U.S. GOVERNMENT PUBLISHING OFFICE

29–797 WASHINGTON : 2018

NO MAN’S LAND: MIDDLE-MARKET CHALLENGES 

FOR SMALL BUSINESS GRADUATES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONTRACTING AND 

WORKFORCE 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

APRIL 26, 2018 

Small Business Committee Document Number 115–069 

Available via the GPO Website: www.govinfo.gov 

SBR002 with DISTILLER


Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

TRENT KELLY, Mississippi 

ROD BLUM, Iowa 

JAMES COMER, Kentucky 

JENNIFFER GONZA ́ LEZ-COLO ́ N, Puerto Rico 

BRIAN FITZPATRICK, Pennsylvania 

ROGER MARSHALL, Kansas 

RALPH NORMAN, South Carolina 

JOHN CURTIS, Utah 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

DWIGHT EVANS, Pennsylvania 

STEPHANIE MURPHY, Florida 

AL LAWSON, JR., Florida 

YVETTE CLARK, New York 

JUDY CHU, California 

ALMA ADAMS, North Carolina 

ADRIANO ESPAILLAT, New York 

BRAD SCHNEIDER, Illinois 

VACANT 

KEVIN FITZPATRICK, Majority Staff Director 

JAN OLIVER, Majority Deputy Staff Director and Chief Counsel 

ADAM MINEHARDT, Staff Director 

SBR002 with DISTILLER

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Steve Knight ................................................................................................... 1 

Hon. Stephanie Murphy .......................................................................................... 2 

WITNESSES 

Mr. Stephen P. Ramaley, Associate, Miles & Stockbridge, McLean, VA ............ 4 

Ms. Lisa Firestone, President & Chief Executive Officer, Managed Care Advisors, Inc., Bethesda, MD ...................................................................................... 6 

Mr. Mehul Sanghani, Chief Executive Officer, Octo Consulting Group, Reston, 

VA .......................................................................................................................... 8 

Ms. Eminence N. Griffin, Counsel and Director of Federal Procurement, Information Technology Alliance for Public Sector (ITAPS), Information Technology Industry Council, Washington, DC ......................................................... 10 

APPENDIX 

Prepared Statements: 

Mr. Stephen P. Ramaley, Associate, Miles & Stockbridge, McLean, VA ..... 24 

Ms. Lisa Firestone, President & Chief Executive Officer, Managed Care 

Advisors, Inc., Bethesda, MD ....................................................................... 31 

Mr. Mehul Sanghani, Chief Executive Officer, Octo Consulting Group, 

Reston, VA ..................................................................................................... 36 

Ms. Eminence N. Griffin, Counsel and Director of Federal Procurement, 

Information Technology Alliance for Public Sector (ITAPS), Information 

Technology Industry Council, Washington, DC .......................................... 46 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

MTA - Mid-Tier Advocacy, Inc. ....................................................................... 54 

SBR002 with DISTILLER

SBR002 with DISTILLER

(1) 

NO MAN’S LAND: MIDDLE-MARKET CHALLENGES FOR SMALL BUSINESS GRADUATES 

THURSDAY, APRIL 26, 2018 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON CONTRACTING AND WORKFORCE, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:22 a.m., in Room 

2360, Rayburn House Office Building, Hon. Steve Knight [chairman of the Subcommittee] presiding. 

Present: Representatives Knight, Comer, Norman, Evans, Murphy, and Lawson. 

Chairman KNIGHT. This hearing is called to order. 

Again, I thank our witnesses. I look forward to your testimony. 

We are here today to continue examining the challenges facing 

advanced small or midsize businesses. To start, it is important to 

recognize the critical, yet undervalued, role midsize firms play in 

the national economy. Midsize firms are significant job creators 

and foster much needed competition for industry leaders. The benefits they bring to the economy are similarly applicable to Federal 

procurement systems. 

Unfortunately, midsize contractors, particularly emergent or 

newly graduated firms face a dilemma. They are on longer eligible 

to compete for small business government contracts, yet must compete against companies across the entire middle-market spectrum, 

which can consist of companies many times their size, up to and 

including the titans of industry. 

Firms facing this daunting prospect end up considering the following choices: First, to compete in the open market against competitors in a different weight class. Secondly, to sell their companies to large firms, resulting in net job losses to the economy. Or 

third, to reiterate their business models to focus on subcontracting 

which inhibits growth. Or deliberately limit their progress so they 

remain small, and therefore, eligible for small business set-aside 

contracts. 

None of these options promote economic growth, spur job creation, or foster competition. 

Part of the problem that we have is little information about what 

happens after these companies are no longer considered small. Because there is no requirement to track the path of these formerly 

small firms, Congress cannot fully access how effective the Small 

Business Administration’s contracting programs have been in preparing small business to engage in the open marketplace. 

SBR002 with DISTILLER

2 

In addition, Federal procurement strategies are evolving in ways 

that make competition increasingly difficult for small and emergent 

midsize firms. However, we begin this conversation with a clear 

understanding that our primary responsibility is to small businesses. We must take the greatest care to uphold and protect small 

businesses’ ability to compete and succeed. 

I hope through the testimony of our witnesses that we discover 

ways to ensure the sustainability of small firms as they continue 

to mature without unduly harming existing small businesses. 

I now yield to the Ranking Member, Ms. Murphy, for her opening 

statement. 

Ms. MURPHY. Chairman Knight, thank you. Thank you for 

holding today’s important hearing. 

You know, Congress has created numerous Federal lending programs, set asides, and tax preferences designed to help small businesses succeed. However, the advantages conferred by these programs have led to an ongoing debate about the proper definition of 

a small business and what small business size standards should be 

used to determine eligibility for these initiatives. 

Size classification is especially important for firms that seek SBA 

loans, technical assistance, and Federal contracts. And defining a 

small business has proven to be a challenging endeavor. While one 

definition may work for a business in one context, it may be unsuitable in another. For instance, what works for a manufacturing 

company in California might not be appropriate for a tech startup 

in Florida. 

On numerous occasions, the SBA has proposed a comprehensive 

revision of its size standards. However, it remains critical for policymakers to engage directly with stakeholders about any potential 

revisions and their impact on middle market businesses. That is, 

firms that have grown out of their small size status but are not 

considered large, billion dollar enterprises. 

This hearing gives us an opportunity to better understand how 

well small business size standards are working in practice, and the 

challenges that advanced small and midsize businesses are currently facing, especially as it relates to Federal procurement. For 

example, midsize businesses are too large to qualify for small business set-aside contracts; yet, they must compete on the full and 

open marketplace against billion dollar firms. 

Reports suggest that midsize firms have limited options. Those 

that forego in competing in full and open markets often settle for 

subcontracting opportunities or decide to sell their company at a 

devalued rate. Access to Federal contracting opportunities is critical for small and midsize firms and essential to job creation and 

economic growth. 

While increasing competition for Federal contracts is a bipartisan 

goal on this Committee, we must consider whether revisions to the 

small business definition will prove to be insufficiently inclusive or 

overly inclusive of midsize firms to the detriment of small businesses. 

On the one hand, advanced small and midsize firms that are excluded from the small business definition are often barred from 

participating in some small business contracting programs. On the 

other hand, if a size standard were to become overly inclusive, 

SBR002 with DISTILLER

3 

businesses that would otherwise be considered large would be able 

to compete in these programs, depriving small businesses of contracting opportunities. 

So today, we will hear from multiple industries that have been 

affected by the standards in place as of October 2017. I want to be 

clear that the purpose of today’s hearing is not to advocate for one 

size standard over another, but rather to better understand the industry perspectives and ways in which we can encourage as much 

competition in the Federal marketplace as possible. 

I thank all the witnesses for their attendance and look forward 

to hearing your insight on this issue. 

Thank you, and I yield back. 

Chairman KNIGHT. Okay. Thank you very much. 

If Committee members have an opening statement prepared, I 

ask that they be submitted for the record. 

Now, I would like to take a moment to explain the timing. You 

have 5 minutes for your opening statement. When it goes yellow, 

that means you have got a minute, and when it gets red, start to 

round it up. Again, my apologies for being late. 

I would like to now formally introduce our witnesses. 

Our first witness is Mr. Stephen Ramaley. He is an experienced 

government contracts lawyer and a subject matter expert on Federal procurement matters. Mr. Ramaley has prosecuted and defended bid protests before the U.S. Court of Federal Claims, Executive Branch agencies, and the Government Accountability Office. 

We welcome you and look forward to your testimony. 

Our second witness is Ms. Lisa Firestone. Ms. Firestone is president owner of Managed Care Advisors, Inc., a woman-owned small 

business based in Bethesda, Maryland. Managed Care Advisors, or 

MCA, provides an array of healthcare consulting services to various 

public and private customers. Both the customer and Ms. Firestone 

have won a number of distinguished accolades in the past several 

years. Ms. Firestone is also the chair of the Board of Directors of 

Women Impacting Public Policy and will be testifying in that capacity today. Thank you very much for being here. 

Our third witness is Mr. Mehul Sanghani. I got it. Mr. Sanghani 

is the chief executive officer and founder of Octo Consulting Group 

based in Reston, Virginia. Octo Consulting delivers complex IT 

strategies and business transformation engagements for global 100 

corporations and Federal Government agencies. Over the last decade, Mr. Sanghani has grown the firm from an 8(a) certified small 

business into a successful midsize IT consulting firm. We welcome 

you and look forward to your testimony. 

Now, I would like to yield to the Ranking Member to introduce 

Ms. Griffin. 

Ms. MURPHY. Thank you. 

It is my pleasure to introduce Ms. Eminence Northcutt Griffin. 

Ms. Griffin serves as the director of Federal Procurement and 

Counsel for the Information Technology Alliance for the Public Sector (ITAPS), a division of the Information Technology Industry 

Council where she works to develop policy and advance the interests of the IT sector as it relates to Federal procurement. Prior to 

joining ITAPS, Eminence spent more than 6 years as the procurement counsel on the House Small Business Committee, so welcome 

SBR002 with DISTILLER

4 

home. A proud Red Raider, Eminence, earned a Bachelor of Arts 

in History and Political Science from Texas Tech University and a 

JD from St. Mary’s University School of Law. Welcome, Ms. Griffin, 

and thank you for testifying today. 

Chairman KNIGHT. Thank you very much. 

And now, Mr. Ramaley, you are recognized for 5 minutes. 

STATEMENTS OF STEPHEN P. RAMALEY, ASSOCIATE MILES & 

STOCKBRIDGE; LISA FIRESTONE, PRESIDENT & CHIEF EXECUTIVE OFFICER, MANAGED CARE ADVISORS INC.; MEHUL 

SANGHANI, CHIEF EXECUTIVE OFFICER; OCTO CONSULTING 

GROUP; EMINENCE N. GRIFFIN, COUNSEL AND DIRECTOR 

OF FEDERAL PROCUREMENT INFORMATION TECHNOLOGY 

ALLIANCE FOR PUBLIC SECTOR (ITAPS); INFORMATION 

TECHNOLOGY INDUSTRY COUNCIL 

STATEMENT OF STEPHEN P. RAMALEY 

Mr. RAMALEY. Good morning, Chair Knight, and Ranking 

Member Murphy. I want to thank you for the opportunity to testify 

on this important topic. 

My name, as Chair Knight indicated, is Steve Ramaley. I am an 

associate attorney in the Government Contracts Law practice group 

at Miles and Stockbridge, P.C. However, today I am not testifying 

on behalf of the firm or any of our clients; I am here on behalf of 

the 800-member Montgomery County, Maryland, Chamber of Commerce, and as an active member of its GovConNet Council. The 

council meets monthly to tackle Federal contracting issues. 

In the Federal contracting marketplace, as of 2018, there are approximately 1,700 medium or midsize companies denied by 

Bloomberg as firms with $25 million to $500 million in annual revenue. That compares to roughly $118,000 small businesses, and 

110 vendors who are large with annual revenues in excess of $500 

million. So midsize vendors account for only 1.5 percent of all vendors to the Federal Government. And actually, if you take that 

number down to exclude any midsizes that receive set-aside dollars, that number shrinks to about 325 total vendors, which is only 

approximately 0.3 percent of all Federal contractors. 

So you stated the problem quite succinctly. As a small business 

becomes larger, it is inevitable that the business owners will face 

a choice—grow beyond the small business programs to compete 

with large companies, stay small, sell the business, or go out of 

business. Unfortunately, the Chamber’s experience is that more 

and more firms are being forced to make those latter choices—stay 

small, sell, or go out of business. Graduated firms are having trouble competing against established larger companies. 

The SBA’s size standards define a company’s edibility for the 

small business programs. Currently, the highest revenue standard 

is $38.5 million, and is applicable to firms in industries such as financial services and aerospace engineering. A business in those industries cannot have more than $38.5 million in annual receipts 

averaged over the previous 3 years to qualify as small. 

In brainstorming how to help midsize companies compete, the 

Chamber’s GovConNet Council, which is comprised of practitioners 

and business owners involved in government contracting, concluded 

SBR002 with DISTILLER

5 

that a major cause of the ‘‘no man’s land’’ is that small firms are 

becoming large too quickly. 

Government contractors experience a unique pattern in their 

growth. Revenue growth can be mercurial, sometimes hovering in 

the single digits and then exploding over 2 or 3 years. This pattern 

of sudden growth is increasingly common because of the government’s more frequent use of large contract vehicles under which 

contractors can be awarded huge task orders. It is not unusual for 

a contractor to win a single task order that on its own bumps the 

contractor out of the small business programs. 

So this leads me to the Chamber’s first recommendation: change 

the SBA formula for small business eligibility. Our proposal is to 

allow companies to look back 5 years rather than 3, and choose 

their lowest 3 years for purposes of calculating size eligibility. The 

Chamber’s GovConNet Council believes that this change would give 

larger small businesses more runway to adjust to their rapid 

growth but would still protect the smaller businesses under the 

various SBA programs. 

So the rational behind this proposed change can be stated pretty 

simply: competitiveness takes time to build. Revenue is not an indicator of present competitiveness; it is an indicator of future competitiveness. Firms need time to recruit talented employees, develop their intellectual property, and build infrastructure and past 

performance to compete at the next level. Moving from a 3-year 

lookback to the lowest 3 in the last 5 would allow more time to adjust to the full and open marketplace. 

In addition to our lowest 3 in the last 5 proposal, the Chamber 

is offering another measure. We propose allowing companies to 

subtract independent research and development expenses from 

total revenue for size determination purposes. This change would 

support the government’s initiative to stimulate technological and 

biomedical innovation and would allow companies to continue to 

pursue and develop new products and processes without penalty. 

