement system to

try to circumvent the intentions of our law.

Mr. JENKINS. Sure.

Senator CARDIN. Let me move on, if I could, to give you a break

for a second.

[Laughter.]

Senator CARDIN. Let me go to DOD. You obviously can’t be happy

about being in the ‘‘red’’ category.

Mr. MARTOCCIA. No, we are not happy. The way the scorecard

was structured, that if you didn’t make your 23 percent, in our

case, you didn’t make your goal, whether it reads 22.9 or 1 percent,

you received a red. So we didn’t reach the 2006 goal of 23 percent.

Therefore, we were rated red. Now, we are working to improve the

scorecard so that maybe it might have some ranges in there, so if

we come close, we are not a red. But we do need to improve opportunities for small businesses within the Department.

Senator CARDIN. Well, let me mention a couple areas that have

been mentioned to me over and over again as an impediment to

small businesses being able to operate with DOD. One is the security clearance issues, which I hear of all the time, of concerns of

moving that process in a way in which small companies can qualify

for DOD contracts. The other is the surety bond issue, which is an

40

area that has also been one that has caused difficulty for small minority businesses to qualify. Any comments as to how we can

streamline that?

Mr. MARTOCCIA. With the BRAC coming up and the surety bond

issues for especially construction contracting, we work with DOD

and I think—correct me if I am wrong—we are raising the guaranteed limit up to $3 million per contract, so we are working on that.

I know it is at a pretty low level. And there is also some private

entrepreneurs and service organizations that are helping with the

surety bond issue. I know there are some veterans’ groups that are

helping the disabled veterans and other veteran-owned companies

to gain guarantee money when they perform under construction

contracts.

With regard to the security clearance, that obviously is an issue

that takes time and I am really not well versed in that. I know it

is difficult and time consuming for a company to get the security

clearances needed, and that is out of my realm. I haven’t heard too

much complaints about the process, so I will have to defer on that

issue.

Senator CARDIN. Well, I can tell you it is a huge problem. It is

a huge problem and we need to figure out a way so that it doesn’t

become justification for inadequate progress being made.

Mr. MARTOCCIA. Are you talking about the time——

Senator CARDIN. Yes.

Mr. MARTOCCIA [continuing]. It takes?

Senator CARDIN. The whole process. We have had testimony before our Committee and we will have more today on the issue of

security clearance issues, that it has prevented small companies

from participating in contracts and bid making process. It has been

a problem, getting the clearance issues for small companies to fully

participate.

Mr. MARTOCCIA. Again, I know that it is time consuming and

there are facilities clearance and individual clearances, but I will

look into it when I get back.

Senator CARDIN. Well, it——

Mr. MARTOCCIA. I mean, I just——

Senator CARDIN. And that is all I can ask you today, I can say

that NSA has developed a streamlined process to try to make it

work, where we have had much more difficulty with DOD. So one

of the things I would ask you to do is check what was done at NSA,

because I think greater progress has been made there on the security clearance issues than within the Department of Defense.

Mr. MARTOCCIA. I will do that.

Senator CARDIN. Now, we have BRAC coming up. Maryland is

one of those States that is very fortunate. We are going to see a

lot more economic activity as a result of BRAC and it will provide

many, many more opportunities for small businesses. I must tell

you, there is nervousness among the business community as to how

those contracts are going to be determined and whether there is

sensitivity in the Department of Defense using its leverage to make

sure that when you have an expanding pie, it gives you a greater

opportunity to expand with small business and minority businesses

because you are not taking work away from companies. There is a

concern that we might miss this opportunity by just sitting back

41

and letting the procurement process work its way without priority

leadership.

Mr. MARTOCCIA. We work with the Small Business Administration’s procurement center representatives you were just talking

about, and DOD has, I think, a pretty effective team of small business people looking at requirements every day for opportunities for

small businesses, along with the program managers. And BRAC obviously is an opportunity well suited for strong participation of

small businesses. We had a meeting, an outreach meeting in my

office—this happened to be a veterans’ group asked for it and we

put together a program and there are actions being taken to set

aside many requirements for small businesses in the BRAC.

So we are going to focus on it. My boss is extremely sensitive to

small business and looking for participation of small businesses. So

you can be assured through the services and the components that

when they go out on their requirements, that they look to small

businesses first.

Senator CARDIN. I appreciate that, and I will just underscore this

point again. When you have an expanding pie, which is not normally the case today in government procurement because so many

budgets have been cut and so many areas have been brought back

that it is difficult to expand opportunity when companies are trying

to preserve a workforce. Here, we are talking about expanding a

workforce, expanding opportunity. It would be, I think, a real tragedy and loss of opportunity if we didn’t use that to really reach out.

To me, we should be going well beyond the percentages. This is a

chance to really expand the base and opportunity and I just hope

DOD has help, because again, you are the leadership agency on

this, on BRAC, and we need your help. Otherwise, I don’t think it

is going to be done on base. I think it really requires——

Mr. MARTOCCIA. Sir, we will be focused on the requirements that

come out of BRAC for small businesses. I can assure you of that.

Senator CARDIN. Well, I want to go beyond requirements. I want

a sense that this is an opportunity that we can really make some

progress that otherwise would not be available to a community, so

I just urge you to—we will be watching on that. I will be very

happy to work with you in trying to figure out the ways in which

we can work together.

Mr. Rigas, I want to talk about the GSA Schedule Program. I

was pleased to hear that 80 percent of small business is in that

number. I know you are not going to be surprised to learn that

there are more concerns that are expressed to us with companies

trying to get on that Schedule than probably any other single issue

that we get relating to your agency. I know it is a ticket to business and economic success——

Mr. RIGAS. Right.

Senator CARDIN [continuing]. And you mentioned 80 percent. Do

you know how minority businesses are represented in that 80 percent, women-owned businesses? Do you have numbers that break

it down a little bit more than just small businesses?

Mr. RIGAS. Right. I don’t have those with me, but I would be

happy to get back to you for the record——

Senator CARDIN. If you could, I would appreciate knowing

that——

42

Mr. RIGAS. OK.

Senator CARDIN [continuing]. Because I must tell you, just my

own observation is that there is still room for significant improvement on how a company gets scheduled. And again, GSA is marked

‘‘red’’ on this report, which is again something you don’t want to

see.

Mr. RIGAS. Right.

Senator CARDIN. I would urge you to look for creative ways to try

to improve that rating. I think the schedule program is one that

could really be a benefit to minority businesses and I urge you

to——

Mr. RIGAS. Yes, and that is actually one of the areas that we are

talking to SBA about right now in terms of they formed a committee with regards to the scorecard, because this, as you know,

was the first year that they have come out with a scorecard, and

as with anything, the first time you do it, it is a learning process.

One of the things we are talking to SBA about is GSA’s unique role

in the procurement process in the Federal Government in terms of

being a catalyst for other agencies to buy from small businesses,

which those dollars rightfully go to the procuring agency. So even

though we make all this effort to award 80 percent of those schedule contracts to small businesses, that effort and those contract dollars are not—there is no recognition of that in the scorecard in

terms of the efforts we make with regards to small business.

And the other point that we are in the process of discussing is

the fact that GSA is presently tasked with building all Federal

buildings for the executive branch and the judiciary and those,

while typically procurement dollars are credited back to the agency

in terms of how they are measured for your small business goals,

GSA is—we are required to count those dollars as GSA procurement dollars, even though we are building a $200 million courthouse for the judiciary or a Federal building somewhere. Those are

all counted as GSA procurements, which—and as you know, the

limit on bonding capability that SBA has right now is $2 million.

It is moving up to three, but it still makes it very difficult for a

small business to be able to win a contract to build a $200 million

courthouse, or even a $50 million courthouse.

But we are definitely making strides. Our preliminary numbers

show that we have increased our small business procurement within GSA from 32 to 35 percent this past year and our administrator

is—she is the biggest advocate, I can assure you, of small business

that we have because she used to be a schedules contract holder

and has been there on the ground and understands what it means

to be a small business trying to do procurement and reminds us of

that on a regular basis.

But I would be happy to consider and hear any suggestions that

you guys might have in terms of what we can do to improve, as

well.

Senator CARDIN. Well, I thank you for that. We will have suggestions because I think it is a very important program.

When you get back to us on the numbers within the schedule

contractors on minority and women, it would be useful also if we

had an idea about what percentage of procurement goes through

schedule contractors and also the dollar volumes. I understand you

43

said 80 percent are small business, but how much does that represent in the dollar volume of the procurement under schedule contractors? I think those numbers would be helpful for our Committee to try to evaluate the importance of the Schedule Contract

Program, because I can tell you, again, we get a lot of concerns

from minority businesses particularly about getting on the schedule.

Mr. RIGAS. Right. Yes, the overall number for schedule dollars

going to small businesses is 37 percent.

Senator CARDIN. On schedule, or——

Mr. RIGAS. Yes. In terms of procurement dollars across the Federal Government that go to small businesses via the GSA schedules, 37 percent of all of those dollars——

Senator CARDIN. Go to——

Mr. RIGAS [continuing]. Go to small businesses.

Senator CARDIN. And I am not questioning that number, compare

it to the numbers. That is 80 percent that are on there, and they

get 37 percent of the——

Mr. RIGAS. Right.

Senator CARDIN. So we are talking about the same—OK. We will

be coming to you with suggestions.

Mr. RIGAS. OK, great. I welcome them.

Senator CARDIN. Mr. Jenkins, I want to go back to the arithmetic

here again.

Mr. JENKINS. OK.

[Laughter.]

Senator CARDIN. I am a little concerned about your budget and

the support that you have and I want to go back to these PCRs and

have a better understanding of the procedures you are using for allocating these new services. My staff tells me that there are currently over a million contracts nationwide, and I guess my question

is how many Federal contracts will be supervised or under the responsibility of a PCR? Is there a guideline here that you are looking for? You mentioned remote areas. What are the standards

being used to make sure that our community has the appropriate

service level?

Mr. JENKINS. Sure. Well, first of all, the PCRs are assigned to

buying activities. Some are assigned as a primary location. Others

have multiple locations. Our standards for establishing where a

new PCR would come in would be looking at whether or not it is

what we call a major buying activity, an activity to purchase

roughly $100 million or more in contracts. Those become our primary sites or priority sites to place a PCR.

Senator CARDIN. And we will have those numbers for us to be

able to review as to where they are being located?

