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FEDERAL CONTRACTING: REMOVING HURDLES

FOR MINORITY-OWNED SMALL BUSINESSES

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

ORGANIZATION, AND PROCUREMENT

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

SEPTEMBER 26, 2007

Serial No. 110–88

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

TOM LANTOS, California

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

DAVID MARIN, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, ORGANIZATION, AND PROCUREMENT

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

CAROLYN B. MALONEY, New York

BRIAN P. BILBRAY, California

TODD RUSSELL PLATTS, Pennsylvania,

JOHN J. DUNCAN, JR., Tennessee

MICHAEL MCCARTHY, Staff Director

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C O N T E N T S

Page

Hearing held on September 26, 2007 ..................................................................... 1

Statement of:

Barrera, Michael L., president and CEO, U.S. Hispanic Chamber of Commerce; Damon Kinebrew, treasurer, Association of Minority Enterprises

of New York; Allegra F. McCullough, former SBA Associate Deputy

Administrator, Government Contracting and Business Development;

and Anthony W. Robinson, president, Minority Business Enterprise

Legal Defense and Education Fund ............................................................ 62

Barrera, Michael L. ................................................................................... 62

Kinebrew, Damon ...................................................................................... 72

McCullough, Allegra F. ............................................................................. 75

Robinson, Anthony W. ............................................................................... 81

Jenkins, Calvin, Deputy Associate Administrator, Office of Government

Contracting and Business Development, U.S. Small Business Administration; Anthony Martoccia, Director, Office of Small Business Programs, U.S. Department of Defense; William B. Shear, Director, Financial Markets and Community Investment, U.S. Government Accountability Office; and Preston Jay Waite, Deputy Director, U.S. Census

Bureau ........................................................................................................... 6

Jenkins, Calvin .......................................................................................... 6

Martoccia, Anthony ................................................................................... 13

Shear, William B. ...................................................................................... 25

Waite, Preston Jay .................................................................................... 45

Letters, statements, etc., submitted for the record by:

Barrera, Michael L., president and CEO, U.S. Hispanic Chamber of Commerce, prepared statement of ...................................................................... 65

Jenkins, Calvin, Deputy Associate Administrator, Office of Government

Contracting and Business Development, U.S. Small Business Administration, prepared statement of ..................................................................... 9

Kinebrew, Damon, treasurer, Association of Minority Enterprises of New

York, prepared statement of ........................................................................ 74

Martoccia, Anthony, Director, Office of Small Business Programs, U.S.

Department of Defense, prepared statement of ......................................... 15

McCullough, Allegra F., former SBA Associate Deputy Administrator,

Government Contracting and Business Development, prepared statement of ........................................................................................................... 77

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

Defense and Education Fund, prepared statement of ............................... 83

Shear, William B., Director, Financial Markets and Community Investment, U.S. Government Accountability Office, prepared statement of .... 27

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 3

Waite, Preston Jay, Deputy Director, U.S. Census Bureau, prepared

statement of ................................................................................................... 47

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FEDERAL CONTRACTING: REMOVING HURDLES FOR MINORITY-OWNED SMALL BUSINESSES

WEDNESDAY, SEPTEMBER 26, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

ORGANIZATION, AND PROCUREMENT,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:45 p.m., in room

2154, Rayburn House Office Building, Hon. Edolphus Towns (chairman of the subcommittee) presiding.

Present: Representatives Towns and Bilbray.

Also present: Representative Clay.

Staff present: Michael McCarthy, staff director; Velvet Johnson,

counsel; Cecelia Morton, clerk; Emile Monette, minority professional staff member; and Benjamin Chance, minority clerk.

Mr. TOWNS. Let me begin by apologizing for our lateness. Of

course, we had votes on the floor, and that was the problem. We

thank you for your patience.

The hearing will come to order. We are here to consider an issue

that is important to the future growth and development of our Nation: How do we dismantle the barriers that restrict minorityowned small businesses from actively participating in the Federal

marketplace?

Vast spending on Federal procurement makes Government contracts a potentially important source of revenue for all businesses,

whether large, small or owned by socially and economically disadvantaged individuals. Federal spending on contracting has hit a

record level, and the Federal Government is now spending nearly

40 cents of every discretionary dollar on contracts with private

companies.

Although procurement provides the Federal Government with a

potentially powerful tool for promoting opportunities and counteracting discrimination, there continues to be disparities in the allocation of Government contracts to minority firms.

I have heard from a number of my constituents and from minority businesses all over the Nation about their difficulty getting contracts from the Government. Their claims are supported by research. According to a study performed by the Urban Institute, minority-owned businesses received only 57 cents of each dollar they

would be expected to receive based on their availability to carry

Government contracts.

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These disparities are why we need Federal contracting programs

like 8(a) and the Small Disadvantaged Business Program. These

programs help minority and disadvantaged firms access Federal

contracts and are needed to help bridge the gap for small minority

firms attempting to break into the Federal marketplace.

Minority-owned firms often turn to Federal contracting to offset

some of the limitations imposed by the private market. However,

barriers embedded in the contracting process itself can impede minority firms from winning Government contracts. One of the main

issues arising today is that there is not a penalty for agencies’ failure to meet their minority-owned business contracting goals.

Another challenge is the inaccurate reporting of contracting data.

Often, Federal agencies mis-code thousands of contracts to big companies as small business awards in an attempt to meet their contracting goals. These errors result in the diversion of billions of dollars in lost contracting opportunities to small businesses, particularly minority-owned firms.

We have been talking about these issues now for a long, long

time. It is time to do something about them. It is my hope that we

can work together to come up with a better strategy to expand the

participation of minority businesses in public contracting.

[The prepared statement of Hon. Edolphus Towns follows:]

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Mr. TOWNS. I now will pause and recognize the ranking member

from California, Congressman Bilbray, for his opening statement.

Mr. BILBRAY. Thank you, Mr. Chairman. Mr. Chairman, I think

your opening statement pretty well summarizes very appropriately.

I would just like to remind us all that Government procurement

and receiving a contract is not just a thing of dollars and cents.

There is a lot of standing in it, and history has proven that it can

make a difference. I think we sometimes forget that if it wasn’t for

receiving a Federal contract, we wouldn’t know of names like Eli

Whitney, Samuel Colt or the DuPont Family, and the list can go

on and on.

I will appreciate those who have come here to testify, to try to

work out and improve the situation, and I appreciate the chairman

for having the hearing.

I yield back, Mr. Chairman.

Mr. TOWNS. Thank you very much, Congressman Bilbray.

I ask unanimous consent that the gentleman from Missouri, Mr.

Clay, participate in today’s hearing. My friend, Mr. Clay, is Chair

of the Census Subcommittee and, of course, a member of the full

committee.

Congressman Clay.

Mr. CLAY. Thank you, Mr. Chairman. Let me thank you for inviting me to participate in today’s hearing and for your leadership on

this important issue.

A recent report found that annual Federal procurement spending was over $400 billion in 2006. While taxpayer dollars continue

being spent on contracting, minority-owned businesses are being

left behind. For many minority-owned firms, the Federal procurement process is a series of large obstacles. In addition to lacking

the financial capital to succeed, many do not have the experience

to navigate the contracting maze.

As chairman of the Information Policy, Census, and National Archives Subcommittee, I have heard this message loud and clear

from minority-owned businesses, and the Census Bureau is expected to spend at least $11.6 billion on the 2010 decennial census.

My subcommittee has held four hearings and has examined the Bureau’s contracting plans, especially as they related to minorityowned businesses.

I appreciate the Bureau’s assurance that minority contractors

will receive fair consideration in their procurement process, and it

is my hope that today’s testimony will help Congress gather the

facts needed to devise statutory measures that will level the playing field for all minority businesses.

Mr. Chairman, I again thank you for holding this hearing, and

I yield back.

Mr. TOWNS. Thank you very much, Congressman Clay.

At this time, I would like to ask the panelists to stand. We swear

in all of our witnesses.

[Witnesses sworn.]

Mr. TOWNS. Let the record reflect that the witnesses answered

in the affirmative. You may be seated.

Let me move forward with introduction of the panelists.

Calvin Jenkins is the Deputy Associate Administrator of Government Contracting and Business Development with the U.S. Small

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Business Administration where he is responsible for 8(a) and small

business contracting programs.

Then we have Anthony Martoccia, who is the Director at the Department of Defense, Office of Small Business Programs and, of

course, has served in a number of procurement management positions at the Small Business Administration and the Department of

Defense, NASA and the Department of Transportation. Welcome.

We also have Bill Shear who is the Director of Financial Markets

and Community Investment at the U.S. Government Accountability

Office. He has directed substantial bodies of work addressing the

Small Business Administration and community and economic development programs. Welcome.

Preston Jay Waite is Deputy Director of the Census Bureau. He

is the Chief Operating Officer overseeing day to day operations and

preparation for the 2010 census.

Let me say to you, gentlemen, your entire statement will be

placed in the record. So if you could summarize in 5 minutes which

will allow the committee an opportunity to raise some questions

with you, I think we will be able to cover a lot more.

Why don’t we begin with you, Mr. Jenkins, and just come right

down the line?

STATEMENTS OF CALVIN JENKINS, DEPUTY ASSOCIATE ADMINISTRATOR, OFFICE OF GOVERNMENT CONTRACTING

AND BUSINESS DEVELOPMENT, U.S. SMALL BUSINESS ADMINISTRATION; ANTHONY MARTOCCIA, DIRECTOR, OFFICE

OF SMALL BUSINESS PROGRAMS, U.S. DEPARTMENT OF DEFENSE; WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS

AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND PRESTON JAY WAITE, DEPUTY

DIRECTOR, U.S. CENSUS BUREAU

STATEMENT OF CALVIN JENKINS

Mr. JENKINS. Chairman Towns and Ranking Member Bilbray

and members of the committee, thank you for inviting me here

today to discuss the role the Small Business Administration plays

in the Federal marketplace.

I am Calvin Jenkins, the Deputy Associate Administrator for

Government Contracts and Business Development. I will begin

with a quick overview of SBA’s 8(a) business development program.

The 8(a) program began during the 1960’s to assist eligible small

disadvantaged business concerns to compete in the American economy through business development. All applicants must demonstrate social and economic disadvantage. In addition, all U.S.

citizens who can demonstrate social and economic disadvantage as

well as comply with other eligibility requirements are welcome to

apply for participation in the 8(a) program.

Today, there are approximately 9,000 certified firms in the 8(a)

program with contract dollars of $12.4 billion in fiscal year 2006.

This is an increase of $6.1 billion in contract dollars since 2001.