Currently, firms who invest in R&D often do so at the expense of 

their present competitiveness. For firms that the costs were becoming large, every revenue dollar counts and must be brought to bear 

to help win the next contract award, which will maximize revenue 

streams to support that company while it transitions to full and 

open. 

This dynamic effectively discourages R&D investment. Allowing 

a firm to subtract its R&D expenses as defined by the IRS from its 

size receipts would not only support innovation, but it would also 

remove one barrier to small business contractors investing in their 

own futures. 

Let me wrap up this testimony by summarizing what the Chamber believes to be at stake here. Small businesses programs exist 

to ensure supplier diversity that spurs innovation and guards 

against supplier consolidation and noncompetitive pricing. And of 

course, as Chair Knight indicated, small businesses produce a lot 

of jobs. Perhaps the majority of American jobs. With our proposals, 

we want to facilitate success, however, not cause it. We recognize 

that each company must succeed on its own merit. However, without a greater number of firms crossing the ‘‘no man’s land’’ to comSBR002 with DISTILLER

6 

pete with large businesses, the Federal contractor ecosystem will 

suffer. 

We believe our proposals move us in the right direction, but no 

doubt, there are even more measures that could be taken. We look 

forward to working with this Subcommittee, and I sincerely thank 

you for your time, your attention to this matter, and for your invitation to participate today. 

Chairman KNIGHT. Thank you very much. 

Ms. Firestone, you are recognized for 5 minutes. 

STATEMENT OF LISA FIRESTONE 

Ms. FIRESTONE. Good morning, Chair Knight, and Ranking 

Member Murphy. 

As you introduced me, I am Lisa Firestone, president and CEO 

of Managed Care Advisors. We are a health services company located in Bethesda, Maryland, and Lake Mary, Florida. I am testifying today as you said on behalf of Women Impacting Public Policy 

(WIPP), as chair of their Board of Directors. WIPP is a nonpartisan, public policy organization that advocates on behalf of 

women entrepreneurs. 

Let me give you a little bit of background on my company. We 

were established in 1997 and began as a boutique healthcare consulting company specializing in employee health benefits, managed 

care, and workers’ compensation. Today, we are the leading provider of Federal workers’ compensation case management services, 

currently operating in all 50 states and all U.S. territories. How we 

transformed from a four-person consulting company to a thriving 

Federal contractor with more than 120 employees has been long, 

difficult, and very fulfilling. 

In 2003, my company was asked to come and work on a congressionally-mandated study to assess the feasibility of applying industry best practices for managing work-related injuries and illnesses 

for employees who were covered under FECA. This initial introduction to Federal contracting was a turning point for my company. 

We identified a market with unmet demand, we designed a path 

forward for meeting that demand, and learned very quickly that we 

had a lot to learn about government contracting. 

In 2005, we were awarded our first government contract as part 

of a joint venture. Since winning our largest contract to date in 

2007, which was $53 million, we have experienced double-digit 

growth year over year. Where double-digit growth has always been 

a source of pride, we are now facing the reality that if we have a 

year that exceeds 36 percent growth, that will take us from small 

to midsize, requiring us to reinvent ourselves in order to continue 

to grow and remain relevant in the Federal market. 

With that said, I feel my company is a poster child for the issue 

that we are discussing today. The size standard for our company 

is $15 million. We currently represent 16 Federal agencies with the 

average size of our contracts ranging from $1.5 million to $53 million, with annual task orders averaging about $1.2 million. It is not 

hard to see how a company like mine will, and can exceed the size 

standard relatively quickly. 

We are now at a crossroads. Our executive team has spent significant resources putting together a plan to survive in the Federal 

SBR002 with DISTILLER

7 

midsize world. I am loathe to restrict my growth to stay in the 

small business program. It runs counter to my entrepreneurial instincts, and it certainly is not good for the economy or the thousands of injured Federal employees who count on us every day to 

support their recovery and return to work. 

The reality is that there is, as everybody has said, there are limited choices for companies like mine. I acquire or I get acquired. 

I join forces with a large contractor as a subcontractor when they 

have existing contracting vehicles. Or I revamp my marketing sales 

strategy, including one important point—how am I going to maintain contracts that have been small business set asides in the past? 

It seems to me that the Federal government should seek to keep 

businesses like mine as contractors. We pound our technical and 

contracting expertise to fit the needs of Federal Government. We 

have the infrastructure and resources in place to support it, and we 

have very successful past performance. 

The topic of size standards and the great abyss between small 

and large is frequent discussion among the members of WIPP. On 

one hand, the Federal Government encourages us to grow, but on 

the other, policies restrict that growth. WIPP is a partner in the 

Montgomery County Chamber of Commerce Pathway to Growth 

Initiative as described by Mr. Ramaley, and as they said, these two 

modest proposals will give companies like mine greater opportunities for successful and sustained transition to midsize firms. WIPP 

represents companies of all sizes who are competing in the Federal 

market, and I do not believe that these changes we are proposing 

today will take away any opportunities from the smaller companies. If anything, these changes will provide great growth potential. 

I hope the Committee will also look at the NAICS code size review that the SBA is about to embark on. As I said, I have a $15 

million size standard. While that might sound like a big number, 

it is not keeping up with the size of government contracts and task 

orders. I urge you to examine whether these SBA size standards 

will allow small businesses to compete for single and/or multiple 

award contracts (MACs) and become midsize contractors. 

Last year, Senators Ernst and Gillibrand championed a study 

that required SBA to analyze small business participation in multiple award contracts, and we look forward to seeing that. 

To conclude, women-owned businesses like mine have continued 

to grow and post impressive numbers. We are a strong economic 

force in the United States and increasingly in the world. More than 

36 percent of all businesses are women-owned and are growing at 

4 times the rate of male-owned businesses. In 2016, we created 8.9 

million jobs and generated $1.6 trillion in revenue. Despite this 

contribution, these businesses are still 21 percent less likely to get 

government contracts. Let’s work together to make sure we reward 

growth and not stifle it. If we solve this problem, we will continue 

to create jobs, increase our contribution to the economy, and maintain a strong industrial base. 

Thank you so much for having me here and letting me represent 

women-owned businesses who have a voice in this important hearing. 

Chairman KNIGHT. Thank you very much. 

And Mr. Sanghani, you are recognized for 5 minutes. 

SBR002 with DISTILLER

8 

STATEMENT OF MEHUL SANGHANI 

Mr. SANGHANI. Terrific. Good morning, Chairman Knight, 

Ranking Member Murphy, and members of the Subcommittee. 

Thank you for the invitation to appear today. 

My name is Mehul Sanghani, and I am the founder and chief executive officer of Octo Consulting Group, a nationally recognized 

and award-winning technology solutions and management consulting firm located in Northern Virginia. It is a privilege and an 

honor for me to share my views on how we can encourage entrepreneurship and growth amongst small and midsize contractors. 

Before I begin, let me state that my comments are my own and 

I am not speaking formally on behalf of my company. 

I founded Octo Consulting Group in 2006 with a focus on providing cutting-edge technology solutions and consulting services to 

the Federal Government. We grew from being a subcontractor to 

large prime contractor in our early days, to now what we feel is an 

award-winning firm that today employs over 400 employees and 

performs as a prime contractor on 90 percent of its work for agencies all over the Federal Government. 

Aside from our hard work in innovation and technology, this 

growth was made possible by Octo’s participation in set-aside programs like the 8(a) program. Now we are beginning to try to pass 

on what we have learned through the SBA Mentor-Prote ́ge ́ program. Through these programs, I am acutely aware that many 

small businesses struggle to compete with large, multi-billion dollar companies once they outgrow their size status and lose small 

business protections. Once a small business has exceeded its primary size standard, which can be as low as $15 million in annual 

revenue for consulting services, it is no longer entitled to participate in small business programs and is then considered a mid-tier 

company competing against the largest businesses in the government contracting market. Mid-tier companies are no longer afforded the preferential protections enjoyed by small business government contractors. They instead must directly compete for prime 

contracts with these multi-billion dollar firms, such as Lockheed 

Martin and General Dynamics. Worse still, mid-tier businesses are 

no longer attractive subcontracting partners because they cannot 

help these large, oftentimes billion dollar contractors meet their 

subcontracting quotes and targets for small business participation. 

Small businesses is on the verge of graduating from the program 

often choose between two choices—be acquired by a large business 

or attempt to compete with those large businesses. Should a small 

business choose to try to continue to grow and compete with those 

large businesses, certain policy changes would aid them in this endeavor. 

One, eliminate the trend towards quantitative competition’s selfscoring based on the number or size of contracts a firm has been 

awarded. And you have seen that in a number of recent GWACs 

that have been awarded across the government. 

Incentivize mid-tier businesses to work together by requiring 

consideration of each team member’s past performance. 

And, three, in multiple war contracts, require that small and recently graduated small businesses be able to compete for unrestricted task orders. 

SBR002 with DISTILLER

9 

In addition to these simple policy changes, I would urge you to 

reconsider a pilot program that was suggested in a bill called the 

Small Business Growth Act that created a program for set-aside 

contractors with fewer than 1,500 employees who otherwise do not 

qualify as a small business. The GSA would have been able to set 

aside contracts for these businesses when the contract was not otherwise set aside for small businesses. While I understand there is 

some skepticism for a new set-aside category, this program would 

be incredibly helpful to mid-tier companies or small businesses as 

they make that transition. 

So one, eliminate these quantitative competitions based on the 

number of size or size of contracts a firm has been awarded. And 

two, incentivize businesses. And then three, in multiple award contracts, require that these small businesses be able to compete. 

As the Committee is no doubt aware, billions of dollars in Federal contracts are now awarded through large, government-wide 

contracts that are held by a smaller number of contractors. For example, in fiscal year 2017, some 6 billion in sales went through 

GWACs, or government-wide acquisition contracts administered by 

GSA. Award on such a vehicle can make or break a company and 

its future success. However, currently agencies assign point scores 

that account for the number of contracts a firm has performed, the 

overall size of those contracts, or whether those contracts were cost 

type or fixed price. Even the best mid-tier firms do not have the 

same number of contracts as the markets’ multi-billion dollar industry leaders. 

To preserve competition, I would ask this Committee to consider 

specific legislature requiring that multiple award competitions not 

be based on mathematical self-scoring of the number of large contracts a firm has performed, but instead, that these contracts be accessible to mid-tier firms with agencies required to review the quality of the work these firms have performed. 

So along the lines of my second recommendation, it is common 

for mid-tier firms to join forces to compete with the scale of large 

businesses. However, many solicitations do not allow a prime contractor to benefit from the experience of its subcontractors. This is 

a huge disadvantage to those mid-tier companies who do not yet 

have the experience to compete alone against the industry leaders. 

To fix this issue, agencies should be required to consider the past 

performance experience and skills of both prime contractors and 

significant subcontractors, just like we do under the SBA MentorProte ́ge ́ program. 

Additionally, small and mid-tier businesses do not have very 

much prime contracting experiences, but solicitations will often 

refuse to consider an offer’s past performance as a sub. This Committee should consider legislation that requires agencies to consider a firm’s prior work as a subcontractor if it is relevant to the 

prime contract at issue. 

And then finally, as you know, small businesses that hold large, 

multiple war contracts are often not allowed to compete with large 

businesses and are frozen out when they grow out of the small 

business size status. To encourage competition and incentivize 

growth, I suggest that small businesses should be allowed to compete on both set-aside and full and open task orders under these 

SBR002 with DISTILLER

10 

large multiple award contracts. Further, once the small business 

graduates, it should be able to stay on the vehicle and compete on 

any full and open task orders. This small subtle change will give 

small businesses more opportunities even as they grow into midtier firms. 

In conclusion, I would like to commend this Committee for considering the plight of firms that graduate from the small business 

program. Mid-tier companies have much to offer the government 

contracts marketplace and should be afforded an opportunity to 

continue to grow. I look forward to your questions. 

Chairman KNIGHT. Thank you very much. 

And Ms. Griffin, you are now recognized for 5 minutes. 

STATEMENT OF EMINENCE N. GRIFFIN 

Ms. GRIFFIN. Thank you. Chairman Knight, Ranking Member 

Murphy, and members of the Committee, thank you for the opportunity to share our perspective on challenges that exist in the Federal marketplace for graduated small businesses. 

The IT Alliance for Public Sector represents approximately 90 of 

the leading innovative government contractors in the IT market. 

The health of small businesses is important to our members as 

they utilize these firms not only as subcontractors but many of 

them sell their products to the government via small business resellers. As such, we understand some of the difficulties that graduated small businesses face as they seek continued participation in 

the marketplace, and we believe the answer lies in creating a more 

robust small business contracting program. 

As a result of the existing small business programs and goals, we 

have seen increased dollars awarded to small businesses and more 

of these firms graduating out of their size. While these are laudable 

achievements, we rarely look beyond the dollars awarded to determine whether we are growing healthier small businesses that have 

the tools to succeed in the full and open market once they graduate. 

Currently, only the 8(a) business development program monitors 

the contracts and growth of its participants. However, after a firm’s 

9 year term ends, the SBA ceases its tracking efforts. The SBA 

does not track whether small businesses can successfully compete 

in the marketplace after they outgrow their size standards. However, this information is needed in order to promote sustainable 

growth in small business participants and for the overall success 

of the programs themselves. 

Further, more could be done to ensure fair distribution of the 

contracting dollars among a variety of small firms. We have seen 

agencies set aside increasingly large percentages of their small 

business dollars to a limited number of NAICS codes, particularly 

in IT where the percentages are as high as 40 to 60 percent at 

some agencies. This does not create a healthy industrial base and 

leaves limited funds and opportunities available for competition 

among other businesses, particularly those in the middle market. 

Also, large set asides have become increasingly common, and as 

a result, some small businesses are left out of the market while the 

awardees quickly outgrow their size standard without the ability to 

compete in the full and open market. This decreases contract opSBR002 with DISTILLER

11 

portunities for other businesses and reduces the ability to enhance 

the Nation’s industrial and manufacturing base. 

While the set-aside process needs improvements, ITAPS recognizes the competitive marketplace is not perfect either. The process 

has become timely and costly, sometimes preventing businesses 

from competing with large IDIQs leaving firms shuttered out of the 

market for periods of 5 to 10 years. We need increased transparency into the process and onramps onto these contracts to help 

small and middle market businesses compete. Greater transparency is also needed through post-award debriefings to those 

offerors who lost the contracts to help them become more repetitive. 

