[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

SCHEDULING SUCCESS? ISSUES AND OPPORTUNITIES FOR SMALL BUSINESSES ON
THE GSA SCHEDULES

=======================================================================

HEARING

before the

SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

OF THE

COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

HEARING HELD
JUNE 7, 2012

__________

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

Small Business Committee Document Number 112-071
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HOUSE COMMITTEE ON SMALL BUSINESS

SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
CHUCK FLEISCHMANN, Tennessee
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts

Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director

C O N T E N T S

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OPENING STATEMENTS

Page
Hon. Mick Mulvaney............................................... 1
Hon. Judy Chu.................................................... 2

WITNESSES

Thomas Jacobs, Principal, Krueck Sexton Architects, Chicago, IL.. 4
Larry Allen, President, Allen Federal Business Partners, McLean,
VA............................................................. 5
Charles Forman, Executive Vice President, Independent Stationers,
Indianapolis, IN............................................... 8
Mike Tucker, Owner, George W. Allen Company, Beltsville, MD...... 9
William T. Woods, Director, Acquisition and Sourcing Management,
Government Accountability Office, Washington, DC............... 22
Steven J. Kempf, Commissioner, Federal Acquisition Services,
General Services Administration, Washington, DC................ 20

APPENDIX

Prepared Statements:
Thomas Jacobs, Principal, Krueck Sexton Architects, Chicago,
IL......................................................... 35
Larry Allen, President, Allen Federal Business Partners,
McLean, VA................................................. 42
Charles Forman, Executive Vice President, Independent
Stationers, Indianapolis, IN............................... 51
Mike Tucker, Owner, George W. Allen Company, Beltsville, MD.. 54
William T. Woods, Director, Acquisition and Sourcing
Management, Government Accountability Office, Washington,
DC......................................................... 58
Steven J. Kempf, Commissioner, Federal Acquisition Services,
General Services Administration, Washington, DC............ 71
Questions for the Record:
Committee on Small Business Questions for Larry Allen........ 79
Committee on Small Business Questions for Bill Woods......... 81
Committee on Small Business Questions for Charles Forman..... 82
Answers for the Record:
Larry Allen Answers for the Record........................... 83
William T. Woods Answers for the Record...................... 94
Charles Forman Answers for the Record........................ 98
Additional Materials for the Record:
Veterans' Entrepreneurship Task Force Written Testimony of
Mr. Robert Guy Hesser...................................... 101
National Association of Government Contractors Written
Testimony of J.R. Claeys................................... 106
American Institute of Architects Letter for the Record....... 110
Adams Marketing Associates, Inc. Letter for the Record....... 113