Additionally, in 2006, contract dollars overall to small disadvantaged businesses including 8(a) was $22.9 billion which represents

6.76 percent of contracting dollars, well above the 5 percent goal.

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In 1988, a significant change was made to the 8(a) program when

Congress enacted legislation that allows firms owned by Indian

tribes including Alaskan Native Corporations and Native Hawaiian

Organizations to participate in the 8(a) program. Subsequent to

that change, Congress authorized firms owned by community development corporations to also participate in the 8(a) program. Generally, 8(a) firms can receive sole-source contracts up to $5.5 million for manufacturing and $3.5 million for all other services. By

statute, 8(a) firms owned and controlled by Indian tribes including

ANCs, may receive sole-source 8(a) contracts above these thresholds.

The difference between ANC-owned 8(a) firms and non-ANCowned in the 8(a) programs stems from the assumption that organization-owned firms, including ANCs, will utilize the program to

provide economic development to their respective communities. All

other 8(a) participant firms utilize the program to receive individual business development assistance as was initially the intent of

Congress.

As the law is currently written, the 8(a) program is designed to

provide business development support to disadvantaged individuals

while also providing regional and community economic development to organization-owned firms including Indian tribes and Alaskan Native Corporations.

In April 2006, GAO published a report entitled Increased Use of

Alaska Native Corporations Special 8(a) Provisions Call for Tailored Oversight, addressing some of the differences I have just

mentioned.

The report noted that Federal contract dollars obligated to firms owned by ANCs grew from $265 million in fiscal year 2001 to $1.1

billion in fiscal year 2004. That report found that ANCs are increasingly utilizing the special advantages Congress has provided.

The report also found that contracting officers often need more

guidance on how to effectively use to ensure taxpayer dollars are

spent wisely and SBA could make improvements in its overall oversight of the program.

Significant increases in Federal contracting dollars have gone to

other groups during the same period. In fiscal year 2004, womenowned small business grew from $5.5 billion to $9.1 billion. Service-disabled veteran-owned firms grew from $554 million to $1.2

billion.

HUBZone firms grew from $1.6 billion to $4.8 billion, and overall

small businesses grew $50.1 billion to $69.2 billion. Today, that

number is over $77 billion.

The Federal Government has worked hard to achieve its goal of

23 percent of its prime contract dollars to businesses that qualify

as small businesses. In fiscal year 2004, 8(a) firms were awarded

$8.4 billion of the SDB achievement of $18.5 billion.

Finally, I would like to talk about oversight. The SBA takes its

oversight responsibilities very seriously. Prior to release of the

GAO report, the agency had taken a number of steps to improve

the oversight of the 8(a) program including taking into consideration special provisions afforded to 8(a) concerns owned and controlled by ANCs, Native Hawaiian-owned Organizations and Indian

tribes.

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SBA has also increased training to field staff responsible for

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

As we further our efforts to assist under-served markets, we continue to be concerned and cognizant of making sure we do not set

as rivals one program against the other as they share the same

common goal. To this regard, SBA’s 2008 budget includes a request

of $500,000 to examine how best to serve 8(a) firms, HUBZones,

small disadvantaged businesses as well as women-owned and service-disabled veteran-owned businesses while not restricting the success of one program.

We recognize the agency can improve on the current progress in

management as well as effectiveness in these important programs

and will use the resources to determine how to best serve these

communities. These resources will be used to analyze, among other

things, training, the use of technology in order to determine how

best to serve the businesses that use these products.

SBA recognizes the need for improving our Government contracting programs and taking the lead, moving forward, along with the

Office of Management and Budget’s Office of Federal Procurement

Policy to carry out a number of initiatives including working with

agencies to ensure that small business contracting numbers reporting is accurate. A great example of the progress being made in this

area is SBA current publication of the first of its biannual Small

Business Procurement scorecard.

Mr. TOWNS. Mr. Jenkins, can you summarize?

Mr. JENKINS. OK. The scorecard is a method of ensuring that the

Federal agencies provide the maximum possible opportunity for

small business in the Federal marketplace.

SBA is committed to continue to implement the laws governing

the 8(a) program. We would also like to ensure that through our

oversight and administration of the program, all 8(a) participants

receive the appropriate assistance.

I will be more than happy to answer any questions the committee may have.

[The prepared statement of Mr. Jenkins follows:]

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Mr. TOWNS. Thank you very much.

Mr. Martoccia.

STATEMENT OF ANTHONY MARTOCCIA

Mr. MARTOCCIA. Thank you. Chairman Towns, Ranking Member

Bilbray and committee members, good afternoon.

My name is Tony Martoccia, Director of the Department of Defense Office of Small Business Programs in the Office of the Under

Secretary of Defense for Acquisition, Technology and Logistics.

Thank you for inviting me to speak to you today concerning minority-owned small business contracting within the Department.

Small minority-owned firms are vital to the job growth and the

economic strength of this Nation. They also play an integral role

in DOD’s defense mission. This is why I am very proud of the fact

that every fiscal year since fiscal year 2000 the Department has

met or exceeded the 5 percent Government-wide statutory goal for

small disadvantaged businesses. Preliminary analysis for 2007 data

indicate that DOD will once again achieve this goal.

My testimony today considers a number of these potential barriers. I have also highlighted some of the ongoing initiatives within

the Department that will make it even more effective in reaching

out to minority-owned small businesses.

Contract consolidation and bundling is a barrier that we see for

small businesses. Contract consolidation occurs when requirements

previously performed by either large or small businesses under two

or more separate, smaller contracts are combined into one contract,

and contracting bundling occurs when requirements that were previously performed by small businesses are consolidated into a single procurement, resulting in an acquisition that is unsuitable for

an award to a small business.

Any acquisition strategy that uses bundling or consolidation

must undergo a rigorous justification and approval process.

Subcontracting: By the way, strictly speaking, subcontracting is

not a barrier for minority-owned businesses. I mention it because

it is important that DOD prime contractors are made aware of

their responsibilities under the DOD small business programs. It

is the responsibility of the Department of Defense contracting officers to ensure that prime contractors achieve their subcontracting

goals.

Competition: Competition saves taxpayers money, improves contractor performance, curbs fraud and abuse, and promotes accountability for results. Within DOD, competition is the preferred method for acquiring goods and services. The Department’s preference

for competition extends to small disadvantaged business and 8(a)

procurements and in procurements involving ANC firms.

Non-competitive acquisition strategies are the exception to the

norm and the rationale for not using competitive techniques must

be fully justified.

Alaska Native Corporations: The Government Accountability Office noted that oversight in this area was vulnerable under ANC

contracts. DOD has discussed GAO’s findings in our small business

training conference this year, and the military departments have

also increased their training efforts with respect to oversight of

ANC requirements.

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Now I would like to talk about some of our ongoing initiatives

to increase opportunities for small disadvantaged business and minority contractors within the DOD acquisition structure.

Minority Contractor Enhancement Program: The DOD Small

Business Office has been provided funds by Congress in 2007 to develop a Minority Contractor Enhancement Program. The funds will

be used to award a contract to a minority-owned 8(a) firm for the

development and support of a DOD minority enhancement program. The contractor will provide assistance to small minorityowned businesses including 8(a) participants in order to help them

become successful DOD contractors.

The DOD innovative Small Business Innovative Research Program and the Small Business Technology Transfer Program: Historically, about 10 percent of both Phase I contract awards for technology feasibility and Phase II contracts for technology prototyping

and demonstration have gone to minority-owned firms.

We continue to focus on training for acquisition work force as

well as DOD small business community practice where we provide

training online. We are looking at small business size standards to

provide more opportunities for minority-owned businesses.

Finally, being Director of the DOD Office of Small Business Programs means I am also a member of the senior management staff.

This gives me an opportunity to meet with my fellow senior managers on a weekly basis and share DOD’s small agenda with them.

Through these interactions, I have obtained their leadership commitment to promote small business programs within their organizations.

I appreciate the committee’s continued interest in oversight of

DOD’s small business programs and look forward to answering any

questions you might have. This concludes my testimony.

[The prepared statement of Mr. Martoccia follows:]

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Mr. TOWNS. Thank you very much.

Mr. Shear.

STATEMENT OF WILLIAM B. SHEAR

Mr. SHEAR. Mr. Chairman, Representative Bilbray and members

of the committee, I am pleased to be here this afternoon to discuss

our previous and ongoing work related to contracting opportunities

for small businesses.

I will discuss, first, results from our March 2007 report describing the extent to which small businesses participated in contracting

opportunities related to Hurricane Katrina and the lack of required

information on official procurement data systems and subcontracting plans; second, information from two previous GAO reports regarding the small business advocacy responsibilities of SBA and

the Offices of Small and Disadvantaged Business Utilization

[OSDBUs] that operate in Federal agencies that award contracts;

and third, our ongoing work at your request, Mr. Chairman, on

SBA’s efforts to advocate for small disadvantaged businesses and

the role of the OSDBUs in that process.

In summary, small businesses received a total of 28 percent of the $11 billion that were directly awarded in response to Hurricane

Katrina between August 2005 and June 2006. DHS awarded the

highest amount to small businesses, and the General Services Administration awarded the highest percentage of its Katrina-related

contracting dollars directly to small businesses.

Small businesses in Alabama, Mississippi and Louisiana received 66 percent of the $1.9 billion awarded to businesses in these

States.

With respect to small business subcontracting opportunities, required information was not consistently available in official procurement data systems for these agencies. For example, the systems had no information on whether DHS or GSA required small

business subcontracting plans for 70 percent or more of the contracting funds. In addition, the agencies often did not provide reasons for their determinations that plans were not required even

though Federal rules require such documentation and such information should have been readily available.

Because of the incomplete information about subcontracting, we

were not able to determine the extent to which agencies complied

with contracting rules and gave small business the maximum opportunities to win subcontracts. By requiring subcontracting plans,

agencies commit price contractors to engage in good faith efforts to

meet their small business subcontracting goals. In doing so, the

agencies help ensure that small businesses have all of the practical

opportunities to participate in Federal contracts as they are supposed to have.

Therefore, we made recommendations to the agencies, one of

which focused on needed guidance to more transparently disclose

the extent to which subcontracting opportunities are available to

small businesses. The agencies generally agreed with our recommendations and described various steps they are taking to implement them. To date, the General Services Administration is the

one agency that has completed implementation of our recommendations.

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Now I will briefly discuss our prior work on the OSDBUs. These

offices, in partnership with SBA, are tasked with functions to expand contracting opportunities for various categories of small businesses including small disadvantaged and 8(a) businesses.