Mr. JENKINS. Oh, sure. Yes.

Senator CARDIN. Obviously, I want to make sure that all the

areas of the country are fairly treated. I can tell you that we need

the services here, and I am sure my colleagues from around the

country feel equally strong for their particular region.

Let me just conclude by asking you about unbundling. This has

been identified as a problem. We have had reports demonstrating

we have to do a better job, that it has been used and abused. Can

44

you just give us an update of where we are in monitoring bundling

activities?

Mr. JENKINS. OK. Well, reviewing the bundled contracts is part

of the day-to-day activity of a PCR and we work very closely with

the agencies. There are set criteria on which a contract can be classified as a bundle. All of the Federal agencies have those and we

are working with the agencies to make sure that they understand

what constitute a bundle and that they are, in fact, reporting those

to the SBA.

One of our key ways of looking at these activities and these agencies is to look at whether or not they are achieving their goals. As

we talked about placement of the PCRs, we may have a major activity where a PCR is not located, but that agency may be meeting

their goals, and therefore we think it is important to put the PCR

in another location where they may not so that we can look at

things such as contract bundling, we can look at whether or not

they are setting these contracts aside.

We believe the scorecard is going to be the whole catalyst behind

it. It gives everyone the clear tool. It gives our staff the tool of who

is and who is not meeting their goals. It gives the agencies a clear

indication of whether or not they are meeting the goals.

As Mr. Rigas said, we have established a committee to look at

not only the scorecard and the criteria that we use in the scorecard

going forward, but we are also looking at the goals. Agencies are

not scored on the government-wide 23 percent small business goal.

Each year SBA negotiates goals with all of the Federal agencies.

Some agencies, such as GSA, may have a very high goal compared

to the 23 percent, and we are looking at those criteria, as well, in

terms of how we set the goals for each agency with the intent that

we will get to the overall Federal Government numbers of 23 percent.

Senator CARDIN. I mentioned in my opening comments subcontractor issue, prime contractors, and potential concerns about payments by primes to their subs, the abuse where primes getting contracts do not give the amount of work that was initially committed

to subcontractors. Can you tell us the status of those types of concerns, how they are being handled by the SBA?

Mr. JENKINS. Sure. Well, let me first say that, this was our first

full year of having a system called ESRS, which is the Electronic

Subcontracting Reporting System. DOD was able to get their subcontracting data in, so we have a full year of electronic data. We

now can look at each of the large business primes and determining

whether or not they are meeting their subcontracting goals. We coordinate with the Federal agencies.

Part of what the PCR does, as well, is not just the prime side.

When a PCR goes into an agency and they look at a procurement,

they also look at the subcontracting goals that were established in

the contract or the potential contract bid by a large business and

we question those and we can protest those in terms of we believe

they are too low. We are looking at those, as I mentioned.

Our plan is to continue to work with the agencies to do more

training, to make sure that they understand the requirements.

There have been some new folks that have come into the conVerDate 11-MAY-2000 18:09 May 14, 2008 Jkt 040541 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 C:\SBA\40541.TXT CELINA PsN: CELINA
45

tracting procurement arena and we are doing more training of all

of the small business programs, but specifically the subcontracts.

In terms of actually resolving a dispute between the prime and

the subcontractor, SBA does not have what we call privity of contract, meaning we can’t necessarily engage in that dispute because

we don’t have a relationship with the subcontractor themselves. We

talk to the agencies when we are approached on those problems

and we ask the agencies if they can get involved or if they can put

some procedures in future contracts that deal with those kinds of

problems and relationships.

Senator CARDIN. So by the end of fiscal year 2008, you will have

66 PCRs?

Mr. JENKINS. That is our plan, yes, sir.

Senator CARDIN. And you will share with this Committee the

standards being used for the allocation of those?

Mr. JENKINS. Yes.

Senator CARDIN. I appreciate that. Is there an objective as to a

maximum workload for any PCR?

Mr. JENKINS. No, because the key is we try to look at as many

procurements as possible in terms of the PCR. As I mentioned, if

it is a large buying activity in a remote location, more than likely,

that is going to be the primary site. But if there are multiple activities that are very close together, for example, the Washington, DC

area, we may have one PCR assigned to five, six locations and they

still may be considered major activities and they do some for——

Senator CARDIN. The reason I ask that question is that I am not

convinced 66 is the right number. I don’t know. But it seems to me

with the increase in volume that you have been talking about and

the increase in responsibility that the work is critically important

to achieving our objectives. I would like to know that we have some

process to evaluate those numbers and are prepared to recommend

larger numbers if they are needed.

Mr. JENKINS. Yes. Well, as I mentioned, one of the critical pieces

is we are shifting some work that the PCRs had done in the past.

For example, our PCRs, the 52 that we had on board in fiscal year

2007, counseled and trained probably 20,000 to 25,000 small businesses. That workload is being shifted to our district offices and

our resource partners. Just this past year, we have literally pulled

every single SBA employee in the field into a training activity

called SBA University in which we train them on the basic procurement information so that they can pass that kind of information on

to the small businesses to free up the PCRs.

Senator CARDIN. Once again, let me thank our three witnesses

from our governmental agencies for being here. I found this very

helpful to understand the scope of our problem. I would just comment in conclusion that I think it is difficult to achieving the objectives, Mr. Jenkins, you have mentioned, with the budget that had

been submitted.

I am hopeful that the budget that you are going to receive will

allow you to achieve a more ambitious program. I am pleased to

hear the commitments made by all three agencies to not only

achieve the number of the goals that are set out there, but to

achieve what is clearly the intent of Congress, and that is to provide opportunities for small businesses not only to grow and flourVerDate 11-MAY-2000 18:09 May 14, 2008 Jkt 040541 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 C:\SBA\40541.TXT CELINA PsN: CELINA
46

ish, but to continue to be a dominant part of our economy with particular emphasis on minority and women-owned businesses.

Thank you all very much for your testimony.

[Applause.]

Senator CARDIN. We are going to take a brief break while we reconfigure for the next panel.

[Recess.]

Senator CARDIN. We are going to get started. I must tell you, I

very much appreciate the incredible attendance we have here. It is

really——

[Applause.]

Senator CARDIN. And I am glad that some networking is being

done here, too. That is also good.

[Laughter.]

Senator CARDIN. So I hope as a result of today’s hearing, there

will be some business connections that are made. That is one of the

side advantages. I was saying, we are very pleased that we have

such a large attendance and we thank you all for your interest in

this subject.

During the short recess, I had a chance to talk to some of you.

I want to assure you that under our committee procedures, the

record will be left open for 2 weeks, so this is not the end of this

hearing. There are additional questions that can be asked and we

will follow up on some. Obviously, there is a limit to the amount

of time that we have with the witnesses being personally present.

I do want to acknowledge the presence of those representing our

veterans and the veterans’ community, the disability community.

These are all important goals that we have to increase activities,

economic activities for our veterans and our disability community

and those issues will be taken up by our Committee and our

records will be clearly supplemented in those areas.

In regards to the women’s programs, during the break, some additional questions were brought to our attention and we will make

sure that they are also—my staff informs me that we have taken

up some of these issues, but we will make sure that those questions are asked of our administration officials and that our Committee has ample information in order to move forward in all those

areas.

So we always appreciate the input that we are receiving. Our objective is to increase economic activities in those areas that historically have not had the type of attention from our Nation as it

should, which affects not only those communities that have not had

the opportunity, but affects our entire country. And that is our objective, to expand economic opportunities for all of the vulnerable

groups in America that have been historically denied the full economic participation in our country.

So with that, we will start the second panel. I am very excited

about the witnesses that are here. I know them all and they have

been extremely helpful in our community here in Maryland.

We will start with Wayne Frazier, who has close to 30 years of

experience in development, finance, banking, and investment fields.

His strong leadership in project financing and public-private development contracts have been instrumental in garnering new business and growth for numerous small and minority business conVerDate 11-MAY-2000 18:09 May 14, 2008 Jkt 040541 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 C:\SBA\40541.TXT CELINA PsN: CELINA
47

tractors in the State of Maryland as well as the Mid-Atlantic region.

Currently, he is the president of the Charlotte Development

Company, a real estate development firm, WRF Financial Services

Company, and the Maryland-Washington Minority Contractors Association. Then-Governor-elect Martin O’Malley asked him to serve

as chairman of the Governor’s Minority Business Enterprise Transition Team.

Mr. Frazier, it is a pleasure to have you with us.

STATEMENT OF WAYNE R. FRAZIER, SR., PRESIDENT, MARYLAND-WASHINGTON MINORITY CONTRACTORS ASSOCIATION, BALTIMORE, MD

Mr. FRAZIER. Yes. Good afternoon. Good afternoon, Senator

Cardin, our Senator from Baltimore. Now we’re honored that he is

everybody’s Senator. But Senator Cardin, I am so glad that you

have called for this hearing because America’s minority business is

in trouble. Why? Because discrimination is running rampant

throughout Federal Government procurement agencies.

I think that I am qualified to sit here and discuss this issue this

morning simply because back in Baltimore, they call me the sheriff,

the police of MBE, because I fight for inclusion for minority businesses. My testimony shall comprise of three prominent issues that

surfaced during interviews that I have had with about 12 minority

businesses hailing from Montgomery County, Prince George’s

County, Baltimore City, Baltimore County, Anne Arundel County,

and Queen Anne’s County. All of those businesses are attempting

to do business with the Federal Government or doing business.

It came to my surprise that the No. 1 issue dealing with minority

businesses attempting to do business with the Federal Government

is bundled contract procurement. The No. 2 issue is financing. And

the No. 3 is surety.

The issue centering around with bundled contracting with so

many governmental agencies are procuring business. The General

Services Administration, the GSA Schedule, the Multiple Task

Award Contract, the MTAOC, the Indefinite Delivery Indefinite

Quantity Contracting, IDIQ, Task Order Contracting, TOC, Job

Order Contracting, JOC, SBA Small Disadvantaged Business, Disabled Service Veterans, Historically Under-Utilized Businesses,

HUBZones, all in some shape, form, or way compete against one

another and promote alternately discrimination.

The term constantly used around government procurement offices is, ‘‘What is the flavor of the day?’’ ‘‘What is the flavor of the

day’’ can be heard from procurement offices at various agencies

when selecting how to procure work.