In a report released earlier this year, Rand Corporation found 

that better debriefings could help the offeror understand why they 

lost and potentially prevent protests. Yet, even when a business 

wins a competition, obstacles remain. Though accelerated payments 

are helpful for businesses of all sizes, only small businesses are eligible to receive them. A permanent extension of faster payments as 

proposed in H.R. 5337, the Accelerated Payments for Small Businesses Act, is an easy way to cut some of the red tape out of the 

acquisition system. 

The Mentor-Prote ́ge ́ program also provides an opportunity for 

healthy growth in small businesses as they open a vast array of 

learning opportunities in areas like cybersecurity and regulatory 

compliance. ITAPS believes these programs are vital in building 

sustainable firms, and middle market businesses have an important role to play in imparting first-hand knowledge on transitioning 

from small to middle market. 

Join ventures or teaming arrangements can also play a role 

when an acquisition is too big for a small business to fulfill alone. 

Yet, the fear of affiliation prevents small businesses from seizing 

these opportunities. As such, the rules governing affiliation should 

be simplified and modernized to more closely align to the business 

structures that have developed over the past 3 decades. 

Lastly, fraud and abuse continue to permeate the various small 

business programs, and as a result, small businesses and others 

are prevented from competing for contracts. Until agencies take 

real action against these bad actors, fraudulent actions will continue and businesses will lose opportunities to compete. 

ITAPS believes the recommendations set forth here and further 

discussed in my written testimony outline the steps needed to create a healthy and vibrant industrial base across businesses of all 

sizes. 

Members of the Committee, thank you for this opportunity to testify, and I would be happy to answer your questions. 

Chairman KNIGHT. Well, thank you very much. 

I have a few questions, but then I want to kind of roll down and 

get everybody’s idea of this. 

Ms. Firestone, you said something that I think all of us took note 

of—plan to survive when you are doubling in growth. What is my 

plan to survive when my business is doing so well? And I think 

that that kind of hits at the heart of what small business is about. 

Small business is about making sure that your idea and your hard 

work is paying off, and paying off means I am probably growing. 

SBR002 with DISTILLER

12 

I am hiring more people. I am expanding and doing all those 

things. But then when you start to move out of small business and 

you might be leaving some of the contracts or the advantages of 

being a small business, how do I survive in the next step? That is 

something that should not be. Right? So that is not my question. 

That is just my statement. 

Ms. FIRESTONE. I agree. 

Chairman KNIGHT. So I guess my question is, you know, we 

talk about a small business or a small big or something like that. 

When you move into kind of a midsize arena, what are your advantages of doing, of being in that arena, and what are your advantages of maybe us saying you are a small business and then the 

cutoff is here for that certain industry, or you are a large business 

and you lose all the advantages of being in a small business category? 

Ms. FIRESTONE. Well, for us, you know, when I got into government contracting, it was something that I said, okay, here is a demand. And we started to grow. And, you know, your size standard 

looks pretty far off when you are starting with four people and you 

are like, yay, I just got $250,000 this year. So, you know, for us, 

as we continue to grow, it is not, you know, we learned government 

contracting. We learned the advantage of small businesses and 

small business set asides. And the reasons for it. Right? Nobody is 

handing you a contract. You have to win those contracts. You technically have to be very, very good, and sometimes I think you have 

to be better than the big companies because the perception of risk. 

So for us, as we are growing, you know, as I said, we are about 

36—if we have another year—so we have been growing year over 

year anywhere from 30 percent, 20 percent, 15, 50 percent one 

year. If we have another year where we grow 36 percent, we are 

done in our size standard. And for us, you know, it is something 

where we have to be concerned not only about not competing on future small business awards, but all of the contracts that we have 

gotten in the past that are small business that may be up for recompete or may still have 3 years left on them. So what do we do 

about those customers; right? So that is a big problem. 

So I think, you know, looking at some of the things we looked 

at today, like the lowest 3 out of 5. If you are growing, you know, 

year over year, you can have a big year or 2 big years and it allows 

you to grow a little bit and get closer to that size. There is a big 

gap between a $15 million company and the infrastructure you 

have and the ability to compete with a $100 or $500 million company. So I think looking at enabling us to stay within that size 

standard or raise the size standards so that we can compete with 

the $100 million, you know, or I, personally, our company, we are 

right now examining do we sell? Right? And if we look at that, the 

first question that people come in and ask is how many of your contracts are small business? 

Chairman KNIGHT. Well, when you start out a business, obviously, you are not looking at, boy, I could get this contract. I could 

do this. 

Ms. FIRESTONE. Right. 

Chairman KNIGHT. Your first thing is, how do I survive, and 

how do I, you know—— 

SBR002 with DISTILLER

13 

Ms. FIRESTONE. Exactly. Make payroll. 

Chairman KNIGHT.—make payroll. But when you are selling, 

yes, somebody who is going to come in is going to say, okay, well, 

this actually becomes a liability for me if I am looking at all of the 

different things on your ledger. 

So my second question is, there are multiple award contracts, 

and this might be for Mr. Ramaley, that do allow streamline on 

ramping from small business contracts to the unrestricted contract. 

The General Services Administration comes to mind. Why has this 

common sense practice not been adopted across multiple award 

contracts? 

Mr. RAMALEY. It is true what you have just said. There are 

some onramps. We actually, I have been colloquially referring to 

them as up ramps. It is, you know, when a small business either 

recertifies or grows out of its size, they get moved up to the large 

business track. And the problem is it is not mandatory in the FAR. 

That is a permissive thing that you can set up and a CO might put 

that in a solicitation. I think Mr. Sanghani hit the nail on the head 

that making that more mandatory would be a good step. This is not 

something I have vetted with the chamber. This is my own personal opinion, but I have seen that really hurt the value of those 

multiple award contracts in an acquisition context and also 

incentivize people to not want to grow because they know they are 

not going to be able to use that vehicle anymore and they put all 

that B&P, the bid and proposal costs into obtaining that contract 

and then they cannot use it. 

And that sort of dovetails with the greater point that this increased use of MACs, multiple award contracts, I do not think that 

is going away. The government knows they can get a good value 

by doing that. It is sort of part and parcel to the bundling and consolidation discussion that this Committee I know has had. And we 

need to probably address the fact that that is not going away and 

come up with creative solutions to work within the confines of that 

paradigm. And so our proposals and the ones you have heard today 

I think help. 

Chairman KNIGHT. Thank you. 

And now I would like to yield time to the Ranking Member, Ms. 

Murphy. 

Ms. MURPHY. Thank you, Chairman. 

Ms. Griffin, in your written testimony you provided a number of 

recommendations to improve small business contracting programs, 

including developing and tracking metrics of small businesses and 

graduated small businesses that compete in the full and open marketplace. How can the Committee implement what you have suggested using the existing databases? 

Ms. GRIFFIN. So the Federal procurement database system is 

able to track each contractor through their D-U-N-S number and 

you can see what type of contracts they are getting, whether it is 

set aside. You can even filter down into the type of set aside, 

whether it be women-owned or small business, if it is a sole source. 

But you can also see how they are competing in the full and open 

competition. So if a company is relying solely on set asides, we can 

use that data to then look and see how we can transition them into 

full and open competitions, whether that be send them for inSBR002 with DISTILLER

14 

creased training at small business development centers or women 

business centers. But the data is there; SBA just needs to pull it 

out. And they have which companies are enrolled in 8(a), which 

ones are enrolled in HUBZone. When the Women-Owned Small 

Business Certification Program is put in place, they will have that 

data, too. The one question will be service-disabled and solely small 

businesses that do not have to go through a certification process. 

Ms. MURPHY. So what factors other than the type of set aside 

and job creation stats do you think that we should track? 

Ms. GRIFFIN. I think revenue is very important. As you heard 

here today, revenue is what makes you either a small or a graduated small. And so that is not tracked. You can kind of look at 

it based on the contracts, but how their fiscal years are calculated, 

revenue is another important factor. 

Ms. MURPHY. Great. 

As you know, larger IDIQs and subcontracts have become more 

prevalent in government contracting. These opportunities are especially attractive for small and midsize businesses looking to expand 

and grow their revenues. What mechanisms currently exist for 

small and midsize businesses to win these opportunities, and how 

do you think they should be improved? 

Ms. GRIFFIN. Sorry; me? So I think that there are mechanisms 

that already exist in how a contract is frame that could provide 

better clarity to those that are competing, what they need to have. 

So lowest price technically acceptable, for instance. That is going 

to favor people that are able to lower their price. So if you move 

those awards to best value, mid-tier, smaller businesses are able to 

compete more on the best value because they have that ability to 

provide better customer service or what have you. 

Ms. MURPHY. Great. Thanks. 

And then this question is open to the panel. As you know, there 

is no federally recognized definition of midsize, and a lack of empirical data tracking the trajectory of firms that graduate out of the 

small size standard. This means that we do not necessarily have 

a clear picture of the number of jobs that are created by these 

emergent small firms, and we do not know which industries are 

contributing to or hindering middle market growth or to the success or failure rate of these firms, et cetera. We just do not have 

the information. My office has frequently called upon the assistance 

of Grow Florida, and I do not know, Ms. Firestone, you said you 

are in Lake Mary, Florida, which is in my district. You might be 

aware of Grow Florida. It is basically a statewide economic development program focused on assisting second stage growth companies 

in Florida. But we rely on them for this type of data. Grow Florida 

is tracking all the information that I listed above, and it has been 

really instrumental in helping Central Florida identify ways to 

strengthen our entrepreneurial ecosystem. 

Can you elaborate on why it is critical for us to have access to 

this data at a national scale? And in what way would you suggest 

that we go about collecting it? 

Mr. SANGHANI. So I think one thing that is noteworthy, I am 

not sure if Mr. Ramaley made reference to it, but there have been 

some empirical studies that have taken a hard look at not just the 

definition of the midmarket and how we define a midsize firm, but 

SBR002 with DISTILLER

15 

also gaining access to information that is publicly available in some 

of the systems that Ms. Griffin talked about, in FPDS and other 

data sources that define the size and the scale of the market. When 

you look at it anecdotally, you know, and in terms of my own experience, this is a burgeoning area of the marketplace in terms of the 

services that are being delivered. If you look at the marketplace 

itself, it is a trillion dollar market. At the top, what have you seen? 

You have seen a tremendous amount of consolidation among some 

of these million dollar behemoths. The big are getting bigger in 

order to compete at a scale necessary to capture an even larger 

share of the marketplace. 

And then you have a ton of small businesses, you know, several 

hundred thousand that compete for what amounts to about 20 percent of the remaining dollars. And then when we look at the midtier, I believe there are about 1,500 companies that represent about 

25 to 500 million in size that are a significant component of that 

supply base. So I challenge the Committee in terms of when they 

look at this marketplace, they look at those trends, I challenge the 

Committee to look at any other component of the economy where 

you look at it in terms of your success and how that is tied to your 

survivability. I am so successful I may not be able to survive going 

forward. I do not know of many other components of our economy 

or industries that kind of have that conundrum. 

And so when you look at it from the perspective of the size of 

the market, you know, a trillion dollars, when you look at it from 

the perspective of what is good for the economy, what is good for 

the taxpayer, what is good for the jobs of businesses like ours, I 

do not think you can look at any of those dimensions and say that 

there is not room for policy to address this challenge going forward. 

So again, I will let the other folks on the Committee chime in, 

but I do believe there is ample data in some of these databases 

that exist publicly to allow you to not only get a snapshot, but really get a pulse for this issue. And I believe again, if when you look 

at it anecdotally relative to the sum of the issues and trends at the 

top of the marketplace, I think what you see is you see an industry 

that is heavily fragmented and you see an industry where you 

might be left if you do not look at this from a policy perspective 

with just 100 businesses that occupy 90 percent of that trillion dollar market, and across any of those dimensions, the economy, the 

taxpayer, the jobs, I cannot see that being beneficial. 

Ms. MURPHY. Thank you, Mr. Sanghani. And also, thank you 

to the witnesses. 

Mr. Chairman, I am really sorry but I have to excuse myself. But 

thank you all for being here. 

Chairman KNIGHT. Okay. We have heard from California. We 

have heard from Florida. We are going to hear from South Carolina. Mr. Norman, you are recognized. 

Mr. NORMAN. Thank you, panel, for taking the time to come. 

Mr. Sanghani, I am a small business owner. I run a real estate 

company. One of the things we try to do and do on a regular basis 

is get with our customers to ask, what can we do better? What can 

change? Does the SBA need to reconsider the size requirements 

and how that is determined in your opinion? 

SBR002 with DISTILLER

16 

Mr. SANGHANI. I absolutely do. And I believe Ms. Firestone 

made reference to the fact that there is, you know, perhaps some 

efforts underway to take a look at the size standards associated 

with that. The one thing I will say is, you know, from the SBA’s 

perspective in terms of its mission, you know, they have a wideranging mission in support of a large community of small businesses. And you know, I think there is ample room for improvement. We have talked about it here from a policy perspective, and 

I will talk about the NAICS codes in a second. But, you know, they 

do not have a lot of resources sometimes to address those policy 

changes. So I did want to state that first and foremost. 

But when you look at these NAICS codes, and I believe Senator 

McCaskill took a hard look at this several years ago, you know, 

this is an outdated system in many ways for industrial classification. It is the best system that we have perhaps in terms of what 

legacy historically we have been looking at, but do I think that 

there is room for reconsideration of whether a system that was established, I believe, in the 1920s is appropriate for determining 

size? Absolutely. And do I think there is room for consideration of 

what I have talked about here from a policy perspective is an important component of the industrial base in terms of its contribution to that trillion dollar market and what is happening at the 

top? Absolutely. There should be an aggressive look at what is appropriate going forward. 

Mr. NORMAN. I guess as a follow-up, how would we get specific 

in implementing that? And this is for the panel. What do you suggest we do to have effective change and to put it in practice? 

Mr. RAMALEY. I can address that briefly. Our proposals deal 

with addressing a range of the problems caused by the current system. So currently, SBA is actually about to undergo their 5-year review of their NAICS code standards, and I think we are all supportive of that review. And likely, that review will result in increasing of size standards for certain industries. Part of the problem that we have identified is not just where the point cutoff is. 

It is how fast companies are reaching it. It is the idea that they 

are reaching it so fast that they are not able to take that money 

and bring it to bear in their own competitiveness by investing and 

recruiting people. So our proposals are trying to address a slightly 

different problem than just the size standard being too low. Right? 

So what we proposed is instead of measuring companies over 3 

years of their annual receipts, to measure them over 5 years but 

actually to choose the 3 lowest of the last 5 so that companies will 

be able to exclude sort of an outlier boom year and that boom may 

not actually really reflect their present competitiveness. 