The Small Business Act requires that the OSDBU Director for

each agency, with the exception of the Department of Defense, be

responsible to and report only to agency heads or their deputies.

In 2003, we reported that 11 or 24 agencies reviewed did not comply with this provision. As of our most recent followup with these

agencies, nine are not in compliance. Because the OSDBU directors

at these agencies do not have a direct reporting relationship with

their agencies’ heads or deputies, the reporting relationships potentially limit their role as effective advocates for small and disadvantaged businesses.

Finally, I will mention our current evaluation at your request.

This evaluation includes an assessment of the actions SBA and

OSDBUs take to advocate that small disadvantaged business receive opportunities to participate in Federal contracts.

Mr. Chairman, this concludes my prepared statement. I would be

happy to answer any questions.

[The prepared statement of Mr. Shear follows:]

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Mr. TOWNS. Thank you so much, Mr. Shear.

Mr. Waite.

STATEMENT OF PRESTON JAY WAITE

Mr. WAITE. Mr. Chairman, thank you for the opportunity to be

here today to discuss removing hurdles from minority-owned small

businesses.

As you know, we are required by law to track minority-owned

small businesses under the category, Small Disadvantaged Business. The categories of Small Disadvantaged Business include

small business owned by African Americans, Hispanic Americans,

Native Americans, Asian Pacific Americans, Subcontinent Asian

Americans and another category, very small, called Other.

The Census Bureau recognizes the importance of establishing

strong goals that ensure the greatest number of subcontracts go to

small or disadvantaged businesses. Since census 2000, in our contracting efforts, we have equaled or surpassed the small business

goals established by the Department of Commerce. These goals

themselves are actually greater than the statutory requirements.

In fact, I am pleased to report that over the past 3 years the

Census Bureau’s small business achievements have averaged 42

percent of the total of all contracts. In that time span, almost 20

percent of the dollars expended on all contracts were given to small

disadvantaged businesses. This 20 percent represents approximately $130 million.

I think it would be helpful to look at three of our major 2010 contracts to highlight our commitment to small and small disadvantaged businesses.

The ultimate goal of the re-engineered 2010 census is an accurate and complete count of very person living in the United States.

We have incorporated a range of strategies and approaches to

achieve that goal including the use of automation in the form of

handheld devices for each census taker.

Our automation efforts are centered on two major systems, the

2010 Decennial Response Integration System [DRIS] and the Field

Data Collection Automation System [FDCA]. Both of these are

large information technology contracts, totaling together over $1

billion.

The DRIS contract was awarded in 2005 to the Lockheed Martin

Corp. It receives and protects the census responses whether they

are collected by paper form, handheld computer or telephone.

With respect to small businesses, the DRIS request for proposal

contained a mandatory requirement for a minimum of 30 percent

of the total contract value to small businesses. Minus prime program management and hardware, this represents 43 percent of all

the remaining work that is available for small businesses to provide value-added services on the contract.

The Lockheed Martin DRIS team submitted a plan that establishes, maintains and adheres to subcontracts of a minimum of 30

percent of the total contract price to small businesses, minority

businesses, women-owned businesses, veteran-owned businesses

and HUBZone businesses combined.

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The Harris Corp., which holds the FDCA contract, will meet a

mandatory requirement of a minimum of 20 percent of the total

contract for small businesses.

These goals must be met by the end of the closeout of the contract in 2011. The majority of the small business opportunities for

these programs will occur in the latter years of the decennial contracts, 2009 and 2010, where the scope is broader and more favorable for small business participation. This includes training development, onsite IT technicians, office deployment and deinstallation.

Another major contract, our communications contract, will be in

the forefront of a multifaceted integration effort to increase the

mail response rate, reduce the differential under-count and encourage cooperation during the non-response followup operations. As

part of the overall strategy, we intend to incorporate the lessons

and successes of census 2000 when we were able to improve the

mail response rate for reduce the differential under-count.

Earlier this month, we announced the award of this contract to

Draftfcb, a full servicing marketing communications agency that is

part of the Interpublic Group of communications companies.

Draftfcb’s team includes partner agencies that specialize in reaching minority audiences. They are Global Hue for the Black and

Hispanic audiences, IW Group for the Asian and Native Hawaiian

and Pacific Islander audiences, G&G for the American Indian audiences and Allied Media for other emerging audiences.

As part of the Census Bureau’s RFP process, we required each

potential contractor to establish a small business subcontracting

plan which is based on the established Department of Commerce

fiscal year 2007 small business goals of 40 percent for small businesses and 17 percent for small disadvantaged businesses. As the

winner, Draftfcb will be expected to maintain and adhere to that

plan.

We will monitor all the contracts closely to ensure they fulfill establishing subcontracting goals. The Census Bureau is fully committed to fulfilling these obligations because they reflect opportunity for small business. We also support them because they are

consistent with the goals of the 2010 census.

Each major contractor doing business with the Census Bureau

establishes a small business outreach office to assist those seeking

contracts. We also have such an office within the Census Bureau.

This is central to our commitment to ensure that small businesses

and small disadvantaged businesses have the information, guidance and support that they need. We work closely with these businesses in the application process, and we provide feedback to those

who don’t get the contracts.

Our commitment stems from our belief that counting every person living in the United States is not merely a Government activity. Our success depends on the participation and cooperation of

every household, and this is enhanced by ensuring that our contracts reflect the Nation’s rich diversity.

Mr. Chairman, I appreciate the opportunity to discuss these contracts and will be happy to answer questions.

[The prepared statement of Mr. Waite follows:]

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Mr. TOWNS. Thank you very much.

Let me thank each of you for your testimony.

The bells, of course, as you know, in this instance it means that

there is a recess. That is good news for us, yes, and for you too.

That is true. That is right. No doubt about it. [Laughter.]

Mr. Jenkins, let me begin with you. The accelerated increase of

contract awards and the special preferences awarded to ANCs,

what does this do to disadvantaged groups and are they affected

by this in any way?

Mr. JENKINS. Right now, we do not see any negative impact.

What we believe we need to do is concentrate on the 77 percent of

those procurements that the Government has a 23 percent goal. We

believe there are adequate opportunities for all of the groups within the 77, and so what SBA has to do is do a better job in working

with the other Federal agencies to ensure that the other goals are

being met, not just the 23 percent but all the goals across the

board.

Mr. TOWNS. Let me say that I am troubled by the fact that there

are no penalties here, that if you meet your goal, fine, if you don’t

meet your goal, fine. What do you think needs to happen?

You can say we are trying, and then next year again you say we

try. Then 10 years from now, you are still trying. I am concerned

about that. So what do you think needs to be done to bring about

success and to eliminate the word, try.

Mr. JENKINS. Well, I think SBA has taken a step forward in that

area this fiscal year. We issued the first ever scorecard in which

we rated all of the Federal agencies in terms of their status as well

as their progress. What we want to do is identify those agencies

that need to do additional work in meeting their goals, but at the

same time we want them to see what the other agencies are doing

in terms of meeting their goals and look at best practices.

But we believe the scorecard and realigning our procurement

center representatives. In the past, our procurement center representatives spent too much time away from doing their primary

mission, working at those agencies and assisting them to look at

procurement opportunities. We refocused those PCRs and have

given our district offices more training in Government contracting

so that they can deal more with the small business customers, and

our PCRs deal primarily with the Federal agencies, looking for

more opportunities.

Mr. TOWNS. Do you want to say something about that, Mr.

Shear?

Mr. SHEAR. Yes. This gets to the heart of some of the issues we

are looking at as part of the request that you have sent to us, and

I will just raise now certain information that is from others including the report we refer to, our previous report dealing with the

ANCs, dealing with certain reports from the SBA IG, certain efforts

we have had just based on calls into GAO as fog line where we look

into certain programs.

Among our concerns here is that when SBA delegates authority

to the OSDBUs through partnership agreements is to what degree

is SBA not only giving authority to the OSDBUs but they lose sight

of what might be happening at the individual agency level.

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So we don’t have findings on this yet, but I would say concerns

have been raised from the body of work that basically allows us to

get started on this, dealing with the ANCs, dealing with certain IG

concerns as far as the capacity of SBA to really keep a handle on

what types of practices are going on at the agencies and, in particular, in managing the 8(a) program where SBA has certain responsibilities. Even when they delegate those responsibilities, they

have to know what the other agencies are doing with those delegations.

Mr. TOWNS. Thank you.

Mr. Martoccia, I know you have been in this business for a long,

long time. What do you think needs to be done to fix it based on

your experience?

Mr. MARTOCCIA. Well, holding people accountable for improving

opportunities; we have a great staff at DOD, and we have a number of small business specialists that work with SBA to support the

small business opportunities at the Department.

Working with the program managers, the small business specialists, the contracting officers to assure that if there are opportunities available, either breaking up bundled contracts, providing special opportunities for minority contractors, that they use those opportunities.

My experience is that once a program manager works with a

small business, a minority contractor, they are very pleased. They

add value. They provide a responsive performance is usually very

good, and the price is reasonable. So it is a matter of getting the

word out and holding people accountable throughout the departments.

Mr. TOWNS. Let me ask you this. Maybe I need to phrase it this

way. Why are people complaining?

Mr. MARTOCCIA. Well, people are complaining because they feel

that there are not enough opportunities given to small businesses

when we are working with the decisionmakers to assure that there

are opportunities for small business. It is difficult to do business

with the Government. We have our PTCs, training centers, to help

small businesses deal with the various procurement processes and

procedures that small businesses have to work with.

Companies complain because when they get subcontracts that in

actual terms they don’t receive those subcontracts from the prime

contractors. So we are working with prime contractors to assure

that we monitor and that they monitor how much money is actually given and how many contracts are actually afforded to those

small businesses during the term of the contract.

Mr. TOWNS. Yes, Mr. Waite.

Mr. WAITE. At the Census Bureau, we have made some attempts

to try to enforce this process and not just try. Our contractors are

required by contract to commit to a certain level of small business

and small minority business. If they do not do that, their award

fee, which is the total amount of their profit, is tied to that. So they

don’t get the award fee if they said they tried but were not successful in getting it.

We expect them to meet those goals and, if they don’t, they don’t

get as much profit. We take it right out of their profit for the contract. Also, at the Bureau, we have all the senior managers over

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the acquisition area and the contracting officers have written into

their performance plans, not that they will try to meet those goals

but they will meet them.

I think if you want accountability, you have to have some. I

agree with you. You have to have some kind of penalty of some sort

if you don’t succeed. We found that we are able to get very large

prime contractors to agree to these goals and to meet them.

Mr. TOWNS. Thank you.