Bundling contracts, according to the interviews, no matter what

method selected by the procurement office, was the preferred scope

of work. Now, we know that bundling has been outlawed. We know

that. But it exists. Bundling appears to be easier for procurement

officers to issue work, but is detrimental to small and minority

businesses to compete against established, financially stronger

firms. The general rule is that the stronger financially one’s firm

is, the more sophisticated and experienced the business has become. How can larger small businesses compete fairly against

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smaller or real small businesses? There is no way that the two can

compete. That has to change. These so-called strong small businesses compete equally with struggling small businesses. By adding minority business to the equation, the exclusion gets worse.

Unbundling of procurements should commence to open up competition with more work put out to bid as opposed to adding task orders after task order after task order to a contract.

Other complaints surface during the interview process that the

wonderful Native Alaskan firms can come to the lower 48 States

plus Hawaii and compete the same as those firms domiciled in

their States. That is wrong. We shouldn’t allow that type of competition to come to Maryland, for example. And guess what? The

task orders sometimes continue to get added for work that wasn’t

even part of the original scope, wasn’t even part of the original

scope, but yet it gets added. I am not beating on the Native Alaskan firms, but that is just an example.

GSA Scheduling is worse, and the flavor of the day is service-disabled veterans. Why? Because of the war and GSA Scheduling.

Now, financing was No. 2. The folks I interviewed had no problem with the long-term SBA financing that is offered. It works well.

The concern is the short-term, less than 1 year, financing, Capline.

That is the name of the product that the SBA is marketing. That

is a product that will only guarantee if you win a contract and then

they will take your receivables as collateral. But the bankers and

the borrowers complain. The bankers say it is too expensive. They

can’t make a profit off of the fees as well as the rate because there

is so much paperwork, so much due diligence involved. And the

small business person says, hey, I can’t run my business with pileon after pile-on of paperwork. We need to address that. Remember,

once you win a contract, the trials and tribulations just begin. If

you can’t get financing, forget it.

The third thing that was brought to my attention was the most

startling, and that is the surety bond. I heard you mention that

earlier, Senator. Right now, corporate sureties, the Travelers, the

Mountbattans, the USA Surety, they have a monopoly, with Travelers the biggest monopoly. Small businesses dealing with the Federal Government cannot get surety bonding. Again, no financing,

no bonding, no contract, no award, no way to compete.

There is an option. The option is a new product that was approved—excuse me, it is not new. It has been around just as long

as corporate sureties have been around. It is called the individual

surety. But the problem that we have with the individual surety

is that it was approved last year in the State of Maryland unanimously in the General Assembly. Both the House and the Senate

approved it with no dissenting votes. The problem is that, the Federal Government, on the other hand, won’t accept it. The individual

surety is a group of rich, I mean rich, individuals. Criteria, $2 billion or more in assets, not net worth, assets that you can pledge

in order to back the bonds. The problem is, the Federal Government won’t accept it because our belief is that the procurement officers are in line with the corporate surety brokers and dealers and

they will not accept because of competition. And we also feel that

that is discriminatory, as well. There are solutions, but the Federal

Government won’t consider them.

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I appreciate you listening to me this afternoon and I hope that

some of these suggestions will go a long way. Thank you.

[The prepared statement of Mr. Frazier follows:]

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Senator CARDIN. Mr. Frazier, thank you very much for your testimony.

We have been joined by my colleague from the Third Congressional District of Maryland, Congressman John Sarbanes. Congressman Sarbanes has been one of the leaders in the House of

Representatives on the issues of fairness in government procurement and the issues of small and minority businesses and I am

very pleased that he could find time to join us at this hearing and

I would recognize Congressman Sarbanes for the comments that he

might want to make.

OPENING STATEMENT OF THE HONORABLE JOHN P.

SARBANES, A UNITED STATES REPRESENTATIVE FROM

MARYLAND

Representative SARBANES. Thank you very much. I appreciate

the opportunity and I want to thank Senator Cardin for holding

this hearing on a critical issue, which is what is happening in

terms of procurement with respect to minority and women-owned

businesses.

Your testimony, for starters, points out a lot of the issues that

are faced, particularly now with BRAC coming and the other opportunities that are presenting themselves. If we are not ready to take

advantage of that on behalf of small business and minority-owned

and women-owned businesses, we are going to look back 10 years

from now, 15 years from now, or even 6 months from now and wish

that we had been better prepared to make sure that these opportunities are available so that they are opportunities and they are not

missed opportunities.

I don’t think there is anybody better situated than Senator

Cardin to lead an inquiry into this, given his experience, and also

given his attitude of optimism. I don’t know if anyone saw the

paper today, the Washington Post article, but in terms of being

able to get things done, and you can get things done even in a body

as difficult as the U.S. Senate, you can get things done if you bring

a can-do attitude, which is clearly the attitude that Senator Cardin

has brought to the job even in the first few months. I am happy

to participate in this hearing and to learn as much as I can about

the issue so that I can work as hard as I can to make sure we move

forward.

So thank you again for the opportunity to be with you today,

Senator.

Senator CARDIN. Congressman, I really do appreciate you coming

by. As I said, most people know Congressman Sarbanes’ district includes Baltimore City and Baltimore County, Howard County, and

Anne Arundel County. It comes right up the border here on Prince

George’s County. Obviously, the small business issues are critically

important to all areas of Maryland and we thank the Congressman

for joining us today for as long as you can. We understand your

schedule may very well require you to leave and I thank you for

coming by.

I also want to acknowledge that Steve Umberger was here, who

is the District Director of the Small Business Administration. He

is still here. Thank you. Thank you very much. We have had a

wonderful working relationship with our office and we thank you

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very much for the assistance that you have been able to give all

of us in trying to do what is right for small business here in Maryland. Thanks for being here. I appreciate it.

We will now hear from Petey Green. Petey is the co-founder and

president of the Prince George’s Black Chamber of Commerce. The

Prince George’s Black Chamber was founded in February 2004 as

an advocacy and educational organization representing small local

and minority-owned businesses. Petey is also co-founder of the

Prince George’s Classic, a 3-day cultural celebration of community

and education culminating with a football game at FedEx Field in

Landover between two historically Black colleges.

Petey Green is involved in many charitable activities, including

the Haines Frederick Scholarship Fund, the Coalition of Concerned

Black Christian Men, Prince George’s Financial Services Corporation, past president of Prince George’s County Board of Trade,

Prince George’s Business Alliance for Education, the Business

Roundtable for Education Achievement, Counts Program, and the

list goes on and on and on.

It is a pleasure to have you with us today, Mr. Green.

STATEMENT OF HUBERT ‘‘PETEY’’ GREEN, PRESIDENT,

PRINCE GEORGE’S COUNTY BLACK CHAMBER OF COMMERCE, OXON HILL, MD

Mr. GREEN. Thank you. Good afternoon, Senator Cardin and

Congressman Sarbanes and Committee members. My name again

is Petey Green. I am the president of the Prince George’s Black

Chamber of Commerce. It is truly an honor and a privilege to appear before you today and share my views and those of the Prince

George’s Black Chamber of Commerce in the area of Federal contracting.

I would first like to thank you for bringing government to the

people of Prince George’s County, especially to our institution here

of higher learning, Bowie State University.

Incorporated in February 2001, the Prince George’s Black Chamber of Commerce is a Maryland-based business association representing small, local, and minority-owned businesses as an advocate and educator. We are an affiliate of the National Black Chamber of Commerce. We are a 501(c)(3) non-profit, non-partisan, nonsectarian organization dedicated to the empowerment of minority

communities. We promote and enhance the visibility of our business community, address institutional barriers that impede business progress, and provide support and resources that empower our

members to grow their businesses and enrich their lives.

We are grateful for the daily sacrifices that small and minorityowned businesses and their families make in their efforts to

achieve the American dream of entrepreneurship. Small businesses

are essential to America’s prosperity. Their drive, creativity, and

innovation are the hallmarks of entrepreneurship and the key for

job creation and economic growth.

Small and minority-owned businesses represent more than 90

percent of all America’s employers. Small business owners are often

found in unusual places. They frequently react to negative conditions by tightening their belt, hoping to ride out their storm. Even

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when it is raining gloom, they fold up their umbrellas and see some

sunshine.

But the business world in which they are operating has changed

dramatically and the pace of change has accelerated at an alarming

rate during the past few years. Today, these entrepreneurial businesses face major challenges. The most significant challenge has

been the globalization of business, which has intensified the competitive pressures.

We recognize that it is not the role of government to create

wealth, but to create an environment in which people are willing

to take risk, to risk capital and personal property to achieve the

American dream of success and prosperity. You accomplish this

through a variety of financial, technical, and procurement assistance programs as well as counseling and training partnerships.

You focus on customer satisfaction by streamlining services to

small businesses. The Government needs to increase the number of

small businesses owned by minorities, women, low- and moderateincome people. You must find a way to help these entrepreneurs

overcome the challenges and reap the rewards of successful small

business ownership.

There are a number of steps to take to remedy the situation. In

order to achieve the mission, we must first level the playing field.

Where disparities exist, we must remove the barriers. While financial barriers often impede the progress of small and minorityowned businesses, access to market is as important as access to

capital.

The second and most important remedy is to create a single

source certification that would open more doors and opportunities

for the entrepreneur. As it stands today, Federal and State agencies have their own certification requirements with little or no reciprocity between them. This practice limits the opportunity to those

minority and women business enterprises who possess the particular agency certification. A single source certification would open

the doors of opportunities to all. Multiple certifications can be extremely costly to small and minority business owners and they are

often too pricey to obtain. Minority-owned enterprises have been

around for many years, yet many still struggle because of lack of

capital and access to markets.

Just as access to capital and markets are important, it is also important that regulatory barriers be addressed. Small and minorityowned businesses need to be protected against the negative effects

of burdensome Federal agency regulations. Tearing down regulatory barriers to job creation and giving small and minority-owned

business owners a voice in the complex and confusing Federal regulatory process is key and essential to the overall success of the

small and minority-owned business community.

Often hard to prove but seems to be running rampant throughout the small business community is the ugly head of discrimination. In order to level the playing field, there must be a wholesale

reform of minority business programs at the State and Federal

level. The State of Maryland recognized the fact that discriminatory practices existed throughout its agencies and took steps during

the Minority Business Reform to remove them by passing cuttingVerDate 11-MAY-2000 18:09 May 14, 2008 Jkt 040541 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 C:\SBA\40541.TXT CELINA PsN: CELINA
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edge legislation that could serve as a model for Federal and State

agencies throughout America.