We have also proposed a number of things like allowing certain 

deductions to their annual receipts, such as the R&D expenses, for 

example. Another group has proposed allowing folks to deduct subcontracting dollars from receipts. These are specific proposals 

aimed at trying to recognize what a company’s true size is and true 

competitiveness is without throwing everybody and every dollar in 

the same bucket. Right? So. 

Ms. GRIFFIN. And I would also add, I think, I am not sure 

about the size standard changes that they are making, but I think 

generally the size standards do not reflect the current marketplace 

SBR002 with DISTILLER

17 

and how businesses lay out their business plans. I do not know 

many businesses that do a 3-year business plan. It is 5-year, 10- 

year projections, et cetera. 

And I would also say with regard to Mr. Sanghani’s comment 

about the NAICS codes, the NAICS codes themselves, the various 

industry classifications, they were never meant to do size standards. They were meant for trade. And so we need to start looking 

at other ways to differentiate the sectors and industries because I 

think that is also causing a problem. 

Mr. NORMAN. Great. 

Ms. FIRESTONE. And I think from a small business standpoint, 

it is also a matter of business requirements are changing. I know 

you had a hearing on The Hill yesterday on cybersecurity. The requirements I have to meet and the requirements a large business 

have to meet are exactly the same. So I think as you look at the 

size, you also have to look at, you know, I have to invest a million 

dollars as a healthcare company in cybersecurity, but so does a 

multi-billion dollar company. So as I look at the size and what we 

have invested over time, is it really realistic at a 15 million size 

standard to then take what we have invested and actually be able 

to fully utilize that? 

Mr. NORMAN. Great. I think I am out of time. I yield back to 

the Chairman. 

Chairman KNIGHT. Thank you very much. 

And I think that is a good point, Ms. Firestone. We look at some 

things that small business has to do that large business has to do 

on the same exact scale. If I have got 200 attorneys on staff and 

you have got you, because typically the owner of the business is the 

attorney, the payroll, the everything at some point during the business, you are looking at part of that now I have got to either hire 

out attorneys, I have got to figure out expertise, or I have got to 

hopefully draw from somebody inside my company that can help 

me with this. That does not always happen. So we have looked at 

that and we are trying to work on that. I think that that is a vital 

point. 

Okay. On to the great state of Pennsylvania, Mr. Evans. 

Mr. EVANS. Thank you, Mr. Chairman. 

Good morning. This morning I saw the timing release of the 

Philadelphia Federal Reserve Report on Diversity and Inclusion, 

and I want to take a moment to read from the letter of the President of the Federal Reserve of that district. He basically said my 

letter last year was the why. My letter this year is the how. Diversity and inclusion are not add-ons. What he also says is diversity 

and inclusion have to be deeply ingrained aspects of working culture. It needs to be so fully a part of what we do and who we are 

that it has its own muscle memory. 

I want to start off with that setting the tone for my questioning. 

It is no coincidence that we have two women testifying on this 

Committee. So I am going to start off with Ms. Griffin. 

You pointed out in your testimony that the only 8(a) business development program does continuous monitoring. Given your familiarity with this program from your work here as a staffer and now 

in the private sector, if we are writing legislation for other proSBR002 with DISTILLER

18 

grams to perform the same type of monitoring and oversight, how 

would it differ, if at all? 

Ms. GRIFFIN. I do not think that it needs to differ. I think that 

the same type of growth that you want in the 8(a) firm you want 

in a woman-owned small business, you want in a service-disabled, 

you want in a HUBZone. And in the business opportunities that 

8(a)s have, they have additional availability in partnerships and 

joint ventures that the other categories do not have. So it is a great 

program that has built sustainable businesses like my colleague 

here. So I think the continuous tracking has helped them in their 

ability to grow. 

Mr. EVANS. Ms. Firestone, your business is located inside the 

beltway in nearby Montgomery County, Maryland. Apparently, it 

has been able to prosper. I represent Montgomery County, Pennsylvania, just outside Philadelphia. Could you address the role that a 

small business geographically might play in getting contracts or 

even being aware if that possibility exists? 

Ms. FIRESTONE. Getting Federal contracts? 

Mr. EVANS. Yes. 

Ms. FIRESTONE. You know, with me—— 

Mr. EVANS. The location. 

Ms. FIRESTONE. Right. I am located right outside the beltway. 

Mr. EVANS. Right. 

Ms. FIRESTONE. And you know, obviously, being that close to 

the Nation’s capital, you know, you would think that is how I got 

into government contracting. But I think the real reason I got into 

government contracting was my technical knowledge in the past. 

So that is how I actually got in. Somebody called me because they 

knew I was an expert in case management. However, representing 

Women Impacting Public Policy, being within the beltway has 

helped being close to the District of Columbia and to the seat of 

government, but we represent women all over the country. And I 

think the key to that is SBA. It is Women Impacting Public Policy. 

It is the Montgomery County Chamber. It is people that are advocating on behalf of women and other minorities, and really educate 

us on how do we get into Federal procurement? Why do we get into 

Federal procurement? So I do not think it is a just around the beltway issue. As a matter of fact, WIPP is growing regionally at an 

expanding rate for that reason, to make sure that we are representative of the entire country and all the products and service 

they have to offer. 

Mr. EVANS. I do not want to leave out the two gentlemen. Any 

reaction to what you have just heard? I only have like a minute 

left. 

Mr. RAMALEY. Sure. I will be brief. 

I think the need for additional outreach outside the beltway is 

something that there is a consensus behind. SBA has been doing 

that through the PTACs and other various mechanisms that they 

have sprinkled throughout the country to let people know about 

Federal contracting opportunities. Those efforts could always be 

strengthened. And I think you would see real returns on it because 

there is a skew towards the beltway. And that does not need to 

happen, particularly in 2018. It is a global economy. Lots of online 

SBR002 with DISTILLER

19 

businesses can even survive with the Federal Government as their 

customer. So looking elsewhere would be beneficial, I think. 

Mr. SANGHANI. I totally concur. I think one of the things in addition to outreach I think is where are the buying centers associated with that industrial base? Our firm has employees in Boston, 

Atlanta, San Antonio as points of presence. And these are all major 

buying centers. I have been up to the Naval Supply Center up in 

Philadelphia outside your district. And so, I mean, it really comes 

down to these buying centers and their center of gravity and their 

ability to not only award contracts but award contracts that support the industrial base just outside their door. 

Ms. FIRESTONE. Just to add to that, our contract, living in the 

environment we do, we work in now, we have employees in 30 

states. So we are really being able to reach out using technology. 

Mr. EVANS. Thank you, Mr. Chairman. I yield back the balance 

of my time. 

Chairman KNIGHT. Thank you very much. 

And Mr. Comer, you are recognized for 5 minutes. 

Mr. COMER. Thank you, Mr. Chairman. And welcome to the 

Small Business Committee. 

My first question is for Mr. Ramaley. Did I get that right? 

Mr. RAMALEY. Ramaley, but do not worry about it. 

Mr. COMER. Ramaley. Where I am from we mispronounce everything. 

Mr. RAMALEY. That is fine. 

Mr. COMER. Regarding your proposal to subtract—if somebody 

has asked this question I apologize. But regarding your proposal to 

subtract research and development costs from the revenue total 

when calculating size, how much do firms typically spend on R&D 

as a percentage or dollar amount of their total budget? 

Mr. RAMALEY. It is a great question. It is actually I think what 

motivated our proposal in some sense because the answer is right 

now not a lot. Not a lot is spent by smalls. And that is what we 

are trying to change a little bit, our perception, and this is admittedly our perception, there is not a lot of data out there on this subject, but folks do not want to spend that money because they need 

it now. They need to be positioned to survive once they go large, 

and that means every dollar that comes in needs to be invested in 

present or near future competitiveness and that means recruitment. That means B&P, bid and proposal costs. So we wanted to 

sort of piggyback off an already stated objective of the Federal Government to encourage innovation, encourage research and development, but not continue to di incentivize it by punishing firms who 

spend dollars there. 

Mr. COMER. Okay. I am going to attempt this. 

Mr. SANGHANI. Sanghani. 

Mr. COMER. Thank you. That is what I was going to say. 

Mr. SANGHANI. That is right. 

Mr. COMER. Yeah. You mentioned that the past performance experience and skills of both prime and significant subcontractors 

should be considered. What do you mean by ‘‘significant’’ contractors? 

Mr. SANGHANI. Well, I think if you have—and again, I think 

in order to be able to compete against some of the firms that I have 

SBR002 with DISTILLER

20 

described, I think you kind of have to stand on each other’s shoulders to be able to compete at that level. And so I think there are 

different definitions of what could be considered a significant subcontractor. But from my perspective, anyone performing at least 20 

percent of the work on a contract, 20 to 25 percent of the work on 

a contract I think should be deemed a significant subcontractor. 

You know, there again, and I think just to follow up on what Mr. 

Ramaley said when we were talking about NAICS codes, I think 

when you look at it from the perspective of, you know, are NAICS 

codes the best way of approaching this, or can you look at employee 

count as ways to define what is small going forward, I think at the 

end of the day, you know, when you look at it through the lens of 

job creation, you know, that may be another way of looking at it. 

And so there again, if you have firms that are employing, in my 

case, several hundred, you know, 400 employees, but you are able 

to combine forces to be considered with another company that is of 

that size. I think you are able to compete on a more head-to-head 

basis with some of these companies. 

And lastly, when you are looking at it from the perspective of innovation, are you going to be getting innovation from the large behemoths or are you going to be getting innovation from midsize and 

small businesses? And I think that ties to Mr. Ramaley’s recommendation on the R&D side as well. 

Mr. COMER. Right. And one of the biggest complaints that I receive, especially with subcontractors trying to bid on governmental 

projects, big projects in the congressional district is the definition 

of what is a small business? And I know that is one of the topics 

of this Committee hearing. 

This question is for the entire panel. Do you believe that we need 

to change the way the SBA determines its size standards? 

Ms. GRIFFIN. Yes. 

Ms. FIRESTONE. Yes. 

Mr. RAMALEY. Yes. 

Mr. COMER. What would be a better definition? What would be 

a better criteria for that? 

Mr. RAMALEY. Well, we have proposed, the Chamber of Commerce from Montgomery County, Maryland, has proposed changing 

the mathematical calculation for how you determine annual receipts. So we are staying within the paradigm of using annual revenue as the basis for calculation; right? But currently, it is an average of the firm’s past 3 years of receipts. And we are suggesting 

that we extend that to no longer be such a narrow period of time. 

The way businesses grow these days in the Federal marketplace, 

it is a lot of up and down, particularly a lot of up for a successful 

firm, and it will kick them out, it will slingshot them literally out 

of the small business programs into the full and open environment 

too quickly. So by extending the time period of measurement, you 

get a truly, more accurate view of their true competitiveness. 

Ms. FIRESTONE. I am going to give you a realistic example because I sat and cranked the numbers yesterday on my firm. So as 

I said in my testimony, if I grow 36 percent in another year, I am 

done at a $15 million size standard. Right? But if you can take the 

lower—and we have grown year over year, but obviously, the bigger you are, the more you are able to grow. If we had the lowest 

SBR002 with DISTILLER

21 

3 years of 5, it would buy me at least 3 more years and allow me 

to grow enough and to get that infrastructure in place enough to 

then compete in what is now a midsize market, or a large market 

with people who are in the $100, $200, $500 million range. So as 

I think they need to look at the size standards to see if they really 

meet today’s businesses and what you are buying, I think that is 

going to take a little bit of time to do, but this other proposal, I 

think from a realistic business owner sitting here today could help 

just a tremendous cross section of people. Again, because business 

is up and down, too. Right? We work for Department of Commerce. 

We have a census coming up and we are dealing with something 

that may be a 1 year just huge blip. And if it was not my company 

and somebody else’s, that would immediate knock them out of a 

program when the next year they are back down to maybe a million dollars. 

Mr. SANGHANI. The other thing I offer is what I offered before, 

is revenue. And it is a little bit of a counter to my colleagues here. 

Is revenue the best indicator of size? It is certainly, you know, one 

metric or things like employee headcount, job creation, are they 

better metrics and rubrics to look at going forward? And I think 

that is one thing that should be strongly looked at relative to how 

you define and how you define mid. 

The last thing I will point out that should be up for consideration 

is allowing businesses some sort of transition. You know, and there 

again, if you look at my recommendation there, what had bipartisan support I believe in 2011, that Small Business Growth Act, 

you know, measure, and I think that was looking at a pilot program that looked at midsize businesses or set asides for businesses 

that had 1,500 employees or less. I think you could, by implementing a pilot program, look at the success or lack of success empirically of that program and then decide what makes the most 

sense from a policy perspective. So try before you implement. 

Mr. COMER. Great. 

Ms. GRIFFIN. I would just add one thing. Sorry, Mr. Chairman. 

Is perhaps we need to also start looking at whether government 

contracting itself needs its own designation because the other small 

businesses that do not participate in the government contracting 

marketplace can bring down the overall size standard. 

Mr. COMER. That is a good idea. 

Sorry I went over time, Mr. Chairman. I yield back. Thank you 

all very much. 

Chairman KNIGHT. Thanks. So I encourage you to be very engaged with us. We do not do hearings to hear you; we do hearings 

to hear from you and then engage in something that can help. So 

that is what we are trying to do. That is what we are trying to 

measure here. 

If I go back to Mr. Sanghani—or I am sorry, Mr. Ramaley said 

3 out of 5 years. Is that something that we might want to revisit 

again at some point and say now it has got to be 3 out of 7? Or 

is that something that you think would stand the test of time? In 

other words, you know, what happened in the 1920s does not happen today very much. So things have to evolve. But if we are looking at something and we are saying, look, a small business is now 

being bumped into a midsize business and either being forced to 

SBR002 with DISTILLER

22 

sell or go out of business or deny contracts, because I am sure that 

is probably an option, too, that you might say I cannot take that 

contract, is that something that we might want to revisit at some 

point, too? 

Mr. RAMALEY. Absolutely. Our perspective is that 3 out of 7, 

straight 5, 3 out of 5, any of those options are better than the status quo. We have landed on 3 out of 5 for now for a couple reasons. 

One, most contracts last 5 years; right? So there is kind of a neat— 

well, one contract cycle, if you have got 5 years of receipts under 

your belt, if after that one contract cycle you are truly large, that 

is probably the right time for you to be forceful and open. 

Chairman KNIGHT. Right. 