I yield to the ranking member, Congressman Bilbray.

Mr. BILBRAY. Thank you, Mr. Chairman.

I think we need to admit up front that, by their nature, large bureaucracies tend to destroy small business, not build them. I don’t

care if it is one bureaucracy to the other. It is just hard for a large

bureaucracy or a large administration at any time to respond and

be sensitive to the little guy down the line.

It is not just in Government. Business is the same way. Big businesses interrelating with small businesses always have a problem

being responsive.

I spent 32 years, Mr. Chairman, in politics, and I have seen

small businesses being driven out of existence by big government,

and then we wonder where they are when we need them. Oil companies are a good example. I don’t even know if there is a small

oil company left in America today.

But I think that the one thing that we need to understand here,

Mr. Jenkins, is a lot of people may not know that DuPont was actually founded to produce gun powder for the U.S. Government in

the Revolutionary War. Their Government contracts now are probably just minuscule compared to their private activities.

Is it the real goal of the 8(a) program to assist the small guy to

not only be competitive in the Government contracting field but in

the general bigger world of the private sector too?

Isn’t the real goal here to basically help in that step and use this

contracting system as a step toward becoming the DuPonts of the

future?

Mr. JENKINS. Well, yes. The 8(a) program is a business development program, and I think there has been a lot of confusion whether or not it is a contracting program. It is a business development

program. Contracts to 8(a) firms is just one of the many tools that

we use to develop the businesses.

In years 5 through 9, we have what we call a competitive business mix requirement where we kind of wean firms off of the dependency of 8(a) sole-source contracts with the idea that at some

point after graduation they are more competitive in the general

market. So, yes, the idea is business development to help them exceed outside of the 8(a) program.

Mr. BILBRAY. I appreciate that.

Mr. Chairman, I would say it is a reflection of where the system

needs to remember its successes and failures. The development of

the four wheel drive for World War II, the Jeep, the big guys didn’t

want to be involved. The little guy actually developed the prototype, developed it out. Then when the little guy couldn’t do the production, the big guy stepped in, but the little guy still ended up

having a piece of the pie and wasn’t buried in the game.

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I think that is a future that we hopefully will have for a lot of

other guys down the line too.

I yield back, Mr. Chairman. I appreciate the chance.

Mr. TOWNS. Thank you very much, Congressman Bilbray.

Congressman Clay from Missouri.

Mr. CLAY. Thank you, Mr. Chairman.

Let me start with Mr. Waite. Today, in the New York Times editorial page, there was a mention about the continuing resolution

and the Census Bureau and how important it is to not fund the

Census Bureau at 2007 levels but, in order to ramp up for the 2010

census, there needed to be an exception in this budget by OMB as

well as the Commerce Secretary.

Please tell this committee what impact a CR will have on the operations of the 2010 census and has the Bureau communicated this

information to the White House because I am sure it will affect

your contract as far as the handheld contracts and all other matters. Would you give us a snapshot of what might happen?

Mr. WAITE. Yes, sir, I can. Thank you.

The decision to have a continuing resolution without an anomaly

for the census is very disappointing. It will have a very substantial

and significant impact on the quality and the success of the 2010

census.

I understand that the continuing resolution was passed today for

6 weeks. Six weeks delay in the spending, first, you have to realize

that the spending for 2008 in the President’s budget during those

6 weeks would have been about double what the CR is offering.

To delay for 6 weeks, it is certain almost that we will have to

do some fairly serious replanning of our census plan. The most

tested and proven census plan we have had up until now will be

need to be changed. At a minimum, I think if the continuing resolution goes to full term and there is no budget, at a minimum, we

will need to delay and downscope our dress rehearsal.

We will probably want to focus our attention on the dress rehearsal on the handheld computers and on the DRIS system because that is the heart of the processing system. They have to be

tested before the census or we really have very serious trouble. But

what it will mean is other things that we might have tested in the

dress rehearsal will either not be tested at all or will be tested

much less, and the risk of them working not perfectly will certainly

have gone up.

If the CR goes beyond the existing one and we move on into December, we do not now have a plan. We have been thinking and

trying to work on it, but it is clear that if we go that far into the

year without any budget or without a budget comparable to what

we need in this ramp-up that we will have very, very serious problems. Probably, we will lose the window that we have now to test

the automation.

Mr. CLAY. Does that mean you will have to withdraw the contracts?

Mr. WAITE. Well, I am saying we don’t know what we will have

to do, but it is clear that if we can’t test the machinery, we don’t

want to go into the census.

Mr. CLAY. Let me ask you about the Draftfcb.

Mr. WAITE. Yes.

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Mr. CLAY. On September 9, 2007, the Bureau awarded a $200

million contract. In announcing the award, the Bureau stated:

Draftfcb includes agencies with extensive experience in social marketing as well as in reaching racial and ethnic groups. The contract

includes aggressive goals to ensure that small businesses are fully

involved in the campaign.

What assurance does the Bureau have that the subcontractors

have the expertise necessary to reach minority communities that

have traditionally been under-counted?

Mr. WAITE. Well, our assurances, to some extent, are many of the

subcontractors have had previous experience. We worked with

them in 2000. They were very effective combined with a partnership program in, for the first time, reducing the differential undercount and increasing the overall response rate.

The main focus of that contract is to get people aware of the census, to get people to be willing to fill out the census and, for those

that don’t, to get them to be receptive to our non-response followup

interviewers. That is why we wanted to make sure that the winning contract, actually all the bidders, had components that worked

closely with minority communities.

As you know, Mr. Chairman, we have different communities are

more difficult to count. It is critical to the Census Bureau that we

count everyone. We have to be able to get our advertising and our

communication into communities that might be more difficult to

count so that we encourage them to come out and be counted. We

want to count everyone.

Mr. CLAY. You are confident that Draftfcb will reach its 40 percent small business goals.

Mr. WAITE. Yes, I am.

Mr. CLAY. Thank you, Mr. Chairman.

Thank you, Mr. Waite.

Mr. TOWNS. Thank you. Thank you very much.

What is DOD doing to better enforce the subcontracting requirements that are already in law? What are you really doing?

Mr. MARTOCCIA. Well, one of the biggest initiatives we have is an

electronic reporting subcontracting system which will mandate that

the prime contractors report their small business actuals. They will

negotiate the plans up front for every contract over $500,000, a

plan as to how they are going to utilize small businesses, and they

will be required to submit how they are actually doing on a monthly basis, so the contracting officer and the program manager and

the small business specialist will know, will be able to monitor the

efforts that the prime contractor is making to achieve their small

business plan.

You could use incentives like they do at census to assure that

their small business goals are being met.

So we are training our acquisition work force with that regard.

We are going to have better monitoring. We are going to encourage

some kind of incentive program, if possible, to assure that once

these teams are set up at the outset that they are monitored and

that they are achieved.

Mr. TOWNS. What percentage of the Department’s 8(a) contracts

go to ANCs? Would you know?

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Mr. MARTOCCIA. We looked at that. I think it is around 20 percent, but that is preliminary data.

Mr. TOWNS. I guess the question is that does this interfere with

your ability to monitor to make certain that you are meeting your

goal otherwise in terms of contracts in general?

Mr. MARTOCCIA. Well, the ANCs are listed as 8(a) accomplishments and SDB accomplishments.

Mr. TOWNS. Right.

Mr. MARTOCCIA. So they do help meet the goal, and we want to

assure that these big contracts, because they have unlimited solesource authority, that there is a good reason as to why they are not

competing in those requirements. So for contracts awarded for over $5 or $10 million on a solesource basis to anybody, including an ANC, it must be justified as

to why we can’t get a better deal for the taxpayer if we compete

it.

Mr. TOWNS. Right. Now how about if an ANC wins a contract

and then they partner with a large company, do you see a lot of

that?

Mr. MARTOCCIA. Yes. Yes, we do because that satisfies the program manager who is interested, obviously, in the performance of

the contracts. So if he has a responsible large contractor, that is

going to assure that the prime ANC will deliver the product or

service that they need. So they don’t have any limitation on subcontracting, so they can hire these very large companies to provide

a good portion of the work.

Mr. TOWNS. Now I am hearing several things coming from the

table, that the system needs to be overhauled or needs to be repaired. It needs to be fixed, I am hearing. Then I am hearing that

the system is somewhat sick.

Why don’t I just go down the line and you tell me based on what

you think needs to be done to make it run effectively and efficiently?

Just right down the line, I will start with you, Mr. Jenkins. I

heard your statement and I know you seem to be very optimistic,

but the statistics don’t quite confirm your optimism.

So let’s go right down the line in terms of responding to what do

you think really needs to be done or even what Congress needs to

do to make this work because I think you agree. It is not quite

working. I think you agree on that. Of course, some have said that

it is really, really broken.

Let’s just go down the line and give us what you think needs to

happen.

Mr. JENKINS. Sure.

Mr. TOWNS. We want to work with you.

Mr. JENKINS. Sure. I understand.

First of all, I think we, SBA has to do a better job, and we are

attempting to do that in terms of our oversight responsibilities as

well as the business development programs that we offer to 8(a)

firms. We also will begin to do a better job in terms of working

with the Federal agencies. As I mentioned earlier, one of the first

steps was our scorecard.

Another step was getting clean data. We worked with the Office

of Federal Procurement Policy and the Federal agencies to go back

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and scrub the 2005 and 2006 procurement data that resulted in reducing the overall small business participation from $79 billion to

$75 billion. It was a $4.6 reduction in the achievement. I think we

have to continue to do that.

We also issued new regulations that went into effect June 30th

of this year which require firms to be recertified on long term contracts. That means contracting officers, if the firm is no longer

small, they can no longer count those as small businesses, and that

will give some greater opportunity for contracting officers to seek

out new and other firms, small business firms to participate.

So I think there are a number of things that we are doing. As

I mentioned, we also have some regulations. We are looking specifically to the 8(a) program to make sure we have the necessary oversight resources in place.

Mr. MARTOCCIA. I think the one thing we can do better is to do

better market searches to make sure that the decisionmakers that

are doing at the buying activities understand what is available in

the market with regard to small businesses and that they do

sources sought and evaluate the capabilities better of those small

companies that have the ingenuity and the resources to do a great

job for DOD. So that is one area we need to work on.

We need to have some accountability in the subcontracting issues

with the prime contractors. We need to have the program managers, the contracting officers accountable for how hard they are

looking to small businesses to provide the work they need done at

the different buying activities within DOD.

We need to do a better job of training within DOD and help train

the small businesses through our procurement training centers and

use SBA’s business development centers to help companies that

need to do business with the Government and want to do business

with the Government.