Key components of the legislation dealt with the relationship of

prime contractors and subcontractors as they related to minority

participation goals. A number of prime contractors with minority

subcontracting goals didn’t even bother to look for qualified MBEs

to do the work. Instead, they automatically sought and received

waivers that freed them from meeting their subcontracting goals.

After a commission study was released, legislation requiring prime

contractors to name their MBE subcontractors at a time of bid and

use them if awarded the contract. It also created a Small Business

Reserve Program which reserves 10 percent of contracting dollars

in 22 State agencies exclusively for small businesses, which created

a pool of new prime contractors. It doubled the MBE personal net

worth cap to $1.5 million for State contracts and established a commercial non-discrimination policy.

This kind of sweeping reform at the Federal level would also aid

immeasurably in leveling the playing field and creating access to

Federal contracts for small and minority-owned businesses.

On September 27, 2007, Anthony Robinson, President, Minority

Business Enterprise Legal Defense and Educational Fund, and

someone I have a great deal of respect for his commitment to ensuring a level playing field for minority businesses, stated in his

testimony before the U.S. House of Representatives Subcommittee

on Government Management, Organization, and Procurement of

the Committee on Oversight and Government Reform, and I quote,

‘‘The reasons minority-owned firms are not fully participating in

the market are many, not least of which is discrimination.’’

The Kaufman study cited several reasons after concluding the

gap that exists has not in any way been caused by a lack of effort

on the part of minority entrepreneurs. The first reason cited by the

foundation was that ‘‘discriminatory conditions that previously existed were deep and pervasive and have not been fully reversed,’’

unquote. That is a tragedy, Senator. Government must prove its

commitment to minority businesses by ensuring agencies such as

the Small Business Administration are working to remove the disadvantages and increase the opportunity to access the marketplace

as well as empower the small business community through education and training.

I would like to leave here today confident that the Small Business Administration will enforce Federal regulations that guarantee a good faith effort is put forth by governmental agencies to

ensure minority-owned businesses have a fair and equitable chance

at contracts and subcontracts on government projects. Congresswoman Gwen Moore of Wisconsin said, and I quote, ‘‘that it was

clear to her that one of the next frontiers in the fight for civil

rights is economics, that America is a capitalist society and until

minority businesses have the same access to Federal contracts and

subcontracts as other businesses, there is little hope for economic

equality,’’ unquote.

Mr. Chairman, I thank you for the opportunity to present my

views. We stand ready at the Prince George’s Black Chamber of

Commerce to assist in the effort to achieve parity and to serve in

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any way that we can to make a difference in the lives of small local

and minority-owned businesses. Thank you.

[The prepared statement of Mr. Green follows:]

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Senator CARDIN. I thank you very much for your testimony.

Ricardo Martinez is the president of Project Enhancement Corporation, which he founded in 1998 to provide solutions for projects

in engineering managers. It is one of the fastest-growing businesses in the United States. It provides services to the U.S. Department of Energy, Offices of Environmental Management and Environment Safety and Health, as well as to prime contractors. He

chairs the board of directors of the Western Maryland Hispanic

Chamber of Commerce and is chairman of the board of directors of

the Maryland Hispanic Chamber of Commerce. It is a pleasure to

have you here.

STATEMENT OF RICARDO MARTINEZ, PRESIDENT, MARYLAND

HISPANIC CHAMBER OF COMMERCE, AND CEO, PROJECT

ENHANCEMENT CORP., GERMANTOWN, MD

Mr. MARTINEZ. Thank you, Senator, Congressman Sarbanes.

Thank you. My name is Ricardo Martinez. I am the chairman of

the Maryland Hispanic Chamber of Commerce.

The Maryland Hispanic Chamber of Commerce has been in existence for over 20 years and has and continues to be a recognized

voice of the Maryland Hispanic business community. I am also the

owner of a 10-year-old, $14 million-a-year company doing business

with the Federal Government.

A particular focus of our chamber is Federal contracting. The

Federal Government is the largest employer in our State. As such,

we believe that Maryland Hispanics need to clearly understand the

requirements and be equipped with the physical and intellectual

tools to successfully compete in the Federal marketplace.

I would like to bring attention to a number of issues impacting

the Maryland Hispanic business community, which is, for the most

part, a subset of the Maryland small business community.

The Federal Government is just recently paying serious attention

to the practice of lumping together, i.e. bundling, what could be

several or perhaps many small and discrete scopes of both technical

and administrative work. Requests for interests or information

sometimes precede such requests for proposals in order to prove

that there are no qualified small businesses that can do full scope.

Sometimes bundled opportunities are indeed set aside for small

businesses only to be canceled after the agency determines the

work to indeed be too large for small businesses.

At times, the decision to finally award or cancel procurement

comes after many months of torturous bid and proposal processes

that can cost millions of dollars to the bidding small businesses.

The impact on a given sector of small business due to a protracted

or canceled procurement can be financially and morally devastating

to many small businesses.

There is also bundling of requirements. Bundling of requirements, such as unreasonable expectations for security clearances,

specialized technical expertise, incumbent knowledge, internal

knowledge of agency operations, among others, is a way of discouraging or disqualifying small businesses. Security clearances, particularly after 9/11 are understandably harder to obtain and retain.

Many clearances take over a year to issue from the time of submittal to the agency. This is a great disadvantage to small busiVerDate 11-MAY-2000 18:09 May 14, 2008 Jkt 040541 PO 00000 Frm 00065 Fmt 6633 Sfmt 6633 C:\SBA\40541.TXT CELINA PsN: CELINA
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nesses designed to work with a number of Federal organizations

that deal in high-tech, defense, and national security fields. Many

small businesses are not able to hold on to valuable clearances and

as such find obtaining similar work in the future more difficult to

get.

The desire to deal with only one prime contractor forces either

a clear advantage to the incumbent large company that is teamed

up with a favored small business or the creation of elaborate and

at times inefficient small business teaming arrangements. Either

way, the Government loses out on bringing in a broader talent pool

for multiple contracts to small business.

Most, if not all, if not close to all, small businesses start out as

micro-businesses, that is, businesses averaging over a 3-year period

less than $2.7 million a year. However, to get to do even this much

business requires contract opportunities that allow a start-up small

business owner to prove his or her capabilities to a Federal manager willing to provide an opportunity. Many of our members have

stories of how, was it not for the wisdom and foresight of a particular manager, they might not have had the opportunities needed

to succeed later on.

It is important to understand that the real decisionmakers for

these types of opportunities are not high-level managers, SADBUs,

or even procurement officials. They are the technical managers. So

access to these individuals can be obstructed by a labyrinth of offices who are either not knowledgeable enough of the programs or

focused on much larger procurements. Once accessed, those managers need to be sufficiently trained to understand the best mechanisms for procuring the services of a small company.

Agencies have relied on the subcontracting to small businesses

through large prime contractors. These large contractors, sometimes called management and operating, or M&Os, are being relied

on to fairly and ethically carry out the small business contracting

objectives of the Federal Government. However, the performance

metrics used by the Federal Government don’t evaluate or hold to

account the sometimes questionable behavior of some M&Os.

In one instance, an 8(a) SDB had been awarded a competitive

contract to provide cost estimating and project controls, only to

learn after several months of frustration that sole source contracts

for the same scope were being awarded to non-8(a) businesses with

close ties to procurement and technical managers. After several attempts to work with the prime to correct the matter, the small 8(a)

decided to focus business development elsewhere rather than be

blackballed by a large company.

Another example is the practice of large prime contractors

prostletizing the employees and ideas of small subcontractors. This

practice appears to be rampant in the high-tech industries. There

are exceptions, but this is a common complaint among small businesses. Why do some large businesses do this? Well, in areas where

large businesses enjoy virtual monopolies over the work, the answer is because they can.

The examples given are from real life experiences of small businesses. There are other issues, such as access to affordable capital,

rising health care costs, and cuts to the resources within the Small

Business Administration and procurement personnel that weigh

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heavily on the prospects for small business contracting in the Federal Government.

We are seeing a transformation of the small business community

to include a larger variety of products and services than ever before. With this change is an obligation to understand the old and

emerging challenges facing small business. We in the various

chambers and other business organizations stand ready to partner

with our Government to lead the way to reform Federal procurement and business practices in harnessing the power of small business.

Thank you very much.

[The prepared statement of Mr. Martinez follows:]

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Senator CARDIN. Thank you very much.

Let me start by talking about BRAC for one moment. As I said

earlier to the previous panel, this is an opportunity to expand the

pie so it gives you certain opportunities that would otherwise not

be available because it is new contract work. I am interested in

knowing as to whether responsible parties in procurement related

to BRAC have been in touch with you in order to try to figure out

strategies to get more participation from small business and minority businesses. I will start with Mr. Frazier.

Mr. FRAZIER. BRAC? I read about it every day, but there has

never been—I have not received one call from any government procurement, not one. Not one.

Senator CARDIN. Mr. Green?

Mr. GREEN. Neither have I, Senator. What we are relegated to

is an informational pipeline organization within the county that

keeps us informed of posting on upcoming things involving BRAC.

But we haven’t had any contact with any official from the Government.

Senator CARDIN. Mr. Martinez?

Mr. MARTINEZ. Neither have we.

[Laughter.]

Mr. MARTINEZ. We do have an e-mail——

[Laughter.]

Mr. MARTINEZ [continuing]. For a meeting in January.

Senator CARDIN. And I know that there is a lot of outreach being

done by our counties and by different entities, but it seems to me

that the Federal Government has a responsibility here and should

have been planning some strategies, not necessarily individual contracts, but strategies so the pool would be as large as possible to

expand opportunity in the areas that we have talked about. So it

is somewhat disappointing that there has been no outreach to the

leaders of the different organizations that encourage minority participation.

Let me go to this bundling problem, because I have heard about

this. We have had other hearings in our Committee on bundling,

and you are correct, we are supposedly doing things to bring an

end to these practices of abuse. On the ground, it is still happening? You are still finding it a major issue from your testimonies?