Mr. RAMALEY. We do not want to be overbroad here because we 

are genuinely concerned for the smallest of the smalls, and folks 

who may perceive that, oh, great. Now that more businesses are 

going to be qualified as small, I may have enhanced competition. 

So we thought 3 out of 5 was a good balance there because, remember, the purpose of this change, or at least for our understanding, 

is that present competiveness is not determined by present revenue. Right? So giving folks a little bit extra runway should not 

really negatively affect the smallest smalls because those folk really were not significantly more competitive anyway. They were 

being graduated prematurely. 

Our other perception for that, our other understanding was really that the more smalls there are, the more likely COs will be able 

to set aside contracts because the rule of two, which you guys are 

familiar with, will be satisfied more often. So the smallest of the 

smalls will have more opportunities in theory to compete if these 

changes were enacted, so. 

Chairman KNIGHT. Well, let’s continue to have that discussion 

and kind of figure out the balancing act because I do not want, you 

know, Ms. Firestone, when she is starting her business years ago 

and she is the smallest of the small trying to get into the marketplace, then be overwhelmed by Ms. Firestone of 2018 because now 

she cannot compete. And so we kind of have to have that balancing 

act of if you are a small business, we want you to be able to compete in the small business arena. But if you are a big, big small 

business and now you are competing with these small businesses, 

you have grown out. 

Ms. FIRESTONE. I think the one thing to consider is that as a 

small business, when I started out or got in government, I would 

not be bidding on what I am bidding on today. 

Chairman KNIGHT. Sure. 

Ms. FIRESTONE. So I think that is a consideration. The other 

thing is that there are a lot of businesses like mine and I think like 

yours because we started small and we climbed the ladder and 

with people like WIPP, it is in our DNA to help the smaller businesses. So we have the small-small Mentor-Prote ́ge ́ program, which 

I think is helping that. So I think that is a consideration as well. 

I think it really will help the small-smalls to have those of us who 

have been through it continue to help them. 

Mr. SANGHANI. There again, I think there is, as Ms. Firestone 

noted, you bid on different things and I think it is certainly at the 

discretion of the agency, procurement executives, the COs to look 

SBR002 with DISTILLER

23 

at, okay, this particular contract as we noted, if you do create a 

pilot program or a specific midsize category, this particular requirement is better suited to that midsize. We are going to set just that 

particular requirement aside. And then these other requirements 

are better suited to firms that are 15 million and below and we are 

going to set that one aside for the smallest of the smalls. There 

again, I think the benefit of having a program that perhaps is even 

a pilot program that examines that is it will give you the data and 

allow you to hear from constituents on what works and what does 

not work. 

Chairman KNIGHT. Well, I agree. And I want to thank Ms. Griffin for bringing up a couple words that always hit us, and that is 

fraud and abuse and that is not doing the right thing. And the 

business that is doing the right thing is now incurring all of these 

costs because they are doing the right thing. And somebody who is 

swooping in is not. And for them to get a contract or for them to 

be able to build their business under poor practices or illegal activity is something we should always be concerned in, not just in 

small business but across the board. And I deal with an awful lot 

of small businesses, especially in California. Our roofing industry 

out there is an industry that I work with almost weekly of the poor 

behavior that happens in that industry. And then you have got the 

business owner that is trying to make it and trying to win contracts and trying to do the right thing is now being penalized. So, 

but that is a balancing act, or that is a hard deal, too. And you 

know that. How many folks do we have out there enforcing? How 

much enforcement do we do? How much penalties are levied? All 

of those types of things are difficult. So that is a tough one. 

I do believe there is going to be legislation out of this. I do believe that we are going to start to see some ground swell. This is 

something that is talked about quite a bit. It is talked about because small businesses are the backbone of the economy, and we 

do not want you to go out of business. We want you to thrive. 

So, again, I thank you for your time today. I thank you for your 

patience. I pride myself on punctuality, and I was not very today. 

So, I ask unanimous consent that members have 5 legislative 

days to submit statements and supporting materials for the record. 

Without objection, so ordered. 

The hearing is now adjourned. 

[Whereupon, at 1:33 p.m., the Subcommittee was adjourned.] 

SBR002 with DISTILLER

24 

A P P E N D I X 

SBR002 with DISTILLER


Insert offset folio 24 here 29797.001

Written Testimony of 

Stephen P. Ramaley 

Associate 

Miles & Stockbridge P.C. 

McLean, VA 

On Behalf of 

Montgomery County Chamber of Commerce (MCCC) 

Before the 

House Committee on Small Business Subcommittee on Contracting 

and Workforce 

"No Man's Land: Middle-Market Challenges for Small Business 

Graduates" 

April 26, 2018 
25 

SBR002 with DISTILLER


Insert offset folio 25 here 29797.002

Good morning Chair Knight and Ranking Member Murphy. I want to thank you for the 

opportunity to testify on this important topic. My name is Steve Ramaley, Associate Attorney in 

the Government Contracts Law practice group at Miles and Stockbridge, P.C. I am testifying today 

on behalf of the 800-member Montgomery County, Maryland, Chamber of Commerce (MCCC) 

and as an active member of its GovConNet Council. The Council meets monthly to tackle federal 

contracting issues that affect small and midsize finns. Large companies are also an important part 

of the Chamber membership and they support efforts to assist small and midsize companies to 

obtain success in federal contracting. 

According to Bloomberg Government's "The Mid-Tier Paradox: 2018 Company Report," 

there is some good news and some not so good news. 

The good news is that the number of midsize vendors to the federal government- defined 

by Bloomberg as firms with $25 million to $500 million in revenue - is the highest in five years, 

totaling almost 1,700. That compares to roughly 118,000 small businesses and 110 vendors who 

are "large"- with annual revenues in excess of $500 million. The other good news is that in 

FY17, federal government spending on midsize companies went up 2.1 %. 

If you look closely at the data, however, there is some not so good news. First, despite the 

increase in numbers, midsize vendors still account for only 1.4% of all vendors to the federal 

government. And second, even though last year saw an increase in midsize spending, this increase 

came on the heels of an 8.3% decline across the previous three years. 

Also, I must note a caveat: Bloomberg defines midsize companies as firms with annual 

revenues between $25 million and $500 million. Since SBA size standards top out at $35.8 

million, Bloomberg's midsize numbers include ;;big small businesses" as well as those who no 

longer qualify for set-asides. Bloomberg reports that roughly 23% of federal spending on midsize 

2 
26 

SBR002 with DISTILLER


Insert offset folio 26 here 29797.003

companies was made through small business set-asides. So, if we removed this spending on 

"bigger smalls," it would paint a considerably more pessimistic midsize picture. 

This leads to our request for Congressional action. As small businesses and government 

contracts become larger, it is inevitable that they will face choices grow beyond the small 

business programs to compete with large companies, stay small to avoid the difficulties of 

competing in a "full and open" environment, sell, or go out of business. Unfortunately, it appears 

that more and more firms are being forced to make those latter choices - stay small, sell, or go 

out of business. 

Also, before getting into the meat of our proposals, we echo the observations in the 

Bloomberg report that (I) there is a need for the Government to identify highly qualified 

companies early in the acquisition cycle and (2) the burden rests, and should continue to rest, on 

midsize companies to identify strong teaming partners and productive contract vehicles. Our 

proposals are designed to facilitate success, but not cause it. That is up to each individual company. 

Size standards play an important part in government contracting, defining eligibility for 

small business programs. This hearing is very timely because the SBA is about to undertake its 

five-year review of size standards, which vary from industry to industry. Currently, the highest 

revenue standard is $38.5 million, applicable to industries such as financial services and aerospace 

engineering. This means that a business in those industries cannot have more than $38.5 million 

in annual receipts, averaged over previous three years, to qualify as "small." A business with an 

average revenue of $39 million is expected to compete with large businesses with revenues 

sometimes in excess of $500 million. The numbers bear out how difficult such completion can be. 

Small business programs impact the local and national economy, though the purpose of 

these programs is sometimes misunderstood. Small business programs are not designed to 

3 
27 

SBR002 with DISTILLER


Insert offset folio 27 here 29797.004

subsidize business development; the purpose is to ensure supplier diversity in the federal 

marketplace in order to spur innovation and guard against supplier consolidation and 

noncompetitive pricing. And, of course, small businesses produce the majority of American jobs. 

Without these firms growing to become midsize fin11S, who in turn grow to compete and challenge 

large businesses, the federal contractor ecosystem would stagnate, and jobs would likely be lost. 

Government contractors experience a unique pattern in their growth which is causing this 

midsize crisis- or no man's land. Contractor growth can be mercurial, sometimes hovering in the 

single digits and then exploding over two or three years. This pattern of sudden growth is 

increasingly common because of the Government's more frequent use oflarge indefinite delivery, 

indefinite quantity (IDIQ) contract vehicles, under which contractors can be awarded huge task 

orders. It is not unusual for a contractor to win a single award or task order that, on its own, bumps 

the contractor out of the small business program. As referenced earlier in my testimony, the SBA 

uses a three year average of revenues to determine program eligibility. So a company with historic 

revenues of $15-$20 million might win an $80 million task order and be very quickly slingshotted 

out of the set-aside environment and into the full-and-open world. 

This leads me to the Chamber's first recommendation: change the SBA fonnula for small 

business eligibility. Our proposal is to allow companies to look back five years and choose their 

lowest 3 years for purposes of calculating size standard eligibility. The Chamber's GovConNet 

Council, comprised of practitioners and business owners involved in government contracting, 

worked for months to come up with proposals that would give larger small businesses more 

"runway" to adjust to rapid growth, while still protecting smaller businesses under the various 

SBA programs. We believe this proposal strikes that balance. 

4 
28 

SBR002 with DISTILLER


Insert offset folio 28 here 29797.005

The rationale behind this proposed change can be stated simply: competitiveness takes 

time to build. Revenue is not an indicator of present competitiveness; it is an indicator of future 

competitiveness. Bigger small businesses that are about to graduate from the set-aside world need 

time to recruit talented employees, develop their intellectual property and build infrastructure to 

compete at the next level. Having a good year (or even a couple good years) does not mean that 

the company will continue to grow. Moving from a three-year look-back, to a lowest three in the 

last five, would give firms more time to adjust to the full-and-open marketplace. Furthermore, 

firms that show consistent high revenues would still be graduated. 

Who would benefit from this proposal? Not just big small businesses and midsize 

companies. Any small business that intends to grow will eventually benefit from these changes. 

Further, having more well-qualified firms under the revenue standards will increase the chance 

that solicitations will be set-aside, and therefore will give all small firms more opportunities to 

compete. Separately, large businesses benefit because it increases the pool of well-qualified 

subcontractors. A major complaint we hear from large primes is that by the time they find a great 

small partner, the work garnered from that relationship makes the partner large. 

There have been suggestions that perhaps it would be better to use a straight five-year lookback, instead of the lowest three out of five that we are proposing. First of all, both are better than 

the status quo. But a straight five-year look-back would punish firms who may end up with 

decreased revenues in following years. While competitiveness takes time to build, it can be lost 

overnight. Losing one contract can cascade to key employees departing, the unraveling of teaming 

relationships, or other crises. A straight five-year look-back would require firms on the decline to 

continue to count peak years, even if they were four or five years ago. A three out of five-year 

look-back would not do that. Second, the straight five-year look-back would, in many cases, be 

5 
29 

SBR002 with DISTILLER


Insert offset folio 29 here 29797.006

less impactful than our proposaL Firms winning one very large task order or IDIQ can be pushed 

out of the small business program even in one year. A five-year look-back might not be helpful to 

those companies. The midsize no man's land is a big problem, and it needs a big solution. 

In addition to the three out of five-year look-back proposal, the Chamber is offering another 

measure which, just like the look-back proposal, is a relatively simple change. We propose 

allowing companies to subtract Independent Research and Development ("R&D'') expenses from 

total revenue for size determination purposes. 

This change would support the government's initiative to stimulate technological and 

biomedical innovation and would allow companies to continue to pursue and develop new products 

and processes. without penally. Firms who invest in R&D often do so at the expense of their 

present competitiveness. For firms at the cusp of becoming large. every revenue dollar counts and 

must be brought to bear to help win the next contract award, in order to maximize revenue streams 

that can support the company while it transitions to full-and-open competition. This dynamic 

effectively discourages R&D investment. Allowing a firm to subtract its R&D costs from size 

receipts would not only support innovation. it would also remove one barrier to small business 

contractors who invest in future growth. 

The key to this change is simplicity. We are proposing that this subtraction piggybacks off 

the IRS's definition for R&D expenses, which firms already annually tabulate and report. Also, 

we recognize the need for a cap on the subtraction to prevent otherwise large firms who have 

massive R&D expenses from qualifying as small businesses. We propose the subtraction be 

capped at two times the NAICS size standard. For employee-based standards. we propose a 

subtraction of a single employee for $50,000 in qualified R&D expenses. 

6 
30 

SBR002 with DISTILLER


Insert offset folio 30 here 29797.007

Let me wrap up this testimony by emphasizing that the midsize "no man's land'' is an everpresent worry for every small business contractor. Until we provide meaningful opportunities for 

growth beyond small. we will continue to see too few companies crossing "no man's land'' to 

become successful large businesses. We believe that our proposals would be effective steps in the 

right direction, but we'll be the f1rst to say that even more steps are needed. We look forward to 

working with this Subcommittee, and sincerely thank you for your time, your attention to this 

matter, and for your invitation to participate today. 
31 

SBR002 with DISTILLER


Insert offset folio 31 here 29797.008

~~* WIPP 

Wornen Impacting Public Polity 

Written Testimony of 

Lisa M. Firestone, MHSA 

President and CEO 

Managed Care Advisors, Inc. 

Bethesda, MD 

On Behalf of 

Women Impacting Public Policy (WIPP) 

Before the 

House Committee on Small Business Subcommittee on Contracting 

and Workforce 

"No Man's Land: Middle-Market Challenges for Small Business 

Graduates" 

April 26, 2018 
32 

SBR002 with DISTILLER


Insert offset folio 32 here 29797.009

Good morning Chair Knight and Ranking Member Murphy. I am Lisa Firestone, President 

and CEO of Managed Care Advisors, a health services company headquartered in Bethesda, MD. 

I am testifying today on behalf of Women Impacting Public Policy (WIPP), as Chair of their Board 

of Directors. WIPP is a nonpartisan public policy organization that advocates on behalf of women 

entrepreneurs. Thank you for giving me the opportunity to testify. 