So those are a few areas I think we can improve on.

Mr. SHEAR. Based on our work looking at the aftermath of Hurricane Katrina, what stands out, all value judgments, there are certain value judgments in terms of what the goals should be and how

aggressively should be pursued.

But the Federal procurement data system does give a mechanism

for agencies to report on subcontracting requirements and it gives

a mechanism to try to enforce those, to enforce contractors to give

accomplishment reports on those and to have certain sanctions that

can be made available.

So from that work, I would say that there just even within the

current technology, there has to be a better system of accountability for the agencies to followup on subcontracting plans and for the

contractors to meet those plans and to submit the required accomplishment information.

Based on our work on the OSDBUs, I will use the expression,

second class citizens. They are supposed to be looking out to be advocates for the small business community, in particular, minority

businesses, and it just seems like they are not meeting the way we

interpret the intent and the letter of the law in the Small Business

Act for what level that they are supposed to report to.

In terms of our ongoing work, I will say certain things we are

looking at closely where there are certain flags that are out there

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from our work, that I will represent as opportunities for improvement.

Mr. Jenkins referred to the business development product and

the use of technology.

There is a lot of business re-engineering efforts going on at SBA

under the leadership of Administrator Preston, and we applaud

many of them, whether it has to do with these programs or disaster

loans or the many programs that we happened to look at. The

questions that come up many times is the capacity of SBA in terms

of expertise and just the number of people in the field offices out

in the region who are really running these programs, who are really providing the oversight in the 8(a) program.

So we hope that the business re-engineering and the intent that

is there to improve oversight of this program is kind of matched

by the resources that are necessary to really effectively carry that

out.

Mr. WAITE. Mr. Chairman, I think that one of the biggest things

that we can do to make this program work better, in my opinion,

is to make people accountable. We have some rules.

I am hearing today that, well, we have these goals, but sometimes people don’t keep track of the goals. In what other kind of

business would we say here is your goal for production, but if you

don’t bother to write down what you did, we are not going to be

too serious about it?

I think, you need to have goals. They need to be tracked. People

need to be held accountable for tracking them. At the Census Bureau, we hold our prime contractors accountable with money. We

hold our senior managers accountable.

When you have people held accountable, they start, by themselves, looking for ways to help train small business so that they

can do a better job, helping, giving them feedback if they are not

necessarily competing at the right level or providing the right information because it becomes in the interest of the prime contractor.

In the case of the Census Bureau, in the interest of our acquisition senior managers, they need to find ways to meet those goals

and then rather than drive them, they are going out themselves

and trying to find out what happened. At census, we have a lot of

goals and a lot of numbers. We are a numbers place, but I have

found if I set a goal for performance and I don’t pay attention to

whether anybody actually measures it, the performance doesn’t

often follow.

Mr. TOWNS. Thank you very much.

Congressman Bilbray.

Mr. BILBRAY. Mr. Chairman, I just would like to echo the fact

that the lack of accountability is a direct result of a problem we

have in Government across the board. We had the hearing over in

Veterans about the IT system. When management cannot be even

disciplined, let alone terminated, there is not a business in America

that could operate without being able to terminate immediately.

We try to function at that Government level, and I just think all

of us have to understand that sensitizing of bureaucracy should be

a goal of all of us, not because we are anti-public employee. I have

been a public employee ever since the year I got out of high school.

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The fact, though, is the public employee should have as much vested in success or failure as the public themselves.

I appreciate the chance, Mr. Chairman, and I yield back.

Mr. TOWNS. Congressman Clay.

Mr. CLAY. Thank you, Mr. Towns.

Mr. Shear, in your testimony, you stated that the lack of transparency in the subcontracting process may lead to unwarranted

perceptions about the procurement system. During its investigation, did GAO find information that the lack of transparency in the

process discourages small businesses, particularly minority contractors, from participating in the contracting process?

Mr. SHEAR. The answer is no, but it isn’t because that we know

that there is frustration. We are aware of concerns or frustration

in a community with respect to subcontracting and some of the

issues that the OSDBUs get involved with as far as making sure

subcontractors get paid.

We are aware of those concerns, but our focus in our work on

Katrina contracting is basically we were going out to see to what

degree can you document how different businesses, including small

businesses and different categories of small businesses, are participating in Federal contracts. At the prime contract level, there is

data issues, but we could address that.

At the subcontract level, it gets to the accountability issue to a

large degree. If you don’t have data being put into the system as

far as what those responsibilities are, that it is just going to be difficult to demonstrate and there is going to be lack of transparency

as far as what that participation is. Just knowing the condition, as

far as what is that participation, is very important to be able to

assess. How effective are the efforts made by the various agencies

in providing opportunities for small businesses, for small disadvantaged businesses, women-owned businesses, etc?

Mr. CLAY. Although those documentation issues could be addressed if you follow the example of the Census Bureau and write

them into the contracts of the prime and the subs, correct?

Mr. SHEAR. Yes, it would be writing it into the contracts and

having the mechanism through internal mechanisms the agencies

have, the Federal procurement data system and then the system

that the contractors use to report to make sure that you are holding them accountable for what they are responsible to do.

Mr. CLAY. So to hold them accountable would be through incentives. Through payment incentives, I suspect.

Mr. SHEAR. It can be through payment incentives are among the

types of actions that contracting agencies can take when prime contractors do not perform, including not performing on commitments

in subcontracting requirements.

Mr. CLAY. I see. Thank you, Mr. Shear.

Mr. Jenkins, you cited the Small Business Procurement scorecard as a tool that is used to measure a Federal agency that was

to provide opportunities to small businesses in the Federal marketplace. Can you tell the subcommittee how the following agencies

scored on the most recent scorecard? There are three of them: Department of Commerce, GSA and GPO.

Mr. JENKINS. I don’t have those actually with me. I believe we

can get that information to you.

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We have actually listed all 24 of the CFO agencies and given two

scores, one as the progress based on their achievement against the

actual goal, the numeric goal. Then we required each of the agencies to submit a plan as to how they were going to improve, and

then we rated that, those particular plans. So I can get that to the

committee.

Mr. CLAY. OK. I would appreciate it if you could.

One last question for Mr. Martoccia. DCMA has completed 94

compliance reviews. What has the review revealed so far about the

difficulties that minority-owned businesses encounter as subcontractors under DOD?

Mr. MARTOCCIA. Well, one of the issues is assuring that our large

prime contractors provide those opportunities to the small and the

minority small businesses. So looking at the statistics, there needs

to be some work done with regard to assuring that the opportunities in the contracts improve over the course of the next year or

two.

Mr. CLAY. Would it be helpful to follow the example of the census

and write in specifics into prime contractors’ and subcontractors’

contracts.

Mr. MARTOCCIA. Well, we have a comprehensive subcontracting

plan for our major subcontracts, but for the individual contracts

that over $500,000, the contracting activity can negotiate whatever

provision they would like to. If the customer considers meeting the

small business goals important, the contractor is going to deliver.

So it is a matter of communicating the expectations of the prime

contractor with regard to the small business participation.

Mr. CLAY. But it also indicates that you need to have a stick too

in order to enforce it.

Mr. MARTOCCIA. You can negotiate an incentive. Yes, you can do

that.

Mr. CLAY. All right. Thank you.

Mr. Chairman, I yield back.

Mr. TOWNS. Thank you.

Let me just say that the SBA Inspector General reported that in

fiscal year 2005, 50 percent of the dollars obligated against 8(a)

contracts went to 1.7 percent of 8(a) firms and over 70 percent of

the eligible firms received no contracts and no benefits at all.

When they go through this long certification process, they spend

their money going through all of this, and then at the end there

is nothing? That is a very frustrating thing. I think somewhere

along the line, this has to be fixed.

This is a country where we can put a man and a woman on the

moon, and we can’t even fix a program to be able to give people

contracts at the end after they go through the whole process, and

that can be an expensive process for them. That costs money.

I really want you to think about this and let’s see if we can’t

come up with a way. We are willing to participate in that process.

I know you don’t want us to get our noses under the tent—I understand that—Members of Congress. I know that.

I understand that, but I am going to say to you we are not going

to go away. There are just too many people complaining about the

fact that this is not working, and we need to fix it. We look to you

to provide that leadership and to fix it, really, because there are

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just too many people out there being hurt and being frustrated,

and it just should not happen.

Any other further questions?

Let me thank all of you for your testimony. I think we agree on

the fact there is a problem and that the problem must be fixed.

Thank you so much for your testimony.

I call the second panel to come forward. As the first panel, we

swear our witnesses in.

[Witnesses sworn.]

Mr. TOWNS. Let me just briefly introduce our witnesses.

Michael Barrera is president and CEO of the U.S. Hispanic

Chamber of Commerce where he is responsible for increasing business opportunities for Hispanic entrepreneurs. He was formerly the

National Ombudsman for the Small Business Administration. Welcome.

Damon Kinebrew is the Treasurer of the Association of Minority

Enterprises of New York [AMENY], where he is dedicated to increasing public contracting opportunities for minority and womenowned businesses. It is good to have you.

Allegra McCullough is the former Associate Deputy Administrator for Government Contracting and Business Development at

the Small Business Administration and is now a consultant on economic and business development. Welcome.

We have Mr. Anthony W. Robinson who has served as president

of the Minority Business Enterprise Legal Defense and Education

Fund for the past 23 years. Mr. Robinson has engaged in activities

on behalf of minority business enterprises that have been comprehensive in nature including litigation, testimony before legislative bodies, legal guidance and technical assistance for local, State

and Federal agencies.

Let me say that your entire statement will be placed in the

record. If you just could summarize within 5 minutes which will

allow us the opportunity to raise some questions with you, we

would appreciate it.

There is a clock there. Just in case you might not be familiar

with it, it starts out green and then it turns to yellow which is saying sum up. Then it turns red and that says shut up. [Laughter.]

Mr. Barrera, we will start with you and come down the line.

STATEMENTS OF MICHAEL L. BARRERA, PRESIDENT AND CEO,

U.S. HISPANIC CHAMBER OF COMMERCE; DAMON

KINEBREW, TREASURER, ASSOCIATION OF MINORITY ENTERPRISES OF NEW YORK; ALLEGRA F. MCCULLOUGH,

FORMER SBA ASSOCIATE DEPUTY ADMINISTRATOR, GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT;

AND ANTHONY W. ROBINSON, PRESIDENT, MINORITY BUSINESS ENTERPRISE LEGAL DEFENSE AND EDUCATION FUND

STATEMENT OF MICHAEL L. BARRERA

Mr. BARRERA. Chairman Towns, Ranking Member Bilbray, members of the committee, distinguished panelists and staff, my name

is Michael Barrera, and I am the president and CEO of the U.S.