Mr. FRAZIER. Yes, but it is sort of disguised now, and that is why

in my testimony I placed emphasis on increasing the task orders,

because it has become easier for the procurement officers if they

have a certain comfort level in dealing with a particular contractor

to, oh, you have done a good job. I am going to reward you with

additional work. Well, one may not look at that as bundling, but

in effect, it is because that opportunity was not put out to bid. So

it was a lost opportunity perhaps for the Government, because that

same procurement could come at perhaps a lower cost, or best, a

new innovative way of achieving that. And so you are losing that

potential intellectual capital for someone coming up perhaps with

a better idea, plus you are losing that opportunity for a lower price.

You never know unless you get a bid.

Senator CARDIN. Mr. Green, I think it was in your testimony you

said that small companies or minority companies are concerned

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about challenging too much because they could be prevented from

getting work, that it actually could be used in a punitive way if

they tried to be aggressive in saying, this company is not a small

business and yet they are getting some of the percentages, or the

bundling is being used to prevent the work from really going to the

companies it should, or the prime contractor is abusing the relationship with a subcontractor in order to appear to be getting the

job done for minority set-asides, but it is not real. It is having a

chilling effect on companies that want to challenge this but are

afraid to lose work if they do.

Mr. GREEN. Well, I can tell you that we are very thankful for the

State of Maryland and its efforts to clean it up. But for sure, the

practice was running rampant long before Maryland did its reform.

There was no vehicle in places for small businesses really to take

their message that were concerned about it. Oftentimes, they just

gave up and then it became a situation where the ability to stay

in business was preeminent, so we had to step forward to make it

right.

When the Governor convened the commission to study it, that

was the best thing that could have happened to the State of Maryland. They took the commission study and they corrected the problem and now the Government monitors the bid. So if there is a

small business subcontractor who is listed in the bid and he is not

a minority certified by the State of Maryland, the bid is kicked out.

So that problem has literally been solved in the State of Maryland,

but we believe that is something that an overhaul of the system in

the Federal Government could undertake.

Senator CARDIN. Mr. Martinez, do you want to add anything on

the bundling issue or the problems there?

Mr. MARTINEZ. Yes, sir. Basically for me, it is, as Mr. Frazier has

mentioned, sometimes it is not very evident. It can be pretty

sneaky in the way that happens, and that is why I broke mine out

into terms of scope and requirements. I had a member that basically said that he was trying to go after a procurement and it was

a $6 million-a-year set-aside, and the requirement was for 40 Qcleared, that is top secret clearances, to be made available on day

one. Do the math. That doesn’t add up. So it was just an obvious

attempt at basically eliminating any small business that might

have an interest in doing that.

Senator CARDIN. Mr. Green, you seem to have a pretty sensible

suggestion of some form of unified certification process. It seems

like that would save a lot of money. I can understand there may

be some variances that have to be dealt with, but a lot of the information is similar. What is stopping that? That seems so common

sense.

Mr. GREEN. It is a combination of things. First of all, you have

to have the buy-in from those that are not seeking SBA certification. See, primarily, we believe that within the framework is that

if you have SBA certification, which is the hardest certification to

get, then you should be exempt from requiring anybody else’s certification as long as there are Federal dollars in the project, and

for the most part, 99.9 percent of those projects are going to have

some form of Federal dollars in it.

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But there is a segment of the small business community that is

not seeking SBA certification at all. They are doing what they can

do to make a living through a different route. So if you take and

create a single source certification that would make it easier—nothing is easy, but make it easier to participate, then we believe that

they would come and step forward.

Our problem is that we haven’t had an opportunity to sit with

anybody from the Federal Government and talk about the possibility of a single source certification. We hear others, but nobody

has invited us to the table and it is a message that we are trying

to carry every time we get a chance because we want to see opportunities increase for all the small local minority-owned entrepreneurs.

Senator CARDIN. Let me ask one additional question, and that

deals with the PCRs and the numbers of the PCRs and how helpful

they are to dealing with the abuses in bundling or subcontractprime contract issues. I have my doubts whether 66 will be enough,

knowing the workload, knowing the problems that are out there.

My staff tells me that the number that is needed is substantially

higher than that number.

But having said that, I would like to get your assessment as to

how important it is to have an adequately funded resource available to deal with these abuses that occur in minority contracting

and procurement issues. Any thoughts on that?

Mr. GREEN. I think we need to have one in Prince George’s County.

[Laughter.]

Mr. GREEN. I don’t like that——

Senator CARDIN. And Congressman Sarbanes wants to make sure

there is one in Baltimore.

Mr. GREEN. There is a need to increase the number. But I don’t

think that we can take a regional approach to this. Maryland is

growing in its small business capacity, probably outpacing any

other area in the country. So when you group us into Maryland,

Virginia, and Washington, DC, it always seems to go to the Federal

center and not out to the suburban community. I know it doesn’t

come to Prince George’s County but it goes to Northern Virginia.

So I would like to see that number increase and Prince George’s

County become a beneficiary of that.

Mr. MARTINEZ. I would agree with that. I think that Maryland

needs a larger share of resources from the Small Business Administration, and we have more Hispanic-owned, minority-owned,

women-owned businesses probably per capita than just about any

State in the Nation. And so there is a real need here.

Without the SBA, I have to say, without the SBA, and as a small

business I can say this, a lot of that segment of business is going

to be lost. You have to have answers, and you have got to have the

right answers, and you have got to have a government agency that

is willing to step in and work with the people who are providing

the business opportunities.

Senator CARDIN. Congressman Sarbanes?

Representative SARBANES. Just a couple of questions quickly. I

am curious as to the extra kinds of barriers and obstacles that

exist for minority-owned businesses over top of the issues you have

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discussed for small businesses generally, because small businesses

are affected by the bureaucratic nature of things, they can be affected by bundling, they are going to be affected by lack of education opportunities in terms of what is available, the information

that is available on what is out there, et cetera. But you alluded

to continuing, I think all of you did, continuing discriminatory

practices that exist above and beyond the difficulties that any

small business would encounter, and I wondered if you could just

be a little more specific about the kinds of practices or issues you

see in that respect.

Mr. FRAZIER. Well, one hates to use this highly-charged word in

America, but it is racism. As an example, if you took a survey in

this room of minority business owners, I would venture to say 95

percent or more are first-time business owners, first-time entrepreneurs. And if you dug even deeper, you would find that no one

in their family had ever owned a business before. So when you talk

about the initial barriers, it is, one, comprehension, understanding.

We want to do a good job. We believe we can. We have worked for

someone else and made them millions of dollars. Now let us do it

on our own. But then when you step out, you have no money. All

you have got is your house and your wife says, ‘‘Nope, you ain’t

putting that up.’’

[Laughter and applause.]

Mr. FRAZIER. And then when you attempt to win business, you

are approaching someone in a government—an employee of the

Government, a procurement officer who, for the most part, doesn’t

look like you, doesn’t attend the same club, church, whatever, and

no one wants to beg, but you find yourself in a begging position.

Again, those relationships that those procurement officers have

with those primes that have won, won, won, I mean, I don’t want

to say that things are going on shady, but——

[Laughter.]

Mr. FRAZIER. Those are the barriers.

Mr. GREEN. One of the additional barriers is the fact that we

have a lot of people in government who are making decisions for

business owners who have never been in business before.

[Applause.]

Mr. GREEN. So that in itself is creating a serious problem and

that is part of the streamlining process that I am for. Most of the

small businesses—I am a Prince Georgian, so I really want to

stand up for my hometown. Most of the businesses in Prince

George’s County seek county and State contracts.

Now we have this new thing that is floating around in our State

and counties is a living wage bill. It is a social bill that has become

a business killer, all right, because what they have done, government is setting wages for private businesses and that is one of the

worst things that could have happened to us. If you are going to

hire this person for this contract, he or she must be paid a certain

amount of money. Big businesses tend to be able to spread their

costs over a number of people. They can handle it a little bit better

than the smaller guy.

So those are, to me, they are institution, I will call them institutional barriers. I won’t call them discriminatory barriers, but institutional barriers, but they were social issues brought to the table

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on the backs of unions. They could have looked at other alternatives like tax breaks for people who were in an income level that

needed a little bit more to work with, but they didn’t do that.

Counties and States bought into this living wage as, well, this is

something that has got to happen.

I believe that everyone should make a decent living, but I don’t

think that the Government should be in the business of setting

wage requirements for us. We hire people based on their ability to

do the job and their qualifications for the job. So for me to hire an

$11.50 person that I would normally pay $8.50 for, that is not a

good thing and that is part of the problem.

So what happens is small businesses don’t go after these contracts anymore. They just can’t afford to, so they stay away from

them. So that is another form of discrimination, I believe, Senator,

or Congressman.

Representative SARBANES. Thank you. I do not have any more

questions.

Senator CARDIN. Congressman Sarbanes, thank you very much

for that question. I think it is a very critical question, because we

are here to help small businesses and minority businesses, womenowned businesses, and Senator Kerry has really been the leader on

our Committee on the special burdens and problems that minority

businesses face and I have joined him in that effort because we are

looking to address the shortcomings in our system for minority

businesses, the problems that they confront that are different, and

I think Mr. Frazier did a good job in outlining some of those problems.

But we are very mindful of the need for capital and the difficulty

that minority businesses have had in raising capital, and the SBA

programs that are aimed in this direction, the numbers do not reflect what we think are the needs of the country in that regard. So

we are trying to figure out ways in which we can target these programs to where they are really needed to show better opportunities, particularly in the minority community.

But I think the question that Congressman Sarbanes asked is a

critical question, because we are here to help small businesses and

minority businesses and women-owned businesses and our veterans and our disabled population and those who we have targeted

for help, but the answer is not always the same for each group and

we should be mindful of that because we need to tailor the programs to meet those needs.

I want to thank Mr. Martoccia for remaining here to listen to

these concerns because I think we all need to work together in

order to try to figure out the solutions to these problems, so I thank

you for staying during the panel.

We are now going to move to our third panel, starting with Mel

Forbes. As our group comes up, I will save a little bit of time by

starting with the introduction of Mel Forbes, who has spent more

than 30 years in key management executive positions in corporate

America with such companies as MCI Telecommunications, Amtrak, Geico Insurance Company, NASA Space Center. Mr. Forbes

currently serves as CEO of Wilkerson Sports Enterprise and founder and CEO of Forbes Consulting and Associates. Mr. Forbes’ servVerDate 11-MAY-2000 18:09 May 14, 2008 Jkt 040541 PO 00000 Frm 00076 Fmt 6633 Sfmt 6633 C:\SBA\40541.TXT CELINA PsN: CELINA
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ices include business development, political strategies, government

relations, and telecommunications technology services.