First just a little background on my company. Established in 1997, Managed Care Advisors 

began as a boutique healthcare consulting company specializing in Employee Health Benetits, 

Managed Care, and Workers' Compensation. Today, we are the leading provider of Federal 

Workers' Compensation Case Management Services, currently operating in all 50 States and US 

Territories. How we transformed from a four-person consulting company to a thriving federal 

contractor with more than 120 employees has been a long, difficult and very fulfilling journey. In 

2003, my company was contracted to support a congressionally mandated study to assess the 

feasibility of applying industry best practices for managing work-related injuries and illnesses for 

civilian employees of the US Army. This initial introduction to federal contracting was a turning 

point for my company. We identified a market with unmet demand, designed a path forward for 

meeting that demand and learned very quickly that we had a lot to learn about government 

contracting. In 2005, we were awarded our first government contract, as part of a joint venture. 

Since winning our largest contract to date in 2007 ($53 million), we have experienced double-digit 

growth. Where this double-digit growth has always been a source of pride, we are now facing the 

reality that annual growth in excess of 36% will take us from small to midsize, requiring us to 

reinvent ourselves in order to continue to grow and remain relevant in the federal market. 

With that said, I feel my company is a poster child for the issue we are here to discuss 

today. The size standard for our industry NA!CS code is $15 million. We currently represent 16 
33 

SBR002 with DISTILLER


Insert offset folio 33 here 29797.010

federal agencies. The average size of our contracts range from $1.5 million to $53 million, with 

the size of our annual task orders averaging $1.2 million/year. It is not hard to see how a company 

like mine can and will exceed the $15 million size standard relatively quickly in the federal 

contracting arena. As mentioned above, we are now at a crossroads. Our executive team has spent 

significant resources putting together a plan to survive in the federal midsize world and I am loathe 

to restrict my growth to stay in the small business program. It runs counter to my entrepreneurial 

instincts and it certainly is not good for the local economy nor is it good for the federal government 

or the thousands of injured federal employees who count on us every day to support their recovery 

and return to work. The reality is that there are limited choices for companies like mine- acquire 

or be acquired, join forces with large contractors with existing contracting vehicles and interest in 

your market sector, or revamp your marketing and sales strategy including one for maintaining 

contracts that have been small business set-asides in the past. 

It seems to me that the federal government should seek to keep businesses like mine as 

contractors. We have honed our technical and contracting expertise to fit the needs of the federal 

government, have the infrastructure and resources in place to support it and have successful past 

performance. 

The topic of size standards and the great abyss between small and large is a frequent 

discussion among the members of WIPP. The federal government on one hand encourages us to 

grow, emphasizing the need for access to capital and entrepreneurial assistance. Many SBA 

programs emphasize, educate and support growth. But on the other hand, it structures policies that 

discourage growth such as its size standard structure and limitation on small business program 

participation. 
34 

SBR002 with DISTILLER


Insert offset folio 34 here 29797.011

WIPP is a partner in the Montgomery County Chamber of Commerce's "Pathway to 

Growth" initiative. As the witness from the Chamber laid out, we are requesting Congress pass 

two modest proposals to give companies like mine a smoother transition to a midsize firm. 

WIPP represents companies of all sizes who are competing in the federal market, from the 

smaller finns where changes to the WOSB program are essential to their growth to larger 

corporations like mine, who are positioned to compete for much larger single and multi-award 

contracts. The businesses we represent require different legislative and regulatory solutions 

especially in the area of procurement. l do not believe the changes we are proposing will take 

away opportunities from smaller companies. If anything, these changes will provide greater growth 

potential. In other words, we are not competing with each other-we operate in a different 

contracting space. 

While I am on the topic of competition, I hope that this Committee will take a hard look at 

the NAICS code size review which the SBA is about to embark upon. For example, my primary 

NAICS code 541611 is capped at $15 million. While that might sound like a big number, the size 

of federal contracts are getting bigger. The government now uses multiple award contracts where 

businesses compete for a "slot" on the contract. The businesses then have to compete for task 

orders which in many cases are sizable contracts. We urge you to examine whether the SBA size 

standards allow companies to successfully compete as small companies on these contracts. 

Last year, Senators Ernst and Gillibrand championed a study that requires the SBA to 

analyze small business participation in multiple award contracts. That study is due 180 days after 

the FY!8 NDAA was signed into law. It will show a path forward on prudent policy changes to 

increase small business participation on MAC contracts and should be helpful to include all socioeconomic groups into these contracts. 
35 

SBR002 with DISTILLER


Insert offset folio 35 here 29797.012

Let me close by thanking you for holding this hearing. Government contracting is a clear 

path for firms to grow. Women owned companies continue to post impressive numbers with 

respect to numbers and growth. They are a strong economic force in the United States and 

increasingly in the world. More than 36% of all American businesses are women-owned and are 

growing at four times the rate of male-owned businesses. According to the National Women's 

Business Council report, "10 Million Strong," women owned businesses have created 8.9 million 

jobs and total $1.6 trillion in revenue in 2016. 1 

Despite this contribution, women-owned firms are still 21% less likely to win government 

contracts- even when controlling for past performance, size, and time in business.2 When adding 

the additional challenges of transitioning from a small to a midsize company, the hurdles for 

women-owned firms to succeed are steep. 

Let's work together to make sure we reward growth, not stif1e it. lfwc solve this problem, 

we will create jobs, increase our contribution to the economy and maintain a strong industrial base. 

Thank you for giving women-owned businesses a voice in this important hearing. 

1 10 Million Strong: The Tipping Point for Women Entrepreneurs. National women's Business Council (2016). 

2 Women~Owned Businesses: Carving A New American Business landscape, U.S. Chamber of Commerce Foundation for Women in Business {2014). 
36 

SBR002 with DISTILLER


Insert offset folio 36 here 29797.013

Testimony of 

Mehul Sanghani 

Chief Executive Officer 

Octo Consulting Group 

BEFORE THE UNITED STATES HOUSE OF 

REPRESENTATIVES 

COMMITTEE ON SMALL BUSINESS 

SUBCOMMITTEE ON CONTRACTING AND 

WORKFORCE 

Regarding "No Man's Land: Middle Market 

Challenges for Small Business Graduates" 

April 26, 2018 
37 

SBR002 with DISTILLER


Insert offset folio 37 here 29797.014

Chairman Knight and Members of the Subcommittee, thank you for the invitation to 

appear today. My name is Mehul Sanghani, and I am the founder and Chief Executive Officer of 

Octo Consulting Group, a nationally recognized and award winning technology solutions and 

management consulting firm located in Northern Virginia. It is a privilege and an honor for me 

to share my views on how we can encourage entrepreneurship and growth among small and midsize government contractors. Before I begin, let me state that my comments are my own and I 

am not speaking on behalf of my company. 

I founded Octo Consulting Group in 2006 with a focus on providing cutting edge 

technology solutions and consulting services to the federal government. As you might expect 

from a fast-growing government contractor, we have had to leverage innovation to compete. We 

grew from being a subcontractor to large prime contractors in our early days to a firm that today 

employs over 400 employees and performs as a prime contractor on 90% of its work with 

support for agencies all over the federal government. Our use of technology has evolved as well. 

Over the years, we have consistently positioned ourselves at the forefront of technology and 

innovation, with our specialty focusing on the modernization of legacy systems to include 

developing, deploying and migrating these systems into modern cloud computing infrastructure. 

Under my leadership, Octo Consulting Group has received numerous awards and 

accolades including being named the 23'd fastest growing private business in the country by Inc. 

Magazine, awards for GovCon Contractor and Executive of the Year by the Northern Virginia 

Chamber of Commerce, and the Washington Business Journal's Corporate Philanthropist of the 

Year. I am particularly proud of the fact that Octo Consulting Group has also been consistently 

recognized as one of the best places to work, receiving recognition in Washingtonian Magazine, 

the Washington Business Journal, and the Washington Post. 
38 

SBR002 with DISTILLER


Insert offset folio 38 here 29797.015

Over the years, I have become very familiar with the small business programs and 

policies that this Committee has worked feverishly to implement. We are ourselves a successful 

graduate of the 8(a) program for Small Disadvantaged businesses and have benefitted from 

competitive access to some small business set aside contracts. These programs enabled us the 

opportunity to compete with other small businesses and enabled us to develop a strong record of 

past performance that would have been otherwise exceedingly difficult to attain. Without these 

programs, Octo Consulting Group would not have been able to reach customers in the same way 

and likely would not have grown at such a fast pace. We are also working to pass along the 

knowledge we gained through these programs to other firms by participating as an approved 

Mentor in the Small Business Administration ("SBA") Mentor Protege program. 

None of this is meant to indicate that our path to achieving this success has been easy. 

My team and I have faced numerous challenges. For many years, our primary focus was 

achieving the scale necessary to afford re-investment back into our firm. This reinvestment was 

applied towards building up our business infrastructure working to convince our Federal 

customers to take a chance making a prime contract award to a small business. Recently, we've 

found ourselves in direct competition with some of the largest government contractors in the 

world and as you might expect, the competition is exceedingly fierce. We are ready, willing 

and able now at our current size to compete with any government contractor- and more 

importantly feel our credentials, certifications, and past performance line up favorably too. 

However, I am also very much aware of the struggles that growing small businesses face 

in our space especially as they navigate the treacherous path towards becoming a mid-size or 

mid-tier contractor. Everyone in our Government Contracting industry is universally aware of 

small businesses that outgrew their size status and subsequently failed to compete with our 

2 
39 

SBR002 with DISTILLER


Insert offset folio 39 here 29797.016

industry's multi-billion dollar aerospace and defense behemoths. We also know offinns that 

intentionally remain and judiciously work to remain "small" because they fear that same 

outcome. Worse still, I have painfully come to acknowledge that there are policies and practices 

in the industry that specifically disadvantage growing firms. It is those policies that I'd like to 

address here today. 

The State of the Market 

Once a small business has exceeded its primary size standard, which can be as low as $15 

million in annual revenue for consulting services, it is no longer entitled to participate in small 

business programs and is considered a mid-tier company. Mid-tier companies are no longer 

afforded the preferential protections enjoyed by small business government contractors, they 

instead must directly compete for prime contracts with multi-billion dollar firms, such as 

Lockheed Martin and General Dynamics. Worse still, mid-tier businesses arc no longer 

attractive subcontracting partners because they can no longer help large contractors meet their 

subcontracting goals and targets for small business participation. 

Because of these dynamics, small businesses on the verge of graduation from the small 

business program often have two sobering choices: be acquired by a large business or attempt to 

compete with large businesses. When a successful small business is acquired by a large 

business, the Federal market and Federal supply base loses a valuable and often innovative 

participant. Conversely, if a small-business is able to compete and graduates into a mid-tier 

business, the economy expands, innovation continues, competition is increased, and jobs are 

created. 

In addition, mid-tier companies are part of the natural progression of small business 

growth. Without providing a structured path to mid-tier growth, we place a cap on how far these 

3 
40 

SBR002 with DISTILLER


Insert offset folio 40 here 29797.017

businesses can go and we institutionalize a scheme that has damaging ramifications to our supply 

base and in turn the services we provide our taxpayers. Further, it very clear that our industry is 

blessed with numerous exceptional entrepreneurs. However, without a defined path to and 

through mid-tier status, entrepreneurs will be Jess likely to choose our industry. 

There are several simple reforms that can help mid-tier businesses compete for 

government contracts and serve as robust components of our supply base. Specifically, I would 

like to suggest to the Committee that it investigate the following policies: 

I. Eliminate ''quantitative" competitions based on the number or size of contracts a 

firm has been awarded. 

2. lncentivizc mid-tier businesses to work together by requiring consideration of 

each team members' past performance; and 

3. In multiple award contracts, require that small and recently graduated small 

business be able to compete for unrestricted task orders. 

Each of these solutions will remove significant barriers to mid-size business growth 

without any downstream harm to our small businesses and also without adding any more 

complex regulations for entrepreneurs to learn. 

Before I address each of these simple changes, I'd like to address previous efforts that 

originated within this same committee to support mid-tier firms. Specifically, in 2012, Congress 

considered establishing a Small Business Growth Pilot Program to create a mid-size category 

benefit. A bill called the Small Business Gro\'ilh Act was introduced that would create a 5-year 

pilot program for General Services Administration ("GSA") contractors with fewer than I ,500 

employees. This bill would have created a program under which GSA could set-aside a contract 

4 
41 

SBR002 with DISTILLER


Insert offset folio 41 here 29797.018

for mid-tier businesses so long as the contract would otherwise be awarded to an entity other 

than a small business concern. While adding yet another set aside category is likely to be met 

with some skepticism by this committee, we should strongly consider these significant steps as 

previous efforts at more modest reforms have fallen woefully short. 

Quantitative Evaluations Disadvantage Mid-Tier Firms 

The first specific reform I'd like to address is limiting "quantitative" evaluations. As the 

Committee is no doubt aware, billions of dollars in federal contracts are now awarded through 

large "government-wide" contracts that are held by a small number of contractors. For example, 

in fiscal year 2017, some $6.0 billion in sales went through government-wide contracts 

administered by the General Services Administration alone. Some examples of such large, 

government-wide contracts include GSA's OASIS and Alliant 2 vehicles. Contractors who win 

a spot on these huge, government-wide acquisition vehicles win exclusive access for up to a 

decade for a lion's share of the government contracting opportunities. Firms that do not win are 

effectively shut out of competing for opportunities with customers or markets for five and 

sometime ten years. 

Because winning these contracts is absolutely essential, the Government is flooded with 

dozens, and sometimes more than one hundred, proposals for each new contract vehicle. The 

Government has responded to this overwhelming number of proposals by making awards based 

on a movement towards "self-scoring." Instead of judging each proposal on its merits, the 

Government instead assigns point scores that account for the number of contracts a firm has 

performed, the overall size of those contracts, or whether the contracts were cost-type or fixed 

price. 

5 
42 

SBR002 with DISTILLER


Insert offset folio 42 here 29797.019

The problem is that even the best and most experienced mid-tier firms do not have the 

same number of contracts as the market's multi-billion dollar industry leaders. We are happy to 

compete on value, price and innovation- but we cannot on fair footing when the evaluation 

dimension is slanted more towards the total number of contracts we hold. 

For example, the recent solicitation for the GSA Alliant 2 contract required firms to 

provide references to seven projects of relevant experience completed within 5 years and valued 

at more than $8 million. Firms receive bonus points for project values exceeding various 

thresholds, topping out at $100 million. There were also points available for work outside the 

United States, cost-type contracts and the like. Only the top 60 firms based on these points 

received a spot on the multiple-award, government-wide contract vehicle. 