Hispanic Chamber of Commerce. I am proud to join you today to

offer testimony on SBA’s 8(a) business development program and

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other contracting programs designed to assist small and disadvantaged business owners in accessing the Federal marketplace.

Only 18 percent of businesses in this country are owned by minorities. This number stands in sharp contrast to the 32 percent

of the population that minorities represent.

Even more revealing is the vast disconnect between gross sales

and receipts of minority and non-minority businesses. The average

gross receipts of non-minority firms is $448,000. Minority companies earn $162,000 per firm.

Clearly, Government agencies must bring the minority business

community into full participation in the national economic system.

Unfortunately, the efforts to streamline the SBA in recent years

through budget cuts and personnel reductions has caused SBA to

be less effective than it could be in serving small businesses.

While there is no shortage of potential improvements to existing

small and disadvantaged businesses, I will briefly describe three

critical improvements that can be made. Please refer to my written

testimony for more recommendations.

First, USHCC recommends that contract bundling be restructured so that Federal agencies only use it when absolutely necessary as in the case of national emergencies such as 9/11 and

Katrina. Also the definition of bundling should be revised to ensure

that small contracts that were previously performed by small businesses not become part of bundled contracts.

Bundled contracts by their very nature are too large for small

businesses to compete for, therefore, stripping small and minority

business of the opportunity to serve as prime. It is also well established that Federal agencies bundle contracts mostly for administrative convenience and not necessarily for cost savings. In fact,

cost savings achieved through bundling have not been satisfactorily

demonstrated by the Federal agencies.

Second, it is essential that significant improvements be made in

how primes treat subcontractors on Federal contracts. Large Federal contractors often do not comply with the legal requirement to

include small and minority businesses in their subcontracting programs.

Federal contractors often engage in bait and switch tactics. The

prime secures a quote from a minority contractor and incorporates

that price into its prime contract. Later, after winning the prime

contract, the prime rebids the subcontract to give the work to other

companies rather than the minority subcontractor included in the

original bid. Clearly, these types of practices need to be eliminated.

Additionally, new approaches need to be utilized to induce prime

contractors to utilize small and minority businesses in their subcontracting. The USHCC recommends a combination of negative

and positive inducements as those described by the census.

For example, primes that fail to achieve their subcontracting

goals should be penalized in their award fee. However, primes that

do accomplish their goals could receive extra award fees. In any

event, there needs to be far more oversight on this particular subject.

Last but not least, there is a need to reform Alaska Native Corporations [ANCs]. In recent years, the participation by ANCs in the

SBA 8(a) program has become troubling.

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ANCs were created in 1971 by Federal law as part of the Alaskan Native Claims Settlement Act. Contrary to popular belief,

ANCs are not necessarily small, economically disadvantaged tribal

businesses. Most ANCs are very large businesses with multiple divisions and subsidiaries, billions of dollars in revenues, thousands

of employees and offices all over Alaska, the United States and, in

some cases, all over the world.

Through special amendments to the original 8(a) legislation,

ANCs have been given a host of special procurement privileges.

Those special privileges led GAO to conclude that Federal agencies

are favoring ANCs over other 8(a) minority and small businesses.

GAO also reports that Federal agencies favor ANCs because they

can more readily meet their small business contracting goals

through large ANC contracts. Just the numbers we saw today from

2001 to 2006, ANC contracts went from 4 percent of 8(a) contracts

to 8 percent and their actual contracting dollars more than quadrupled.

The USHCC believes that these ANC special privileges go far beyond the intent of the program and have limited competition while

undermining the SDB contracting goals developed by Congress. We

believe that there should be a level playing field among all firms

participating in the 8(a) program. To that end, we recommend that

Congress make legislative changes to the 8(a) program so that

ANCs are treated just like the rest of the firms participating in the

8(a) program.

Chairman Towns and members of the subcommittee, there is

great need for improvement in our Nation’s procurement regulations in order to improve access to small and minority firms. The

USHCC stands ready to lend any assistance Congress may need toward implementation of these recommendations contained in this

testimony.

Again, thank you for the opportunity to share our views with you

today, and I look forward to any questions.

[The prepared statement of Mr. Barrera follows:]

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Mr. TOWNS. Thank you very much.

Mr. Kinebrew.

STATEMENT OF DAMON KINEBREW

Mr. KINEBREW. Mr. Chairman and fellow members of this distinguished committee, good afternoon.

I am Damon Kinebrew. I reside in Brooklyn, NY. I am here as

the director of programs for the Association of Minority Enterprises

of New York.

Mr. James Hayliger, II was unable to be here today. Therefore,

I received the mission. It is an honor and a privilege to appear before you today to share some of my views and the views of the Association of Minority Enterprises of New York in the area of procurement.

The hurdles facing most small and minority enterprises are the

lack of working capital, the lack of contracting opportunities and

the lack of strong management skills.

Now let us examine the lack of working capital and offer some

possible solutions.

By the way, I am keeping my eye on this clock, sir.

The small business should have some 60 to 90 days of liquid resources available to finance any major project for that period of

time and a proper documentation and the methods of generating all

change orders and the methods and time of payment. The effect of

a default on a project and the aftermath of liquidated damages results in a negative impact on the small business resources.

For example, in 2003, a small contractor in the New York area

received a contract to finish a project for about $5 million. It was

one of the largest contracts they had ever been awarded, and the

contract was running approximately 4 weeks behind schedule. It

was a construction-related contract.

The GC suggested to this small business concern that they needed a change order to get back on schedule. They thought they were

working well. They accepted terms and conditions verbally of the

change order and got to work.

Well, the change order wound up being about $600,000 worth of

work, and the small business concern attempted to collect their

money for the change order. The prime contractor said, well, you

have to prove that you spent this much money and all these conditions and agreed to pay $100,000 of the $600,000 change order

worth of work.

Well, that wasn’t forthcoming, the prime contractor suggested to

the minority business, well, why don’t you just take me into court?

Well, we can’t afford to go into court and wait a year or 2 years

to collect a half million dollars. That impacts greatly our cash-flow

and our working capital on our jobs.

Therefore, this small business concern went from 42 employees

down to 2. This happened within the last few months.

Now let’s look at the contracting opportunity that are available

to the small and minority business. Numerous projects and contracting awards are done on a sole-source basis. No solicitation

would be given or issued for this type of an opportunity.

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Here, again, this type excludes and is a deterrent to the small

business enterprise and lacks the consideration. This process is

wrong and should be denounced whenever and wherever detected.

There was another company who got a chance, who thought they

saw an opportunity to bid on the AirTrain in the New York area

when we were building the AirTrain. The company felt that it was

a minority firm. They had the ability to build the AirTrain cars,

store them and deploy when the Port of Authority in New York and

New Jersey called for them to be deployed.

The firm was denied the opportunity and most certainly complained about the denial of the opportunity. When we complained

to the officials of the State of New York, the government officials

of the State of New York, their response was, well, didn’t you bid

on it? The minority firm’s response was, no, we did not bid on it.

The minority was sort of reprimanded by the State officials of

New York, who said, well, in order to win that kind of business,

you have to bid on it.

Well, the response of the minority firm was that there was no solicitation. It was a sole-source contract to a firm from our neighboring country, out of Canada, who had no requirements. Mind you,

the small business or the minority business concern was within 11

miles of the airport, who had the capability of doing the job but

was denied the opportunity.

Now let’s move on. The small business enterprise should seek opportunities to develop strong management skills for their companies to make sure that each staff member is provided with training

time in their areas and responsibility of the senior management to

ensure that the continuing education is available and the upgrades

to sharpen their skills.

It is the view of most small business advocate organizations that

the 8(a) program should be expanded to include larger numbers of

small and minority businesses participating.

The phase-out of the 8(a) program should emphasize with some

degree of regularity once or twice a month by the project administrator. In addition, graduation from 8(a) program should be maintained. However, early on in the life cycle of the program, the company should be informed that there will be a graduation, that the

time will be running out.

Programs of the Small Business Administration, the MBDA type

programs offer management services and technical assistance

through contracts. This was some time ago, but it was quite effective.

Mr. TOWNS. Mr. Kinebrew, can you sum up?

Mr. KINEBREW. Yes, sir.

We will move rapidly to the summation. We think that if the

country decides that they are going to make a full emphasis on minority business participation, they should enforce some of the recommendations they have heard here today.

My complete written testimony is here, and I am prepared to answer any of your questions that you may ask. Thank you very

much.

[The prepared statement of Mr. Kinebrew follows:]

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Mr. TOWNS. Let me add that your entire statement will be included in the record.

Ms. McCullough.

STATEMENT OF ALLEGRA MCCULLOUGH

Ms. MCCULLOUGH. Chairman Towns, Ranking Member Bilbray,

thank you so much for providing me with an opportunity to speak

to you today.

I will be as brief as possible. I am going to skip some of this for

the sake of time.

In spite of the various contracting and business development programs offered by the Federal Government for the purpose of assisting small and minority businesses, much is required in order to

truly attain the level of procurement awards that the Federal Government is capable of awarding.

Program language, outdated and inappropriate for the 21st century, that limits growth, sets difficult employment requirements

and restructures the mission of a program by creating special

groups within it cripple the ability of minority businesses to progressively compete.

These structural weaknesses, combined with the lack of enforcement of some policies such as subcontracting and secretarial appeals, increasing contract size, costly and lengthy protest processes,

a lack of commitment on the part of some senior agency representatives to creating a diverse supplier base and inadequate guidance

being provided to prepare minority businesses to compete worldwide, exacerbate the problem of equal access.

On the issue of increasing contract size, contracts are indeed getting larger and larger, requiring minority-owned businesses to create larger teams in order to compete. While detrimental to small

businesses in general, it is particularly detrimental to minority

businesses as creating teams and joint ventures can be costly.

Much of contract bundling and increased size of contracts, however, is a direct result of the dwindling senior procurement work

force that is not being replaced in a timely manner. Expediency

rules over the development of thoughtful strategic sourcing plans

that could benefit more small businesses. Many procurement opportunities must be delayed for years because of a scarce, often illtrained, procurement work force.

A scarcity in a procurement work force also means a high probability that inadequate market research will be conducted to discern the capabilities of minority vendors, lessening the chances of

opportunities being set aside for them. There is also evidence of departments within agencies that refuse to believe that small businesses, particularly minority businesses, can perform certain capabilities and, of course, there is very little evidence to justify this.

On the 8(a) business development program, it is well over 30

years old and in desperate need of examination of language, restrictions and overall program oversight.