Mr. Forbes, it is a real pleasure to have you before the Committee and we welcome your testimony.

STATEMENT OF MELVIN FORBES, PRESIDENT AND CEO,

WILKERSON SPORTS ENTERPRISE, FORBES CONSULTING

AND ASSOCIATES, LARGO, MD

Mr. FORBES. Thank you, sir. Good afternoon to everyone and let

me just say that it is a privilege to be here. I have a vested interest

being here for several reasons. One is because my son attends this

great university, and God willing, I hope that it will be his last

year.

[Laughter.]

Mr. FORBES. I also want to thank Senator Cardin, Senator Kerry

and Mr. Sarbanes for having the sagacity and perspicacity to have

this type of hearing. I already have provided written testimony, so

to save time, can I just cut to the chase? Let me just talk about

three things very quickly because I don’t want to be redundant. I

want to talk about policies, procedures, and people.

First, policies are very important. When we take a look at the

elements that are in the current legislative policies for procurement

regarding small businesses, it is clear some of the language is outdated, out of touch, and almost difficult sometimes for minority

businesses to participate. Some of the language in the policy makes

it very difficult for small businesses to sometimes attain the level

of Federal procurement awards.

When I look at the process, we are in the 21st century and it is

amazing to me that we can send people to the moon, we can do

heart transplants, we can do all kinds of creative things, but when

it comes to minority businesses, it always seems that we are never

moving forward but moving backwards.

I would suggest to you that maybe it has to do with the timing

of our current political administration, that’s determining whether

or not we are progressing. I have always believed that progress is

upward movement and not just moving in place or moving backwards. In the last 8 years, I have seen a dramatic move backwards,

when it comes to dealing with minority businesses by the current

administrations to the point it just was mean-spirited.

Now let’s discuss the third and final element: people. In some

cases there are people doing a job without knowing the job. Dr.

Green spoke very eloquently about it when he said that you have

got people making decisions that don’t even understand how businesses work. And then you have these specialists who are the same

people that are supposed to help you that are often the biggest barriers. If they like you, they will help you. If you are on the right

side of their ledger, they will help you. If not, you’re in trouble.

In order to secure and ensure there is fairness, we must bring

people to a plateau of understanding. A lot of our minority businesses don’t even understand the process of how to really get involved and these people, these specialists are there to help them.

But unfortunately, a lot of them are inadequate in their training.

They get information that is delayed and sometimes outdated, and

I am speaking from experience now.

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So I think that the largest room in the world is the room for improvement, and God knows this one has a lot of room to be improved upon.

I want to thank you for the opportunity and I would wait for any

questions that you would have. Thank you.

[The prepared statement of Mr. Forbes follows:]

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Senator CARDIN. Thank you very much, Mr. Forbes, for your testimony.

Carmen Ortiz Larsen is the president and CEO of AQUAS,

which was founded in 1990. Ms. Larsen has served as the president

of the Hispanic Chamber of Commerce of Montgomery County,

worked with the U.S. Small Business Committee in support of legislation impacting small business, served as vice chair of the Latin

American Management Association. Ms. Larsen also serves at the

Montgomery County Workforce Investment Board, the Board of

Montgomery Alliance, a charitable foundation, and has served on

the Montgomery County Gang Violence Prevention Task Force, just

to mention a few of her attributes.

It is a pleasure to have you here.

STATEMENT OF CARMEN ORTIZ LARSEN, CEO, AQUAS, INC.,

BETHESDA, MD

Ms. LARSEN. Thank you. I want to thank you for calling this

small business meeting and allowing us to provide testimony regarding small business and particularly minority small business. I

am very proud to be part of these panels because I have heard so

much about real issues that we deal with every day.

I just want to let you know, I have been running a small business for 25 years. AQUAS started in 1990, but I have been a small

business owner for over 25 years in Maryland. My company has

successfully been a contractor to the Federal Government for many

years, so I have been a prime contractor to the Federal Government for many years after I set my mind to do that. I was a subcontractor prior to that. We are a graduate of the SBA 8(a) program and I am an American Hispanic and I have a company of expert business process analysts and information technology folks.

I have the qualifications and education to be in corporate America, but I chose to be a small business owner because I believe that

small business is where you can get to create valuable solutions for

the public sector and bring in the talent and the technical knowhow to have innovative solutions and I really like that. I think it

is part of the American dream that I believe in, which is waning

a little bit, but I still believe very strongly that that is very important.

I want to particularly emphasize that I believe that minority

small businesses and the ability to make them sustainable is critical for developing healthy communities. We have a lot of minority

communities that are economically disadvantaged. I think the fact

that they can see that there are success stories in minority businesses is a way to get the community to be inspired and move forward. I think that this is really critical and that is why minority

small business is very, very important. I think we lose sight of that

a lot, and we say, well, what about these social issues in minority

communities, and yes, they are important and we have businesses

that partner or provide services to address these issues. But I just

want to emphasize minority small business is important.

The public sector has the power to make or break our tomorrows.

Federal Government’s contract awards still heavily favor large

businesses, large companies with well-known names. These are

companies that can afford a greater lobbying power and exercise inVerDate 11-MAY-2000 18:09 May 14, 2008 Jkt 040541 PO 00000 Frm 00081 Fmt 6633 Sfmt 6633 C:\SBA\40541.TXT CELINA PsN: CELINA
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fluence on decisionmakers, and I think that is part of what is going

on where we get into a disadvantaged situation.

A lot of times, Federal legislation is put in place because there

are some national priorities where it seems an opportunity to justify expediting procurements to well-known, well-established corporations that are a known entity. I think legislation proposed

under the umbrella of expediting procurements for critical missions

are detrimental to small businesses. There are a lot of vehicles that

facilitate awarding contracts to small businesses. Why not use

those in certain situations that require expediting? Why not afford

those small businesses those opportunities?

We need a broader range of procurement options. Government

small business programs also are first in line for budget cutbacks.

I mean, you mentioned this with regard to PCRs. We talked to SBA

in terms of why they were cutting back on their budgets for PCRs.

SBA has a shortage of business opportunity specialists.

Mr. Forbes mentioned the specialists. I want to clarify, I believe

he is talking about business opportunity specialists. A lot of times,

the small business procurement world has terminology and words

that obfuscate and confuse people and you get into traps where you

agree on legislation that really is detrimental to small business.

I want to say, when you go into an 8(a) program, you are appointed a business opportunity specialist that is supposed to work

with you so that if you do see an opportunity and you want an advocate to go and speak on your behalf or give you a letter saying,

yes, this small business is qualified, you go to your business opportunity specialist. I am going to wager that a greater proportion of

the 8(a) firms don’t even know that they have a business opportunity specialist. A lot of them don’t even know what they look like,

OK? I just want to point this out.

And the SBA is cutting back on business opportunity specialists.

I was sitting there when you were asking the gentlemen about the

PCRs. I want to also ask the question with regard to the business

opportunity specialists, providing enough people to support the

growing small business community. When I ask the SBA folks who

are on the ground why they don’t do more, they say, ‘‘because we

have too many companies assigned to us and we don’t really have

the time.’’ So I just wanted to bring that up.

Our Government increasingly relies on the perceived wisdom of

representatives from large corporations to provide policy guidance

and recommendations for the acquisition of products and services.

I want to point this out because I have gone to Departments where

I have spoken to the E-Gov person or the person in charge of the

technology and they say, you know, ‘‘I would love to sit here and

talk to you about what you have available, but I am relying on

company fill-in-the-blanks who has always been my advisor for

those,’’ and generally it is some large corporation that has their

own connections and their own preferences.

So I would like to point out that this is not going to result in a

better America. This is just taking the comfortable way out. Those

are people who don’t want to take the time to find out for themselves what is available out there that can give us better solutions

in the public sector.

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Negotiations and paperwork, I don’t need to tell you that these

burdens are very big on small business. Small businesses are

forced to accept lower prices to compete in the marketplace, whether because they are subcontractors and the prime contractor is giving them really what comes across as a favor, a handout, so they

drive the prices down. So even though something may be worth a

certain amount of money, you are forced to take a lot less just to

have the opportunity, but also from the Federal Government.

We have been in situations where we have been asked to come

in as an 8(a) to take on a job that a large corporation of well-known

established name used to staff and we are told, ‘‘please hire this

person.’’ OK, that person comes with a pretty high salary, or actually for them to come and work for you, they want an even higher

salary, so you put the appropriate price on and they say, well, no,

you are a small business. You ought to be able to take less. So we

have been in situations where our margins are so small that we are

making 2 or 3 percent margins, and to borrow the money, we are

paying out at least that, OK.

And so it is really very difficult, especially if you are on a costplus-fixed-fee contract, and again, here is terminology that sometimes is difficult in a sound bite to get, but cost-plus-fixed-fee contract, sometimes some Federal agencies go that way. Well, they are

really meant for corporations that are providing 20, 30 people.

Well, when you are providing one or two people and they say, ‘‘it

is a cost-plus-fixed-fee contract, by the way, and it is on site so

your risk is low so you have to accept 3 percent profit margin’’.

Then you have a hard time because you can’t spread the cost

around, and plus then they always come to you to ask you for more

than what is covered.

All right. So I want to just say three points. There is no direct

path to obtain facility clearance. I know I mentioned the PISA program at NSA. They have a model. Why doesn’t DOD use this?

I want to clarify that it is not just the length of time that it takes

to get a security clearance but it is the fact that you can’t get an

award unless you have a facility clearance. And I want to say that

having a facility clearance means that you have clearances for your

key management people. It is not some voodoo thing, guys. It really

isn’t a voodoo thing. It is just that we have to have the opportunity

to have a contract vehicle or some kind of legislation in place that

allows us to apply for our own facility clearance if the Government

won’t let us do it any other way. It is not just the time, it is the

access. That is what the NSA model is. It is actually the access to

that.

We need contracting officers and program managers to have better training about how to deal with small business and being sensitive to that so that we don’t get talked down to by these folks.

Sometimes we know more than that.

And also, procurement evaluations should offer a ‘‘handicap’’

score for small businesses. There is a best value award method and

I think that there should still be a 10 percent price preference.