For firms that have been large for at least five years, it is easy to compile much larger 

point totals. A multi-billion dollar firm with hundreds of contracts will have little issue finding 

seven, high value previous contracts and getting far more points than a mid-tier company. That 

does not make that finn any better, more innovative or price competitive than a mid-tier firm that 

does not have the same history of contract awards. For small firms, there are often set-aside 

versions of these contracts that award points based on lower standards. For mid-size firms, 

however, these math competitions are incredibly hard to win. They do not let us demonstrate 

how we can do things difierently- and often better- than household name contractors. Given the 

increasing importance of these contracts, this practice needs to stop. 

Specifically, to preserve competition, mid-tier firms should be afforded an opportunity to 

compete qualitatively. In other words, I would ask this Committee to consider specific tactical 

legislation requiring that multiple-award contract competitions not be based on a mathematical 

6 
43 

SBR002 with DISTILLER


Insert offset folio 43 here 29797.020

self-scoring calculation of the number of large contracts a firm has performed, but instead that 

these contracts be accessible to mid-tier firms with agencies required to review the quality of the 

work these firms have performed. This change will allow small firms that have recently grown 

into mid-tier status to continue to compete on a level playing field. 

Agencies Should Be Required To Consider Subcontractor Experience 

Mid-tier firms understand that they will never be able to compete with the scale of the 

industry leaders. As a result, it is common for these firms to join forces to compete for larger 

contracts. However, many solicitations do not allow a prime contractor to benefit from the 

experience of its subcontractors. For example, the Alliant 2 RFP required that prime contractors, 

standing alone, "represent all proposal submission documents required under Section L.5., 

including all Relevant Experience, Past Performance, Systems, Certifications, and Clearances, as 

applicable, under this solicitation." This means that the agency would look at the experience and 

past performance of the single contractor to meet its requirements. If you are an industry leader, 

that is easy. If you are a recently graduated small business, however. all the teaming agreements 

and subcontracts in the world cannot help you compete. This is a tremendous disadvantage. 

When this Committee and the SBA implemented the mentor protege program, you 

recognized that it was essential for the parties to be able to rely on each-others' past 

performance. Without that support, each party standing alone would be unable to compete with 

more established industry players. Mid-tier firms face the same problem and should benefit from 

the same solution. Specifically, agencies must be required to consider the past performance, 

experience and skills of both prime contractors and significant subcontractors. All of these firms 

will be involved in contract performance and it makes no sense to exclude their skills and past 

7 
44 

SBR002 with DISTILLER


Insert offset folio 44 here 29797.021

work. Further, this modest and small change will allow mid-tier firms to team together to 

compete for the largest contract awards. 

Further, some agencies will only consider past performance information from firms that 

performed as a prime contractor. That is a significant disadvantage for small businesses that 

often enter the federal market as subcontractors. Again, these restrictions serve only to harm 

small businesses, mid-tier businesses, and the supply base that serves our citizens. This 

Committee should consider legislation that requires agencies to consider a firm's prior work as a 

subcontractor if it is relevant to the prime contract at issue. 

Small Businesses and Recent Graduates Should be Able to Compete With Large Firms 

Finally, I'd like to address what happens when a small business graduates from size 

status during the course of a multiple-award contract. As the Committee is aware, multiple 

award contracts are often awarded in pairs: One contract for small business and one for large 

businesses. Because of this construction, small firms can neither compete for large business 

awards or transition to that contract if they grow. 

There are two major problems with this approach for small and mid-size businesses. 

First, if multiple award contracts are the way of the future and a small business is not allowed to 

compete with large businesses on those contracts, how can small t1rms prove that they can offer 

comparable goods and services? We are looking for opportunities to compete, and these types of 

awards make it impossible. 

Second, when a small t1rm grows to be mid-size, it is often told that it cannot win new 

work on its current contract. However, that same firm is not automatically offered a position on 

the full and open contract. In short, growth is the kiss of death for these t1rms. All the effort that 

8 
45 

SBR002 with DISTILLER


Insert offset folio 45 here 29797.022

firm put into winning the contract is wasted simply because it grew. Further, the Government is 

robbed of another competitor that could offer superior services at a better price. 

You can solve this problem by considering legislation that would allow small business 

holders of multiple award contracts to compete for task orders awarded on large business 

contracts. Give us a chance and we may surprise you. 

Further, a small business contractor that grows to be mid-tier during performance of a 

multiple-award contract should not simply be thrown off a vehicle. Instead, we should 

encourage growth by allowing small business contractors that grow to "graduate" to the full and 

open version swim lanes of these same contracts. That will create a win-win situation that 

encourages growth while increasing competition. 

Conclusion 

In conclusion, l would like to commend this Committee for considering the plight of 

firms that graduate from the small business program. Mid-tier companies have much to offer the 

government contracts marketplace and should be afforded an opportunity to continue to grow. 

look forward to your questions. 

9 
46 

SBR002 with DISTILLER


Insert offset folio 46 here 29797.023

0 IT Alliance 

for Public Sector A Division of IT! 

Testimony of 

Eminence Griffin 

Counsel and Director, Federal Procurement 

Information Technology Alliance for Public Sector (ITAPS) 

before a hearing of the 

Subcommittee on Contracting and Workforce 

oft he 

U.S. House of Representatives 

Small Business Committee 

on 

"No Man's Land: Middle-Market Challenges 

for Small Business Graduates" 

April 26, 2018 

Follow us on Twitter @ITA!!iancePS /learn more at itaps.itfc.org 

IT Alliance for Public Sector /1101 K St. NW, Sufte 610 I Washington, DC 20005 
47 

SBR002 with DISTILLER


Insert offset folio 47 here 29797.024

IT Alliance for Public Sector Testimony on Middle"Market Challenges 

House Small Business Committee 

April26, 2018 

Page 2 

Introduction 

Chairman Knight, Ranking Member Murphy, and Members of the Committee, thank you for the opportunity 

to share our perspective on challenges that exist in the federal marketplace for graduated small businesses. 

It is a great honor to testify before this Committee, which I worked for over six years on topics that impact 

small businesses and on steps that can be taken to aid in their growth. 

At the Information Technology Alliance for Public Sector (!TAPS), we understand some of the difficulties that 

graduated small businesses face as they seek continued participation in the federal marketplace. We 

believe the solution in helping businesses face these challenges is to create a more robust and successful 

small business contracting program. 

In 1953, Congress first established the policy that "a fair proportion of the total purchases and contracts for 

supplies and services" should be awarded to small business concerns in the "interest of mobilizing the 

Nation's full productive capacity" or "in the interest of war or national defense programs."' Since that time, 

the small business programs were expanded to first, establish the current government-wide 23 percent goal 

for prime contract dollars to be awarded to small businesses in "a wide variety of industries and from a 

broad spectrum of small business concerns within each industry,"' and then later expanded to include goals 

at the agency level and government-wide for specific socio-economic categories of small business awards 

as well as subcontracting dollars awarded to small businesses. 

With these goals in place, we have seen increased dollars awarded to small businesses and the government, 

as well as individual agencies, begin to meet their small business goals. This increase in dollars has resulted 

in more and more of these businesses graduating out of their size. While these are laudable achievements, 

we rarely look beyond the awarded dollars. We need to start digging deeper into the programs and 

determine how the small business contracting programs can be improved to look beyond the money and 

see what can be done to grow healthier small businesses that have the tools to succeed in the full and open 

market once they graduate. 

Improve Small Business Set-Aside Programs 

Currently, only one program, the S(a) Business Development Program, does continuous monitoring of the 

contracts and growth of its participants. This monitoring includes tracking of its revenue as well as the types 

of contracts the business wins throughout its nine-year participation. However, once the business 

graduates from the program, even if it remains a small business, the Small Business Administration (SBA) 

ceases to continue its monitoring. To my knowledge, the SBA does not track revenue, growth, or job 

creation that results from small business contracting outside of this program. Additionally, the agency does 

not track when individual businesses grow out of the small business size standard and their ability to 

compete in the open marketplace after such graduation. Furthermore, there is no tracking or analysis of 

whether small businesses that participated in any of the set-aside programs can successfully compete in the 

'Pub. L. 86-163. 

'Pub. l. 105·135. 

Follow us on Twitter @ITA!!iancePS jlearn more at itaps.itic.org 

lT Alliance for Public Sector ! 1101 K St. NW, Suite 610 j Washington, DC 20005 
48 

SBR002 with DISTILLER


Insert offset folio 48 here 29797.025

IT Alliance for Public Sector Testimony on Middle-Market Challenges 

House Small Business Committee 

April 26, 2018 

Page 3 

marketplace after they have exceeded established size standards; whether they continue to do business in 

the government or commercial marketplace; or if the graduated small businesses fall back into the small 

business size standard. This information is vital in not only determining how the programs can be developed 

to promote sustainable growth in its participant small businesses but also the overall success of the 

programs themselves. With this information, the SBA and its partners, such as Small Business Development 

Centers and Women's Business Centers, could better counsel businesses as they approach the top end of 

their size standard and help with the transition. 

In addition to better metrics and information, more could be done to ensure fair equity in the distribution 

of the contracting dollars amongst small businesses to promote sustainable growth. This problem has 

manifested itself in two ways: first, agencies are looking for easy dollars to award to small businesses in 

able to meet their goals with many looking to the limited industry North American Industry Classification 

System (NAICS) codes to do so and second, set-aside contracts have increased in value so much that it 

sometimes catapults a small business beyond its size in one contract 

On the first point, we have seen agencies set aside increasingly large percentages of their small business 

dollars to a limited number of NAICS codes. Small business set-asides have been as high as 40 to 60 percent 

at some agencies in the information technology and other services categories. Agencies are not creating a 

healthy industrial base with this approach as contracting officers do not look across the spectrum of 

industries to make awards to small businesses to determine where a gap exists in the base. Additionally, it 

leaves limited funds and opportunities available for competition among other businesses, particularly 

middle-market businesses. 

The increased size of set-asides has also become increasingly common. Bundling of requirements has been 

an issue that small businesses have faced for years, but rather than bundling preventing any small 

businesses from competing, this technique is now used to exclude some small businesses in favor of other 

small businesses. Because of these larger contracts, not only are small businesses left out of the market but 

the firms that win these contracts can grow out of their size standard with just one award. These actions 

result in small businesses graduating from their size standard without the ability to compete for full and 

open government contracts or commercial contracts. Furthermore, these types of awards not only 

significantly decrease the contract opportunities for graduated smalls and other businesses, but by not 

ensuring companies have the tools to succeed long-term, contracting officials are also undermining one of 

the primary goals of the small business program, which is to enhance the nation1

s industrial and 

manufacturing base. 

Agencies are measured on their ability to meet their small business goals and since the inception of the 

agency scorecards, this Committee has been able to hold agencies accountable to the goals. However, these 

scorecards have been heavily weighted towards one metric-the dollars awarded to small businesses, 

mostly primes. Subcontracting and steps taken by the agency to meet the goals are weighted in the 

scorecard at lesser levels. While this is due to change once the SBA revises its scorecard as required in the 

Follow us on Twitter @!TAIHancePS I learn more at itaps.itic.org 

JT Alliance for Public Sector j1101 K St. NW, Suite 610 I Washington, DC 20005 
49 

SBR002 with DISTILLER


Insert offset folio 49 here 29797.026

IT Alliance for Public Sector Testimony on Middle-Market Challenges 

House Small Business Committee 

April 26, 2018 

Page4 

FY16 National Defense Authorization Act,3 we must ensure that the new scorecard provides greater insight 

into the health of small businesses working with each agency and the overall health of the industrial base. 

Recommendations: 

Measure success by more than the percentage of contracts going to small businesses, particularly if 

those businesses have no opportunities once they graduate from the program. The definition of success 

for the small business program should be expanded to contain metrics that include the overall health of 

the small business industrial base. 

Develop and track metrics on the ability of small businesses and graduated small businesses to compete 

and thrive in full and open competitions and identify barriers to success post-graduation. Possible 

metrics could include: time and performance; job growth; and ability to win contracts via free and open 

competition. 

Reduce poor business practices or weaknesses in the industrial base and incentivize healthier business 

practices with stronger oversight and accountability. 

Implement government-wide monitoring of resulting revenue, growth, or job creation like the 

Department of Defense's (DoD) recent changes in required reporting of the Mentor Protege Program 

impact success. 

Require that the 23 percent statutory goal of awards to small business concerns be spread across all 

NAICS codes, with a prohibition on agencies using set-asides that exceed a certain percentage of dollars 

in any particular NAICS code. Further dispersal could be found by preventing agencies from placing 

requirements on prime contractors to subcontract more than 50 percent of work to small businesses in 

any one NAICS code. 

Collect better data to understand impacts of small business goaling and set-asides on the industrial base. 

Improve oversight on value and scope of contract awards set-aside for small businesses to ensure 

sustainable success. 

Increase Transparency and Efficiency in the Marketplace 

While the set-aside process needs improvement, the competitive marketplace is not perfect. As businesses 

of all sizes look to win free and open awards, the process has become timely and costly, preventing and 

discouraging businesses from competing. large indefinite delivery-indefinite quantity (IDIQ) contracts have 

become the norm. These large acquisitions are costly to compete for and the market research, bidding, and 

selection phases sometimes span over the course of years. At the end of those years and dollars spent, few 

companies win the awards and the others can be left out of the market for upwards of five to ten years. If 

a graduated small business is shuttered out of the market for the length of these contracts, it is likely they 

will revert to a small business. Increased transparency into the process and on-ramps onto these contracts 

will help small and middle-market businesses formulate more competitive proposals. 

Another improvement needed to the marketplace is greater transparency through post-award debriefings 

to those offerors who lost the contract. While many believe increased communication will lead to more bid 

'Pub. l. 114-92 (Nov. 25, 2015). 

Follow us on Twitter @JTAI!iancePS I learn rnore at itaps.itic.org 

IT A!!iance for Public Sector I 1101 K St. NW, Suite 610 I Washington, DC 20005 
50 

SBR002 with DISTILLER


Insert offset folio 50 here 29797.027

IT Alliance for Public Sector Testimony on Middle-Market Challenges 

House Small Business Committee 

April 26, 2018 

Page 5 

protests, that is simply not the case. In a report released earlier this year, RAND Corporation found that the 

share of contracts that are protested is small compared to the number of awards and better debriefings 

could help the offeror understand why they lost and potentially prevent protests. 4 A better understanding 

of how and why disappointed offerors did not win an award helps businesses of all sizes become more 

competitive in future competitions. 