For instance, the statement of being able to demonstrate the

ability to succeed before you even become part of the program, I am

not aware of any other Federal program that requires individuals

seeking its assistance to demonstrate that they can succeed before

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ticularly in the case of rural applicants whose communities may

not provide access to business development, financial counseling or

training.

On the issue of social and economic disadvantage, while participants in the 8(a) program are required to demonstrate the ability

to succeed, they are also subjected very often to harsh scrutiny in

demonstrating just how disadvantaged they really are by the Offices of General Counsel and Inspector General. The scrutiny usually questions what school they attended, how they paid for college

or the value of the house in which the applicants’ parent currently

resides.

In the case of minority retirees, retirement funds, trust funds for

grandchildren could automatically remove them from the social and

economic disadvantaged status without regard for the many barriers the applicants faced to reach their current status. The historic

level or type of discrimination is rarely weighed if the answers

given to the above questions are not satisfactory to the Offices of

General Counsel and Inspector General.

I find it interesting that the history of discrimination carries less

weight in admission to the 8(a) program for some groups than it

does for others. The 8(a) program was created to level the playing

field in Federal procurement. However, the additional perks afforded Alaska Native Corporations and Native American tribes recreates an unlevel field of opportunity and skews the minority procurement award statistics.

It is not a question as to whether either group deserves to participate in the program. It is a matter of the fact that the 8(a) program was created to address and remedy discrimination in contracting, and this creates a new dimension of discrimination.

The question of oversight is there is need for more SBA procurement center representatives for the number of existing and growing

portfolios, particularly in California and Washington, DC, districts.

I am running out of time here, but what I do want you to know

is that these PCRs go through as many procurement opportunities

as they possibly can to break them out to see what can be actually

pulled out for small businesses. When they are not reaching agreement with the contract officers, they issue what is called a secretarial appeal which stops the procurement from going any further while mediation goes on between the PCR, and technically it

is supposed to go on between the SBA Administrator and the agency head.

However, I can assure you that rarely, if ever, are those secretarial appeals even seen by the head of the agency, and they are not

recorded, and they are not tracked anywhere.

On other program, the HUBZone program, which was created to

create jobs, requires 33 percent of the base of those employees to

come from those HUBZone areas. Because they are located in areas

that typically have disadvantaged individuals who may or may not

have, in most cases, do not have a good work ethic, if that employment number falls below that 33 percent and that particular company is holding a contract, that contract can technically be

snatched without giving that company an opportunity to recruit in

order to make up for that employment base.

[The prepared statement of Ms. McCullough follows:]

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Mr. TOWNS. We have to cut there, OK.

All right, Mr. Robinson.

STATEMENT OF ANTHONY W. ROBINSON

Mr. ROBINSON. Thank you very much. Mr. Chairman, Mr.

Bilbray, Mr. Clay, thank you for this opportunity to speak with you

all very briefly.

I too will submit my testimony that is in much greater length

than what I want to address here, but I feel like Sunday morning,

coming behind the line of good preachers, and I am last in line.

Much of the other preachers before me have already taken much

of what I wanted to say.

I specifically want to agree with Ms. McCullough, that the problem is a structural problem.

Public Law 95507 speaks to, as a goal, that the firms are to become competitively valuable, and that is why they made the 8(a)

program a business development program. But over the years what

they have done for many different reasons, those business development tools have been eliminated.

Thus, the tools that were envisioned when Public Law 95507 was

passed by the Congress in 1980, much of that infrastructure no

longer exists within SBA, and it essentially has become just a procurement program. And so, you have some real structure programs

there.

In addition, and this is what my testimony will speak to, is the

issue of discrimination that is still a problem in the Federal marketplace. One study called it deep and pervasive.

The Congress has an obligation, I believe, to begin to build the

record on this issue of discrimination because, as you know, the Supreme Court has applied a new standard by which these programs

will be tested as to their constitutionality. If the Congress has not

laid the appropriate predicate to justify the need for those programs, it makes the programs vulnerable to attack.

Based on what we have already heard coming out of the U.S.

Civil Rights Commission, you can see that the groundwork is being

laid to attack the programs, and so I would urge the Congress to

begin to look at this issue of discrimination in the Federal marketplace and begin to develop that record in that regard.

Again, the program, there are some structural issues here. If you

talk, there has been discussion here about the ANC. Despite the

representations of SBA, that is having an adverse impact on the

other participants in the 8(a) program.

But you cannot examine or address the 8(a) program without

also addressing the impact of the FARA and FASA that Congress

passed in the mid-1990’s to streamline the procurement process.

What that set in motion was a process by which contracts will have

to be bundled. When you remove personnel and you remove the

process by which contracts are examined, then it leaves contracting

officers with no other real option but to bundle the contracts and

make the contracts larger.

You talk about small businesses availing themselves of that. It

is impossible to do. And so, when we talk about the ANCs and you

have to talk about and Ms. McCullough has already addressed the

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issue of PCRs and the lack of enough PCRs in order to address the

enormity of Federal procurement itself.

You have a couple of other barrier problems. Size standards, size

standards are antiquated in today’s industries. Personal net worth,

you have caps particularly on minority firms as to their ability to

compete in larger and larger contracts when they are artificially

capped insofar as what their net worth can be.

You have spoken to the issue of subcontracting, again, another

structural problem. We try to address the subcontracting plans, as

I say, after the horse is out of the barn.

I would suggest that if we require subcontracting plans to be

submitted at the time that they submit their proposals and, as Mr.

Clay suggested, as a part of the contract, then we would be in a

much better position to address the subcontracting problem than

what we are now because now there is no real oversight on subcontracting plans. Nobody really is examining what is or is not

happening with those subcontracting plans, and it leaves minority

firms out there to be abused. That is, in fact, what is happening.

Finally, capital and access to capital, I would suggest to you that

particularly access to equity capital and equity capital through the

SBA can only really take place for minority firms when you have

minority SSBICs that are out there that are in contact with these

companies and can avail themselves of that equity capital. As of

today, SBA is not certifying minority-owned SSBICs.

The SDB program is a problem. Procurement authority that Congress authorized expired almost 5 years ago, and has not been reauthorized.

Finally, 10 U.S.C. 2323, that sets a 5 percent goal on research

and development dollars that should be going to historically black

colleges and universities and minority institutions is not being enforced.

If these firms are going to participate in a technology-driven industry and we are not involved in the technology development and

commercialization of that technology, then they will be marginal.

They will continue to be marginalized even in the Federal budget.

Thank you.

[The prepared statement of Mr. Robinson follows:]

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Mr. TOWNS. Thank you.

Let me thank all of you for your testimony.

Let me begin by asking, how can we hold agencies accountable

for their failure to meet their goals? What can we do?

Ms. MCCULLOUGH. If I might address that, the best way to do

that is to hit them where it hurts them. That is always in the wallet.

They have to go through a series of evaluations during the year.

At the end of the year, supposedly if they have reached their goals,

they get, they can receive some type of bonuses. I strongly suggest

that some type of cap or elimination of a bonus be placed on those

employees who do not reach those goals.

Mr. BARRERA. I think another thing that works, when I was the

ombudsman, we had hearings across the County with those agencies that were not treating businesses right and regulatory enforcement actions. They don’t like to be embarrassed either. Those offices don’t like to be embarrassed. So, actually, maybe holding

hearings in different spots.

We actually used to have Congressmen and Senators go to these

hearings with, and that had a big effect. I still report to Congress

every year on how Federal agencies do. We did a scorecard on

them, on how Federal agencies did. So sometimes that also helps

also.

Mr. KINEBREW. Mr. Chairman, I would suggest that the employees’ evaluations, their meeting the goals should be reflected in their

personal evaluation.

Mr. TOWNS. You are actually saying there should be penalties?

Ms. MCCULLOUGH. Absolutely.

Mr. ROBINSON. Absolutely, I would agree with that as well.

The only problem, there have been sanctions. We have had sanctions out here for a few years but, for example, I note the earlier

panel talked about that they could withhold bonuses relative to

subcontracting plans and things of that nature.

I am unaware, and I would bet you that there probably have not

been five agencies or personnel in Government in which those sanctions have been imposed. So you have a real problem of compliance

and enforcement, and so you do have penalties. You do have carrots and sticks out here, but we have no one willing to execute on

them.

Mr. BARRERA. You can’t just go after the employees. You have to

go up to the primes. There are penalties for primes. From what we

understand, there is not that punitive penalty. From what we understand, we don’t know if it has actually been enforced. So you go

to the primes.

It is actually a combination of three things—the agencies, the

employees and the primes themselves—that should be held responsible.

Mr. TOWNS. Do you want to be specific on penalties?

Mr. BARRERA. We do know that there are penalties like, for instance, not paying what they should be paid if they don’t meet

their subcontract. I think the Census Bureau explained some of the

things they are doing, and I think that is a good start. That seems

like a good model to me, to hold them accountable.

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What is the old saying? You can’t get results unless you measure

them. The numbers don’t lie. Whether they are reached or not, the

numbers don’t lie.

Mr. TOWNS. I yield to the ranking member, Mr. Bilbray.

Mr. BILBRAY. Thank you, Mr. Chairman.

I have tell you it brings back memories when I was chairman of

San Diego County and we had our struggle over the city of San

Diego had its affirmative action program and we had ours. Someone once asked me why we weren’t adopting San Diego’s, and I

said because I want it to stand up in a court of law. San Diego’s

got thrown out.

Mr. Robinson, my concern, and you really hit on it, is I would

love to have that standard being a minimum and enforceable. As

soon as we do that, though, we fall back on this issue of constitutionality and equal protection.

You brought up the issue that we need to really take the time

to document the system’s discrimination of the past or it is not

going to hold up under the 14th amendment. You have to make

sure that the institution itself has been indicted to be able to pass

the constitutionality of the 14th amendment. Do you want to elaborate on that?

Mr. ROBINSON. Under the strict scrutiny standard that the Supreme Court has now imposed, in order to have remedial measures,

you have to have established a predicate, and the court has held

that discrimination represents an appropriate predicate. In my testimony, I have cited five examples, and I am prepared to give many

more in order to establish that predicate so that this Congress can

adequately address that issue in the way in which it structures or

restructures these programs.

Mr. BILBRAY. Thank you.

I apologize. I wasn’t here to hear your testimony.

In fact, I have been working most of my political life, working on

a problem that we have had with border pollution in Mexico, and

it happens to be that the one contractor who was willing to take

on the problem happened to be a Latino contractor. Those of us

along the border, we don’t think about those things, but I just realized that the way he has been treated by the bureaucracy has just

been appalling. I mean to the point where the San Diego Union did

an editorial on that.