Thank you very much for your time.

[The prepared statement of Ms. Larsen follows:]

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Senator CARDIN. Thank you very much for your testimony.

Our final witness is Tim Adams, who is president and CEO of

Systems Application and Technologies. He serves on numerous

committees and foundations, among those Bowie State University

Foundation, Greater Prince George’s Business Roundtable, Doctor’s

Community Hospital Foundation, U.S. Chamber of Commerce, the

National Black Chamber of Commerce, the University System of

Maryland Foundation Board of Directors. Tim is one of the most

active individuals we have in our community.

It is a pleasure to have you with us.

STATEMENT OF TIMOTHY ADAMS, PRESIDENT AND CEO, SYSTEMS APPLICATION AND TECHNOLOGIES, INC., LARGO, MD

Mr. ADAMS. Thank you. Senator Cardin, Congressman Sarbanes,

thank you for being here today. I applaud the choice of holding this

hearing at Bowie State University, an institution that has a proud

history of producing small business leaders and entrepreneurs, and

the symbolism of our meeting in the Thurgood Marshall Library,

named for the American hero who did so much to provide opportunity and justice to millions.

I also would like to praise you, Senator Cardin, for your strong

record on small business issues, which was underscored by your

meeting earlier this year with Prince George’s County small and

minority business owners at which you repeated your promise to

continue to find ways to improve opportunities for all small business owners. That commitment was recognized throughout the

State.

The title of today’s hearing is very pertinent to our collective efforts to use the engine of small business to add to economic growth

and job creation in society. And as much progress as we have made

in our society towards enabling minority small businesses to make

productive contributions to this process since Justice Marshall was

first appointed to the High Court over 40 years ago, the issue of

leveling the playing field is still a matter of critical importance.

This subject came up when the man who appointed Justice Marshall, President Lyndon Johnson, was asked why he aimed policies

aimed at leveling the field for minorities. Johnson, whose life experience taught him about the barriers that minorities and the poor

of all colors have faced in our country, said the following wise

words in response, quote, ‘‘You do not take a person who, for years,

has been hobbled by chains and liberate him, bring him up to the

starting line of a race, and then say, ‘You are free to compete with

all the others,’ and still justly believe that you have been completely fair,’’ end quote.

Please allow me to clearly state my position about a critical point

relating to the issue of leveling the playing field. I do not assert

that the only means by which the Federal Government can take

positive steps to help minority enterprises contribute to society’s

vital work is to create contract bidding systems that benefits one

particular group or another. I do recommend that the Committee

use its influence over Federal contracting and programs run by the

Small Business Administration and the Department of Commerce’s

Minority Business Development Agency to implement positive policies that encourage small and minority-owned business growth.

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The Federal Government can positively work to level the playing

field through policies that help make capital more accessible, expand business education, promote a culture of entrepreneurship,

reduce unnecessary regulatory burdens, and protect intellectual

property.

First, to help minority and other small business entrepreneurs

get started, the Federal Government should encourage banks to

provide more seed money to these risk takers by establishing a

larger pool of federally guaranteed small business loans.

Second, to help give new business the knowledge and know-how

to succeed, the Federal Government plays a small but vital role by

providing institutions such as Bowie State University financial incentives and tools to create and enhance business incubators.

These are facilities where faculty business experts can teach and

provide support to budding entrepreneurs in all areas, from sales

and marketing to law and taxes. Similarly, expand the amount of

information they offer to potential small business contractors on

their Web sites. Implementation of best practices in a timely manner is key to success.

Third, the Federal Government can do more to recognize and tap

the skills and wisdom of distinguished minority business owners on

commissions dealing with important societal issues.

Fourth, the Federal Government can creatively use the tax code

with an eye towards encouraging small business growth by offering

credits for investment and training and education and increasing

the deductions for investments. With respect to small business regulation, we must guard against stymieing small business expansion

through unnecessary and burdensome rules and reporting requirements.

Fifth, to encourage small business entrepreneurs to be risk takers, the Federal Government must continue to zealously ensure

that the Government is enforcing policies that protect firms’ patent,

copyright, trademark, and other vital intellectual property rights.

Finally and most importantly, the old adage, people often don’t

do what you expect but what you inspect, is truly still around in

Federal contracting. Therefore, the Federal Government must implement a 21st century technology with the capability of real time

minority business tracking analysis and strategic planning. This

system should have the ability to identify disparities in the marketplace and to help determine if those disparities are the result of

discrimination, benign or otherwise. The system should assist in

determining if race-conscious or race-neutral programs should be

implemented to address any identified disparities throughout the

Federal marketplace. The technology should be implemented

throughout the Federal Government. It should also provide an

overall Federal report card on minority business participation as

required by oversight entities. This type of technology, which is

Croson, Adarand, and now Western States Paving compliant, is

available today in the marketplace and could provide the backdrop

for a serious minority business develop initiative.

To sum up, all of these proposed policies will help create win-win

situations and provide a useful framework for Congressional action

to level the playing field.

I thank the Committee for the honor of speaking to you today.

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[Applause.]

[The prepared statement of Mr. Adams follows:]

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Senator CARDIN. We thank all the witnesses. It has been extremely helpful, I think, to the Committee to hear those of you who

are in the field and have to deal with the challenges that are out

there.

There are several things I believe Congress can do to help in our

role, and one is to look at strengthening of the underlying statutes

and programs, and as I mentioned from the beginning, Senator

Kerry is committed to doing that. There has been legislation already moved through our Committee and I expect there will be

some additional bills that are going to be considered.

Of course, the second role we have is oversight, and one of the

reasons we are having this hearing is to hear firsthand and to try

to get our agencies working more effectively in administering the

programs and doing that oversight as aggressively as we can.

The third way is the budget support, and I keep coming back to

the budget support. Ms. Larsen, you mentioned the services that

are provided under 8(a) and the numbers have gone up dramatically of those participating in the 8(a), yet the budget support by

this administration has been to reduce funding in these levels. The

PCRs that we have been talking so much about, it seems to me

that if you had adequate services provided here, concerns of bundling will be much less. Bundling goes forward because there is no

one there to stop it. So you need to have people there, which is

what Mr. Adams was referring to as far as having the people who

can really implement the program of enforcement.

We really do appreciate SBA having this report card, but now

you have got to follow up on it and they have to do that. So I really

do challenge this administration’s commitment on budget support

for this agency because I think they need a stronger budget and we

are going to be working for that as we go forward.

Ms. Larsen, I want to ask you one specific question because you

and I have had many conversations about security clearance issues.

I was surprised by the brevity of your statement in that regard.

Normally, you are——

Ms. LARSEN. Well, you had the hammer ready.

[Laughter.]

Senator CARDIN. But you mentioned and I am interested in the

approach that NSA takes versus DOD. Perhaps you could elaborate. It seems to me that we have had progress made in NSA. Perhaps you could talk a little bit more about that, whether this is a

much better model that we should be looking at to deal with the

clearance issues which become a major issue for opportunity.

Ms. LARSEN. All right. The NSA model just happens to be the

only model I know of, and so I talk about that—and I have sought

other avenues, but I haven’t seen any. So just to explain that a little bit better, when you bid on a government contract, increasingly,

you are going to be required to have facility clearance. In order to

have facility clearance, you have to already have a contract that requires security clearance. So if you are not already, well, you are

not going to get that award.

If you do have facility clearance and your contract ends and you

don’t have another contract in line that requires you to have facility clearance, you then lose that clearance, OK. If you have facility

clearance, you can then clear your own people, you can bring in

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and hire people that are already cleared and what is called ‘‘hold

their clearances’’ and so forth. So there are a lot of benefits to that.

I can’t, if I don’t have facility clearance, I can’t hire somebody who

has a security clearance to go and work on a government contract

because I can’t hold their clearance.

So what NSA has done, they have something called the PISA

program, and I don’t have all the details in front of me on that,

but I did forward them to your office.

Under the PISA program, and it was the Small Business Office

at NSA that drove this forward, they will accept an application

from a small business who wants to enter into the program and

award them—and there are certain criteria you have to follow—but

they will award them a contract, which is called a no work order

contract—there is no value to that contract. This is where you get

a contract under which you will have five positions that you can

fill of people who have security clearance. Now, I think two or

three of those positions are principals of the company or have to

be fixed positions, what they call fixed positions—I think it is two

of them are fixed positions and three are rotating, or vice-versa.

But what it allows you to do is to bring in people who are cleared

and to work for you for a while, and during that time period what

you can use it for is to go and talk to people at NSA and do presentations and sell them on your product. So that is what the model

is about. So you have a 5-year contract, or a 3-year contract—I

think it is just a 3-year contract where you can have this.

If DOD had something similar, people could then apply to be

under this contract, which would then allow them to bid on DOD

contracts that require clearances.

Senator CARDIN. Thank you for that.

To Mr. Forbes and Mr. Adams, I want to explore a little bit the

concerns about small businesses being intimidated not to raise too

many issues. My staff prepared for me a list of Fortune 500 companies that have qualified for small business contracts, and that

happens——

[Laughter.]

Senator CARDIN. It does sound like a—but it happens because

they acquire small businesses and it can count towards the setasides, and whether that is abused or not is another issue. We also

know that the Fortune 500 companies are the prime contracts and

are used to allocate the subcontract work.

We have heard, and we have some very creative small businesses, minority businesses that are out there that really would

like to be prime contractors. They think they are qualified to do

that, but they are afraid to go in that direction, at least I have

been told, because they are worried about losing their existing

work. I don’t know whether you have run into these types of circumstances or not, but it seems like it is holding down the potential growth in this country in the areas that we would like.

Mr. FORBES. Senator, let me just say that I think it is not just

a myth, it is a fact that companies, especially small minority companies who understand they already have so many challenges to

deal with just trying to get a contract, have sometimes been told

by certain people, that if you don’t make waves, you probably can

wind up getting an opportunity. So it is not a myth. I was hoping

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to see in the room a couple of my clients who had firsthand experience in that, and maybe at a later date I will have them come talk

to you directly.

I represent a security company who has over 300 employees right

here in Prince George’s County and he was trying his best to get

an opportunity and ran into that exact situation, where he was

told, just don’t make waves, you know. Your turn will come. Your

time will come. It is just not your time. Now here is a man that

is feeding 300 families times four. Small businesses are the life

blood of a community, and he has 300 employees and yet doesn’t

have an opportunity to participate further? I think there is something that needs to be looked at very closely and I would love to

have an opportunity to bring him to meet you.