Even when a business wins a competition, obstacles remain. For example, only small businesses can 

currently receive accelerated payments. While the Office of Management and Budget (OMB) had previously 

ensured that both small and other than small businesses could receive payment quickly, OMB has only 

extended the payments for small businesses, leaving middle-market and large businesses waiting for 

payments. Accelerated payments are necessary for businesses of all sizes: small and middle-market 

businesses can cover their overhead expenses and quickly pay employees, while middle-market and large 

businesses are able to quickly distribute payments to their small business subcontractors. A permanent 

extension of both is an easy way to cut out some of the red tape out of the acquisitions system. 

Recommendations: 

Increase transparency into all phases of larger IDIQ contracts and provide mechanisms for new 

companies to on·ramp onto these vehicles. 

Provide for enhanced debriefings of larger contracts and basic debriefings for other contracts, such as 

task and delivery orders, to ensure that contractors have a better understanding as to why they were 

not successful in a given competition. 

Pass H.R. 5337, The Accelerated Payments for Small Businesses Act, to provide a permanent solution for 

accelerated payments to all businesses. 

Enhance Mentor-Protege Programs and Teaming 

In 2016, the SBA published a long-awaited proposed rule that opens the benefits of the 8(a) Mentor-Protege 

program to small businesses of all categories. The rule provides significant new opportunities to businesses 

of all sizes as previously only a small percentage of small businesses were eligible for the program and many 

large and middle market primes previously found the pool of potential proteges too limited. ITAPS believes 

these programs are vital in building sustainable small businesses. 

As part of the process, mentors and proteges are required to jointly develop a tailored developmental 

assistance plan, which is set forth in a "mentor-protege agreement" that is also submitted to Office of Small 

and Disadvantaged Business Utilization officials who, in turn, determine the agreement's compliance with 

specific agency requirements. These mentor-protege agreement authorizes a broad array of developmental 

assistance, such as training, assistance in obtaining production and accounting certifications, contract 

administration, and overall general business management skills and organizational management. 

4 RAND Corporation, "Assessing Bid Protests of U.S. Department of Defense Procurements: Identifying Issues, Trends, and 

Drivers" (2018), availabfe at https://www,rand,org/pubs/research reports/RR2356.htm!. 

Follow us on Twitter @ITA!IiancePS 1 Learn more at ltaps.itic.org 

IT Al!lance for Public Sector 11101 K St NW, Suite 610 I Washington, DC 20005 
51 

SBR002 with DISTILLER


Insert offset folio 51 here 29797.028

IT Alliance for Public Sector Testimony on Mlddle·Market Challenges 

House Small Business Committee 

April 26, 2018 

Page 6 

Additionally, some agencies' programs allow mentors to provide loans and can award subcontracts on a 

noncompetitive basis. s 

These arrangements are beneficial to small businesses, as it opens a vast array of knowledge and learning 

opportunities to which they would otherwise not have access. Under these arrangements, primes are 

arming small businesses with skills in cybersecurity, cost and accounting principles, regulatory compliance 

assistance, and so many others. Yet, we do not have enough participants on either side. While much of the 

focus on mentors has been on larger primes, middle-market businesses have the same skills and knowledge 

to impart on small firms as many of them have participated in the program and have more immediate firsthand knowledge on transitioning from small to middle-market. We need to create additional incentives to 

middle-market and large primes to participate in the program. The incentives could be as easy as giving the 

mentors additional credit in their subcontracting plan or extending the length of the agreements to provide 

for additional contracting opportunities, neither of which would cost the SBA or other agencies any 

additional funding. 

In addition to the formal mentor-protege program, small businesses often enter into joint ventures or 

teaming arrangements when an acquisition is too big for a small business to fulfill alone. Rather than not 

bidding on the contract, these arrangements allow these businesses to form a joint venture or partnership 

with a middle-market or large prime for a limited amount of time or for a specific project. Through this 

method, many small businesses have been able to compete and win contracts for work that would normally 

be out of their grasp. Through these types of arrangements, companies can grow their business and 

increase their individual capacities. 

While !TAPS understands the limited scope that teaming and joint ventures are meant to provide to avoid 

affiliation, business structures have changed rapidly over the past three decades. In no sector is this more 

evident than in the IT sector. Many of these companies have been working with DoD and others to provide 

innovative solutions to some of the warfighter's most pressing problems. However, very few of these 

companies have experience in the government marketplace, and many continually look for opportunities 

to partner to escape the "valley of death" too well-known in the research and development field. 

Nonetheless, it is this need to seek help that will prevent them and others from reaping the benefits of their 

technology. 

Large and middle-market businesses wish to partner with these small firms to help provide solutions to the 

warfighter. These actions are taken not for the sake of trying to control a smaller company or to defraud 

the government, but rather to build partnerships and gain trusted business relationships that can be carried 

forward on future projects. However, the downside of affiliation prevents small businesses from seizing on 

these opportunities. 

Recommendations: 

5 See generally, RobertJay Dilger, Small Business Mentor~Protege Progroms, Congressional Research Service R41722 (March 2, 

2015) (providing an overview of the different incentives provided by each agency's program). 

Follow us on Twitter @ITAIIiancePS I Learn more at ltaps.ltic.org 

IT Alliance for Public Sector 11101 K St. NW, Suite 610 I Washington, DC 20005 
52 

SBR002 with DISTILLER


Insert offset folio 52 here 29797.029

IT Alliance for Public Sector Testimony on Midd!e~Market Challenges 

House Small Business Committee 

April 26, 2018 

Page 7 

Increase the number of proteges that mentors can enter into agreements with, as it will enable smaller 

firms to gain valuable insight into the contracting marketplace and strengthen the industrial base. 

• The current acquisition process to bid and award a contract has long surpassed the timeframe of a 

traditional mentor-protege agreement. As such, the timing on these agreements should be extended 

beyond the current one to three-year timeframes currently used to at least a five-year timeframe that 

mirrors the length of acquisitions. 

Create additional incentives, such as providing subcontracting credit to mentors, in order to increase 

participation in the programs. 

Require that past performance of individual companies in teams, joint ventures, or mentor-proteges 

partners to be considered when evaluating past performance. 

• Simplify the affiliation rules to allow for more clarity and more flexibility in allowing small businesses to 

team with large and middle-market businesses. 

Fraud and abuse continue to permeate the various small business contracting programs and multiple 

reports by various Inspectors General and the Government Accountability Office have illustrated the depth 

of the problem. For example, in the 8(a) Contracting Program, several reports have indicated that agencies 

are unclear as to who is to monitor the compliance with the subcontracting !imitations and the confusion 

allowed participants in the program to surpass their limitations on subcontracting. Investigations have 

revealed small businesses operating as pass-throughs with 100 percent of the dollars going to their 

subcontractors.' The same results were found at the Department of Interior (DOl), in which it was 

determined that in some cases the contract clause was not included and when it was, contracting officers 

were "unsure how to monitor the requirement [and] had no knowledge of any Departmental guidance in 

this regard."' In another audit, DOl found that an Alaskan Native Corporation had submitted reports 

showing that it had been non-compliant with its subcontracting limitations for over two years' However, 

the contracting officer neither corrected the problem nor terminated the contract and therefore, the 

business was able violate the subcontracting limitation without penalty or risk.' 

6 /d. 

7 U.S. Dept. of Interior, Office of Inspector General, Recovery Oversight Advisory: Monitoring of limitations on Subcontracting 

Clause on 8(a) Contracts, Report No. ROO-ROA MOA-1021-2010 (Oct. 13, 2010). 

s U.S. Dept. of Interior, Office of Inspector General, Acquisition Services Dire.ctorate-Sierra Vista, Report No.ER-IS-N8C-0003-

20ll(July 14, 2011). 

9 !d. 

Follow us on Twitter @!TA!!iancePS j Learn more at itaps.itic.org 

IT Af!iance for Public Sector j1101 K St. NW, Suite 610 ! Washington, DC 20005 
53 

SBR002 with DISTILLER


Insert offset folio 53 here 29797.030

IT Alliance for Public Sector Testimony on Middle-Market Challenges 

House Small Business Committee 

April 26, 2018 

Page 8 

Fraud has also been found in the Service-Disabled Veteran-Owned Small Business contracting program, 10 as 

well as with the HUBZone program. 11 While in some cases, firms were decertified from the program,"SBA 

and other agencies have not consistently enforced the limitations nor sought prosecution of the businesses 

for violating the terms of the contract. Even when a contracting officer can determine that limitations on 

subcontracting were exceeded or fraud occurred, it is difficult to prove damages caused by the breach since 

in almost all cases the government has received the good or services that it procured through the contract. 

While section 16(d) of the Small Business Act provides penalties, which include fines and/or imprisonment, 

for misrepresentation of small business status to obtain a contract, n these punishments have yet to be 

extended to those who violate the limitations on subcontracting. Thus, suspension or debarment is the only 

penalty available. 

These instances of fraud not only prevent other small businesses from being able to compete for contracting 

opportunities, they can also prevent graduated small and other businesses from competing for the award. 

If a company cannot meet the prime performance requirements or is defrauding the system by passing the 

dollars through to an eligible firm, they should not receive the award. However, until there are 

consequences for these fraudulent actions, they will continue. 

Recommendations: 

Clarify who is ultimately responsible for monitoring compliance with subcontracting limitations. 

Ensure that there are consequences that will occur for violating small business compliance 

requirements. 

ITAPS believes the recommendations set forth here outline the steps needed to create a healthy and vibrant 

industrial base across businesses of all sizes. With these measures, small businesses and graduated 

businesses will be given the tools to succeed and sustain themselves for the long haul. Chairman Knight, 

Ranking Member Murphy, and Members of the Committee, thank you again for this opportunity to testify, 

and I would be happy to answer your questions. 

10 U.S. Government Accountability Office, Report to the Chairwoman, Committee on Small Business, House of Representatives, 

Service-Disabled Veteran-Owned Smalf Business Program: Case Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain 

Millions of Dollars in Contracts, GAO 10-108 (Oct 23, 2009). 

11Jd. 

12 U.S. Government Accountability Office, Report to the Chairwoman, Committee on Small Business, House of Representatives, 

Smaff Business Administration: Undercover Tests Show HUBZone Program Remains Vulnerable to Fraud and Abuse, GA0-10-759 

(June 25, 2010). 

13 Small Business Act, P.L 111-240, § 16{d), 72 Stat. 384. 

Follow us on Twitter @lTAWancePS I Learn more at itaps.itic.org 

!T Alliance for Public Sector 11101 K St. NW, Sulte 610 ! Washington, DC 20005 
54 

SBR002 with DISTILLER


Insert offset folio 54 here 29797.031

The Honorable Steve Knight 

Chairman 

The Honorable Stephanie Murphy 

Ranking 

MTA, 

M1d-ltcr Advocacy, Inc 

April 26, 2018 

Subcommittee on Contracting and Workforce 

Committee on Small Business 

Congress of the United States 

U.S. House of Representatives 

2361 Rayburn House Office Building 

Washington, DC 20515-6315 

Re: No Man's land: Middle-Market Challenges for Small Business Graduates 

Dear Chairman Knight and Ranking Member Murphy: 

Background: 

No Man's land is the stage in a business organization's growth where a company is essentially too small 

to be big, but conversely too big to be small. Often the result is that companies who find themselves in 

this evolutionary phase of their development, known as No Man's land, have not yet developed the 

capital resources, operational systems, mature processes and diversified past performance history that 

larger competitors possess. Yet, these same companies have often grown beyond the small business 

size standards that allow them to compete against peer companies. In its notice of hearing from April 

19, 2018, the Subcommittee very effectively captured the challenges that small or mid-sized businesses 

face as they grow when it stated: 

"As the divide between small and large contractors continues to widen, successfully navigating the 

middle market becomes an increasingly challenging prospect for advanced small or mid-size businesses. 

The mid-size issue is a multi-faceted one and this hearing continues the efforts of the Committee to 

examine this important issue in light of the changing procurement landscape." 

Discussion: 

The intent of small business programs is to provide start-up businesses with limited competition 

procurements that will allow them to build infrastructure and experience during their time in the small 

business program, so that once they graduate, they are a viable and capable organization that can 
55 

SBR002 with DISTILLER


Insert offset folio 55 here 29797.032

compete on the open market. The small business size standards that determine whether an 

organization is eligible to compete for small business procurement opportunities is primarily based on 

the most recent three year average of revenues generated by the organization. 

The idea to extend the period of earnings from a 3 year average to a 5 year average appears beneficial 

at first glance. However, the benefit to a small company would be quickly outweighed by an offsetting 

downside. As a company is growing, theoretically moving to a 5 year average would allow them to stay 

in their small business size standard for a longer period of time. However, once graduated, the same 

process would keep them out of their size standard for a longer period of time. 

This could result in unintended consequences that may or may not do more harm to a "newly minted" 

mid-tier company. In many cases, the potential benefits would never be realized due to the sheer size 

of the contract awards. For example, if a company is awarded a $100M contract under a $7.5M size 

standard, they will have graduated immediately upon recertification which would not happen until after 

the 5 year period of performance on the contract. At that point, they would have amassed a rolling 

$20M + per year revenue number that would keep them out of their size standard with this one contract 

for 5 years after the contract period of performance. 

If you forget about the 3 year average for a moment and consider some of the "real" drivers behind a 

company's inability to build a sustainable business model within the time given, it is more about the 

types of revenue any company is forced to recognize. Most small businesses graduate very rapidly out 

of their small business size standards with the assistance of their business partners. These partners are 

necessary to assist the start-up company throughout the business pursuit phases of their evolution and 

therefore have significant influence on the small business. This influence is further driven by the 

government's intent to meet their small business goals by awarding multi-million dollar procurements to 

businesses in the smallest of size standards. Connect the large business's drive to win a 49% stake in a 

large contract with the government's attempt to meet small business goals by awarding these mega 

million contracts and you have a small company that can outgrow its size standards at a pace far too fast 

to actually mature into a viable company. 

One of the largest contributors to the rapid influx of revenue is the requirement to recognize all revenue 

as the prime contractor of a contract award. Since procurement requirements often require small 

businesses to possess past performance history, scale, capability, etc., an essential element of success is 

to have a large business as a substantial subcontractor often representing 49% of the work. The 

revenue associated with the large business subcontractor's share of work is a major contributor to the 

revenue of the prime contractor even though it is merely a pass-through. Essentially, half the revenue 

realized and reported by the small business is of no value at all to the small business. This revenue 

inflates the posture of the small business, significantly contributes to the graduation of the small 

business and provides "zero" benefit to the company. 
56 

Æ 

SBR002 with DISTILLER


Insert offset folio 56 here 29797.033