The difference we have with the different communities is different types of barriers, not all the same. Is there any recommendations you can give us?

I apologize. You probably have done it, but it will give me personally and the chairman personally as we get into this, that here

in Washington we may have a perception of what the challenges

are, but in the Latino community we definitely have different challenges. Is there any specific differences that you could articulate to

me as one member?

Mr. BARRERA. I have been involved. When I was at the SBA, we

had hearings all over the country. I have dealt with African American companies, Latino companies, all companies.

I think a lot of it is a couple things. One is that the bureaucracy

is very, very difficult, and it is hard for anybody, whether you are

Latino or non-Latino, to get through that bureaucracy. Actually,

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the bureaucracy is not necessarily nice. There are nice bureaucracies and not so nice bureaucracies. In the Federal contracting

rules, it is not that nice, but you are dealing with different bureaucracies. You are dealing with the Government bureaucracy.

You are dealing with the prime bureaucracy.

Here in his example, I heard this a lot not just with Latino companies but a lot of companies. You get involved with a prime, and

they dare you to take them on because they know you can’t. I think

that is one. There is that fear factor of taking on that Government

procurement buying officer or taking on that prime. They may not

get that contract. Again, you get labeled as a troublemaker, and

that is the last thing that you want. So there needs to be some

more protections for those companies that actually do complain,

that actually do want to go after these things, not just for themselves but for small businesses nationwide.

Mr. BILBRAY. Thank you.

I yield back, Mr. Chairman.

Mr. TOWNS. Thank you very much.

Mr. Clay.

Mr. CLAY. Thank you, Mr. Chairman.

Mr. Barrera, the Hispanic Chamber of Commerce recommended

eliminating the net worth limitations for entry and continuation in

the program. You strongly believe that net worth should not be

used as the barometer for continuation in the program.

What measure does the Chamber believe would be a more reliable measure?

Mr. BARRERA. I think what we testified today. The program has

not been really looked at in 30 years, and right now 250 is really

a small number. That is a miniature business for the most part,

and there are still a lot of businesses that can take advantage of

that. But you need to make it higher, so larger businesses that are

still small businesses.

A $500,000 business is still a small business for the most part.

A million dollar business, again based on whatever type of industry

you are in, can still be a real small business. So I think we need

to raise those levels so more businesses have the opportunity to actually participated. Those small businesses have the capacity to

participate is very, very important.

We would kind of like to eliminate that, but we are willing to

talk to Congress about at least raising that limit because it hasn’t

been changed in a while and it needs to be addressed.

Mr. CLAY. Those levels vary across the board like cities and

States may have a difference measurement.

Mr. BARRERA. Correct, and by industry also.

Mr. CLAY. I think some of them are 750,000. So it is all across

the board then, isn’t it?

Mr. BARRERA. Correct.

Mr. CLAY. Thank you for that.

Mr. Robinson, you mentioned the Croson and Adarand cases in

your testimony. There is some misunderstanding about the legal

parameters of these case and their impact on the Federal regulatory process. Some in Government believe the decisions go so far

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tracting or keeping record on contracts awarded to minority-owned

businesses.

In your professional opinion, what exactly are the parameters set

by the two cases and do they prohibit Federal agencies such as the

Census Bureau from compiling data about whether a minorityowned firm that has won a contract fair and square is African

American-owned or Latino or Asian-owned?

Mr. ROBINSON. Mr. Clay, I would suggest that the decision, in

fact, compels the collection of data.

The court, in very clear terms, said that in order to have race

as a factor, you have to have justification for it, and it said very

specifically that the identification of discrimination represents an

appropriate predicate for the Congress to act, and that when you

act, you must act. The court called it narrowly tailoring. You must

narrowly tailor your remedy to the discrimination that you found.

Well, I suggest to you, sir, that the discrimination deals with

issues of market and money specifically, procurement and capital

and other places, access to technology. That is why I noted the 10

U.S.C. 2323 relative to research and development money.

When you identify that discrimination, then you tailor your remedy to fit the discrimination. That is what the court held.

Mr. CLAY. Has this Congress and previous Congresses compiled

a record in order for us to be able to act on or is the record already

in existence?

Mr. ROBINSON. Well, the last time this was under Mr. Clinton’s

mend it but don’t end it. This was the mid-1990’s right after the

Adarand decision. At that time, the Justice Department collected

the data that represented the appropriate predicate, but that has

been almost 10 years ago now.

I was working with the Senate. A couple of months ago, it began

developing the record on that side. I am suggesting and encouraging the House to also begin that process as well.

Mr. BARRERA. Excuse me, Mr. Chairman. I am going to have to

catch a flight. I have to catch a flight here at 5. So I need to go,

and I apologize. But any questions you have, we will be happy to

answer them in writing to you.

Mr. TOWNS. Right. Do you have any questions for him just as he

leaves?

Mr. CLAY. No. I yield back.

Mr. TOWNS. OK, fine.

Mr. BARRERA. Thank you so much for the opportunity.

Mr. TOWNS. Thank you. Have a safe flight.

Let me just ask this question. What are some of the challenges

that the small business person encounters?

You mentioned some like capital. What are some of the other

things? I am trying to figure out why we can’t do better.

Mr. KINEBREW. Well, it depends on the part of the country that

a lot of these small businesses exist. For example, in some parts

of the country, bonding is really an impediment. Bonding and the

entire bonding concept is used sometimes as a tool against small

or minority businesses. I think we should review or the Congress

should review or the SBA, someone should review the way bonding

is established, and those agencies that can wave bonding or inVerDate 11-MAY-2000 12:29 Nov 12, 2008 Jkt 000000 PO 00000 Frm 00097 Fmt 6633 Sfmt 6633 C:\DOCS\45163.TXT KATIE PsN: KATIE
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crease the amount of the contract that is not subject to bonding.

So bonding is one issue.

Another issue is, again as Mr. Robinson said, access to capital.

The process by which one gets capital that we need, whether it is

equity or debt, sometimes that process takes such a long time to

get there.

I worked on a situation where a small business wanted $100,000

loan. It took them 14 months to get $100,000 loan. By the time

they got it, they were out of business practically.

So we need to look at bonding, insurance and the availability of

capital.

Mr. TOWNS. Any other comments?

Ms. MCCULLOUGH. Some of that has to do with the fact that

many agencies do not conduct proper market research such that

they will be able to really develop a supplier base that is diverse

and whether or not they understand of the development of that diverse supplier base on those communities in which those companies

actually reside. It could very well be part of the problem, but inadequate market research certainly does cause many, many problems

because the capabilities of minority firms rarely come to the attention of those individuals who can make decisions.

Mr. TOWNS. Thank you very much.

Historically, Government purchasing programs have said the

trends in minority business development, that recently these initiatives have been squeezed by budget deficits and cuts. More importantly, they have been the subject of legal cases examining racial

preferences in procurement and contracting.

What has been the impact of these changes on State and local

governments? Will you answer that for me?

Ms. MCCULLOUGH. One of the things that I would like to draw

your attention to in my testimony is the fact that a law that you

passed in 2005, which was the Section 155, participation in federally funded projects of the Consolidated Appropriations Act of 2005,

that provided guidelines for the States and the localities receiving

Federal funding. It mandated that they should not demand or require that minority-owned companies holding 8(a) certification to

have to recertify in those localities.

The SBA Office of General Counsel and the DOT Office of General Counsel have refused to develop the guidelines for the offices,

the field offices to actually enforce that, and so there are numerous

States—I would probably say all but maybe one—that have no

knowledge of this law at all because SBA has done nothing to promulgate that law so that their field offices enforce it.

Mr. ROBINSON. I am in total agreement with that. There is just

a complete lack of oversight that takes place, and it impacts at the

State and local levels of government. The impact of the decisions

themselves has been monumental.

Before the decisions that Mr. Clay made reference to, Adarand

and Croson, we had been able to document that there were some

260 odd State and local government programs. Within a year after

that decision, less than 20 percent of those programs were still in

existence. So it just completely wiped out State and local government programs.

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Now State and local government programs have to go through

what is called a disparity study in order to reauthorize those programs. Those can be expensive, and it can be very politically volatile for State and local governments to reauthorize the programs.

There is a role for the Congress to help State and local governments in the reauthorization of these programs, and that is something we can get into at some point as to how you can be of assistance.

But the impact of the decisions and the failure of the Federal bureaucracy, in this instance, the SBA, to not only deal with the certification issue but the personal net worth and the size standard

issue, if those are addressed, could also be of assistance to State

and local governments, many of whom mimic what takes place at

the Federal level.

Mr. TOWNS. Thank you very, very much.

Mr. CLAY. I have two quick questions, one for Mr. Kinebrew.

What steps do you believe the SBA should take to improve its oversight of the subcontracting process? Do you have any thoughts on

that?

Mr. KINEBREW. Yes, sir. If I understand the question, I think the

SBA should develop a stronger monitoring and enforcement process

in order to comply with the directives that the Congress has at

issue. Short of strong enforcement and oversight, they tend to say

that here is not enough funds to do the kinds of things that need

to be done and then minimize the number of people working on

projects.

So I think stronger oversight and enforcement and to develop the

staff, the size of the staff to accomplish those kinds of missions.

Mr. CLAY. Thank you. Thank you for that.

Ms. McCullough, of the many problems that minority businesses

face in the procurement process, which do you believe are the most

acute?

Ms. MCCULLOUGH. There are so many, but I would truly say

this.

Mr. CLAY. Overwhelmed?

Ms. MCCULLOUGH. Yes, it is overwhelming, but I would certainly

say the issue of the disparity in the way that the 8(a) program is

aligned with non-ANCs and ANCs. In other words, because those

number are so badly skewed in terms of I believe the 25 largest

minority contracts in 2005–2006 went to ANCs. This whole issue

of a disparity that has been built within the 8(a) program, that was

created to level the playing field, has created a new form of discrimination and is pitting one community against the other.

Mr. CLAY. Thank you for that response.

Let me thank the chairman again for such a timely committee

meeting during the kickoff of the 37th Annual ALC Weekend. This

panel and the previous panel have certainly brought some issues

to light that ought to be addressed by this Congress. Again, I thank

you for inviting me today.

Mr. TOWNS. Thank you very much.

Let me thank all the witnesses, and let me thank all the Members that are attending. It is very clear that there are some problems and that we have to continue to work together to see what

we can do to bring about a solution.

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On that note, the committee is adjourned.

[Whereupon, at 4:45 p.m., the subcommittee was adjourned.]

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