Senator CARDIN. I have also heard of cases where a small company who owned a patent was pretty much required to sign that

patent to the larger company in order to be able to get the type

of opportunities through Federal procurement. It seems to me that

we have got to be able to address those problems.

Mr. FORBES. Well, very often, small businesses are used to get

contracts by majority companies. Once they get them, very little

monitoring, if any, is done to find out how they are faring. So the

minority company takes the majority company to the prom, but

they take someone else home with them.

[Laughter.]

Mr. FORBES. And I think that is something that needs to be

looked at.

Senator CARDIN. Mr. Adams?

Mr. ADAMS. Along those lines, I think it is important to understand that fear is pervasive not just on very small businesses, but

also larger minority businesses. As I sit here today, I, too, have

concerns, even to the extent of what I may say here regarding repercussions to my organization. I have been doing government contracting almost 20 years now. We have people all across the globe.

But there is still that concern about addressing critical issues in an

open forum and the repercussions of that, and they are real. They

are not perceived. I sit here as testament to that. We have sat here

and we talked a great deal about security clearances. My organization did security clearances. We are now no longer continuing in

that process.

There are a lot of challenges that go along with being a business

owner. There are a lot of challenges that go in the current marketplace. There are also a lot of concerns. When you have 500 people

that you are responsible for feeding and families, one has to be

very cautious in just how aggressive they can be.

Having said that, I probably said too much already today.

[Laughter.]

Representative SARBANES. Senator, I am going to have to

leave——

Senator CARDIN. Let me recognize Congressman Sarbanes.

Representative SARBANES. I am going to have to leave, but I

wanted to thank the witnesses and again thank Senator Cardin. I

was actually going to ask a question about whether there are 10

specific things you would recommend, and I think you got to 8, Mr.

Adams, so there is clearly no shortage of good recommendations

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out there based on the knowledge and experience that you have accumulated and it is incumbent on us and others to make sure that

we take that and try to move in the right direction with it.

So thank you very much for your testimony. Thank you for letting me participate.

Senator CARDIN. And I would welcome, and it doesn’t have to be

at this moment, but if you have specific recommendations, please

let us know. We are very much interested in protecting businesses

from that sort of intimidation, so please feel comfortable to let us

know what is happening and offering suggestions as to how we can

be helpful in providing the type of protection to small businesses

so that they can voice their concerns and be prepared to enter into

direct business relations with government agencies, which I think

they need to be able to do. So we would welcome that type of

thought.

Let me just thank all of our witnesses. As I said at the beginning

of the hearing, this record will be made part of our committee

record and part of the record we are using in order to carry out our

responsibilities that I have already said a couple times.

I want to, if you would just indulge me, to thank the staff from

the Small Business Committee for allowing us to have this hearing.

[Applause.]

Senator CARDIN. It takes a lot of work to put on these hearings,

a lot of work, particularly when they are not in the Capitol itself.

I sort of just show up and can ask the questions and preside over

it, but it is the staff that really puts together all the work to make

sure this happens, so from the hearing clerk to our staff on Committee to my personal staff, I want to thank them.

This has been an incredible set of witnesses, but also the people

that have been here participating in attendance. We thank you for

making this an important moment, I hope, in trying to move forward with our commitment to help the small businesses and minority businesses, women-owned businesses in our community to

carry out the mission of our country and the economic equality

which has been for too long not met by policies in America.

Thank you all very much. Our hearing will be adjourned.

[Whereupon, at 3:34 p.m., the Committee was adjourned.]

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APPENDIX MATERIAL SUBMITTED

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RESPONSES BY CALVIN JENKINS TO QUESTIONS FROM SENATOR CARDIN

Question 1. The following is a question you were unable to answer during the field

hearing of October 29. I would appreciate a response from you or an appropriate

individual with knowledge in this area.

You were asked to provide the rationale and procedures involved in allocating

Procurement Center Representatives (PCR) by locality as well as the dollar amounts

in allocating such PCR. At the time of your response, you could not provide a complete answer as to how such distributions were determined. Please provide that information.

Response. While SBA tries to place its PCRs in buying activities with the greatest dollar volume (at least $1 billion in federal contracting dollars), there are other considerations that come into play, such as the need to have at least one employee with

expertise in Government contracting in as many states and regions of the country

as possible. For example, we recently hired a PCR for Hawaii, and we are currently

recruiting a PCR for Alaska. The buying activities in those states do not have as

large a dollar volume as many of the buying activities in the Washington Metropolitan Area, but this approach ensures that we have an employee in each of those

states who can handle Government contracting matters that may require SBA’s involvement—not only those matters related to a PCR’s duties but also those related

to Certificates of Competency, Size Determinations, and subcontracting assistance.

SBA currently has three (3) PCRs stationed in Maryland. They are located at

Goddard Space Flight Center, National Institutes of Health, and the Naval Air

Command in Patuxent River.

RESPONSES BY ANTHONY MARTOCCIA TO QUESTIONS FROM SENATOR CARDIN

Question 1. I have been informed that DOD’s security clearance process is too

cumbersome and drawn-out and that contracts are generally awarded before a small

business can even begin to obtain its clearance. NSA, on the other hand, has developed a fast-track system, to obtain security clearance for small contractors. Under

‘‘fast-track,’’ the contractor comes in without a contract, obtains clearance and can

then bid on subsequent contracts. Has DOD given any thought to developing a similar certification process based on the NSA ‘‘fast-track’’ model? If so, please elaborate.

If no, please explain why DOD would not create such a system given the problems

it has had in meeting its small business goals?

Response. Based on your description, it appears that you are referring to NSA’s

Provisional Industrial Security Approval (PISA) Sponsorship Program. The PISA

Program is designed to assist small businesses in gaining personnel clearances for

the express purpose of conducting classified discussions with NSA personnel. As the

Defense Security Service (DSS) understands the PISA Program, NSA arranges for

the underlying investigations, determines eligibility and holds the personnel clearances for those individuals cleared under the PISA Program. If NSA decides to issue

a contract requiring access to classified information, the steps described above allow

DSS to expeditiously issue a facility clearance.

DSS has not recommended implementing the NSA Provisional Industrial Security

Approval (PISA) Sponsorship Program across the Department for the following reasons:

• Prohibition Against Granting Personnel Clearances in the Absence of a Requirement: As stated in Executive Order 12968, Access to Classified Information, ‘‘. . .

eligibility for access to classified information shall only be requested or granted

based on a demonstrated, foreseeable need for access. Requesting or approving eligibility in excess of actual requirements is prohibited.’’

• Scalability of NSA Program: The NSA Program is founded on the unique needs

of NSA. A ‘‘fast track’’ system to issue security clearances for contractors with no

existing requirement for access to classified information across the Department

would appear to provide an unfair advantage to certain contractors. It would also

exacerbate cost considerations for personnel security investigations and adjudications without the concomitant need for access.

• Availability of Alternatives: In the event a DoD contracting activity wishes to

issue a contract requiring access to classified information to an uncleared company,

DSS is able to issue an interim facility clearance and associated interim personnel

clearances to eligible U.S. owned companies and their employees within days of receiving required forms (e.g. Electronic Questionnaire for Investigations Processing).

Question 2. Currently many small businesses are unable to bid on DOD construction contracts because they cannot obtain conventional surety bonds. However, these

same contractors can and do utilize ‘‘individual surety bonds’’ in state and local conVerDate 11-MAY-2000 18:09 May 14, 2008 Jkt 040541 PO 00000 Frm 00098 Fmt 6601 Sfmt 6621 C:\SBA\40541.TXT CELINA PsN: CELINA
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tract bids—Maryland is such an example. Why has DOD not adopted a similar surety vehicle to increase the number of businesses owned by minorities, women and

disabled veterans?

Response. The Department of Defense does accept individual sureties for all types

of bonds, with the exception of position schedule bonds. The use of individual surety

bonds is prescribed at section 28.203 of the Federal Acquisition Regulation.

RESPONSES BY MICHAEL J. RIGAS TO QUESTIONS FROM SENATOR CARDIN

Question 1. Currently, many small businesses are unable to bid on GSA construction contracts because they cannot obtain conventional surety bonds. However, these

same contractors can and do utilize ‘‘independent surety bonds’’ in state and local

contract bids—Maryland is such an example. Why has GSA not adopted a similar

surety vehicle to increase the numbers of businesses owned by minorities, women

and disabled veterans?’’

Response. The use of bonds and surety vehicles for General Services Administration (GSA) construction contracts is governed by the Miller Act, 40 U.S.C. § 3131,

et seq. The Miller Act and its underlying regulations do not provide for the use

‘‘independent surety bonds’’. The Miller Act does, however, permit the use of bonds

provided by both corporate and individual sureties, as well as bonds supported by

a wide variety of other forms of security.

Small Contractors that seek public or private contracts for which bonding is required may benefit from the Small Business Administration’s Surety Bond Guarantee Program, which makes available SBA guarantees for bid, performance, payment, and ancillary bonds that may be issued on their behalf by participating corporate sureties.

The mission of the SBA’s Office of Surety Guarantees is to provide and manage

surety bond guarantees for qualified small and emerging businesses, in direct partnership with surety companies and their agents, utilizing the most efficient and effective operational policies and procedures. Further information about the program

is found at: http://www.sba.gov/aboutsba/sbaprograms/osg/index.html

Where the size of GSA construction contracts make it difficult for small businesses to obtain either corporate or individual surety bonds in the amounts required

under the Miller Act, GSA has an aggressive small business subcontracting program

to help further the contracting opportunities available to small businesses.

GSA is committed to supporting small businesses by maximizing the flexibility afforded to us under the law provided that the financial interest of the U.S. Government is adequately protected.

Question 2. You were asked during the field hearing to review your records and

provide information on the numbers and percentages of women, minorities, and disabled veterans small businesses participating in the GSA Schedule as well as dollar

amounts associated with each of the categories cited above. Please provide that information.

Response. Please see below a breakdown of the total number of GSA Schedules

contract holders. This breakdown shows the number of small business contract holders and further breaks down the small business categories to show the various socioeconomic groups you requested and the dollars spent via GSA Schedules related to

each category.

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