SCHEDULING SUCCESS? ISSUES AND OPPORTUNITIES FOR SMALL BUSINESSES ON
THE GSA SCHEDULES

----------

THURSDAY, JUNE 7, 2012

House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:35 p.m., in
room 2360, Rayburn House Office Building. Hon. Mick Mulvaney
(chairman of the subcommittee) presiding.
Present: Representatives Mulvaney, King, Coffman, Landry,
West, Ellmers, Barletta, Chu, Schrader, Critz, and Richmond.
Chairman Mulvaney. All right. We will go ahead and call
this meeting to order. I apologize in advance for the brief
delay in getting started. We had a couple of votes. We should
not be interrupted, I think, again. This time we should be
great. So with that, I have an opening statement. Thanks
everybody for coming very much.
Over the past few months, the Public Building Service of
the General Services Administration has received a great deal
of attention for its outrageous use of taxpayer dollars.
However, in those discussions, it was easy to forget about the
other side of the GSA. The Federal Acquisition Service serves
as the core buying agency for the federal government. This
division oversees the distinctive area of Multiple Award
Schedules, or what we call Schedules, which is a program that
poses unique challenges and opportunities for small businesses.
As we are all aware, the federal government spends half a
trillion dollars every single year through federal contracting.
What most people do not realize is that one out of every 10 of
those dollars is spent using these Schedules, and that amounts
to roughly $50 billion per year. About 80 percent of the 19,000
Schedule contractors are small businesses, and they receive
about 35 percent of the money. This is no meager feat. GSA
requires detailed records from a small business before awarding
a Schedule. Many small businesses are forced to hire expensive
outside proposal preparation services and invest in new record
keeping systems in order to compete for Schedule contracts.
Despite the expense associated with receiving an initial
GSA award, many small businesses still feel it necessary to
enter the federal procurement process. However, recent changes
in law, budget challenges, and new initiatives are now changing
how small businesses relate to the Schedules. This Subcommittee
seeks to ensure that small companies who invested in GSA
Schedules are not forgotten, and that those small businesses
who may wish to participate in the future are not unfairly
prejudiced. Today, we will examine four primary issues
paramount to this discussion, including: The Brooks Act,
strategic sourcing, voluntary set-asides, and the demand based
efficiency model. Our questions will focus on ensuring that as
the GSA advances in these areas, small business opportunities
are preserved.
In order to have an accurate understanding of these issues,
our first panel is composed of small businesses, and our second
panel will feature two government witnesses. We will hear
testimony from small business owners who have felt both the
benefits and the burdens of the GSA's change in contract awards
under the Federal Strategic Sourcing Initiative (FSSI). We will
also have industry experts testify on the effects of altering
the Schedules to demand based efficiency and learn whether the
GSA is truly complying with small business set-asides and the
Brooks Act.
I would like to thank everybody in advance for being here.
We will get a chance to do that again before you leave, but I
do appreciate your time. We look forward to everybody's
testimony. And with that I will turn over to Mrs. Chu for her
opening comments.
Ms. Chu. Thank you, Chairman Mulvaney.
I would like to thank you for calling this hearing today,
and thank our two panels of witnesses for joining us to offer
their insight, experience, and expertise on small business
federal contracting and the GSA Schedules.
As we noted, federal contracting is an important source of
opportunities for small businesses and can often be a first
step toward growth for many small businesses. When
entrepreneurs are hired by the federal government, they bring
on new employees, create opportunities in their industries and
in their communities. For our economic recovery to continue,
small businesses must continue getting customers through their
doors, and that is why it is this Committee's responsibility
and my personal priority to ensure that we do all that we can
to help small businesses thrive. And that is why we are here
today, to ensure that the General Service Administration's
Multiple Award Schedule Program is in place for small
businesses to succeed and grow.
After all, according to SBA, getting a GSA Schedule
contract is the lowest cost entry into government contracting
and a great way for small businesses to achieve credibility in
the federal contracting marketplace. Reforming and modernizing
the Schedule is necessary to keep pace with changes in the
economy, as well as the evolving needs of agencies and the GSA
must lead by example. Initiatives that promote small business
participation, increase efficiency and reduce waste are indeed
critical, but we are here to examine some of the more recent
and proposed changes to the GSA Schedules program just to
ensure that they meet those vital goals.
In particular, we need to review proposals that may reduce
the participation of small firms on the GSA Schedule. Such an
outcome would not only shortchange entrepreneurs but also
government agencies who could benefit from more and not less
competition for their businesses.
GSA Schedules have been highly effective for small
businesses, and they are growing rapidly. However, since the
GSA Schedules are the only procurement program that does not
require set-asides, it is critical that we ensure that small
businesses are not at a disadvantage, especially as contract
award vehicles are added or changed. We have seen over and over
again that the federal government's commitment to small
business has at times been disappointing. It fails to meet
statutory benchmarks year after year, not just for small firms
but also disadvantaged entrepreneurs like veterans, women, and
minorities.
As the GSA Schedule evolves, it is critical that small
businesses are consulted and prioritized. Improving the GSA
Schedule and empowering more small firms to grow with the
government is vital to our economic recovery. Ultimately, the
questions are simple. Are small businesses benefiting from the
changes at the GSA? Is government maximizing small business
participation even while streamlining processes and
transitioning to a more cost-effective system? Does GSA need to
make small business participation in the Schedule more of a
priority?
Well, the answers, of course, are not so simple, but I am
eager to hear from our panelists and work with my colleagues to
make sure that we tackle these challenges before us
responsibly.
Chairman Mulvaney. Thank you, Ms. Chu.

STATEMENTS OF THOMAS JACOBS, PRINCIPAL, KRUECK SEXTON
ARCHITECTS, CHICAGO, IL, ON BEHALF OF AMERICAN INSTITUTE OF
ARCHITECTS; LARRY ALLEN, PRESIDENT, ALLEN FEDERAL BUSINESS
PARTNERS, MCLEAN, VA; CHARLES FORMAN, EXECUTIVE VICE PRESIDENT,
INDEPENDENT STATIONERS, INDIANAPOLIS, IN; MIKE TUCKER, OWNER,
GEORGE W. ALLEN COMPANY, BELTSVILLE, MD, ON BEHALF OF THE
NATIONAL OFFICE PRODUCTS ALLIANCE

Chairman Mulvaney. Now, the witnesses today, the first
panel is usually our businesses. The first witness will be Mr.
Thomas Jacobs, a principal with Krueck Sexton Architects, a
small firm in Chicago. He is testifying on behalf of the
American Institute of Architects, who last month awarded Mr.
Jacobs their 2012 Young Architect award. Thank you, Mr. Jacobs,
for being here.
Next to him is Mr. Larry Allen. He started Microsoft? No,
president of Allen Federal Business Partners, a small business
in McLean, Virginia, that helps small and large businesses
navigate the GSA Schedules. Mr. Allen has authored or co-
authored three books on the Schedules.
The third witness is Mr. Charles Forman, executive vice
president of Independent Stationers in Indianapolis, Indiana.
His company holds a GSA office supply blanket purchase
agreement or BPA that allows approximately 117 small businesses
to participate in the Federal Strategic Sourcing Initiative.
Welcome, Mr. Forman.
And Ms. Chu will introduce our final witness.
Ms. Chu. Yes. It is my pleasure to introduce Mr. Mike
Tucker. Mr. Tucker serves as a chairman of the Independent
Office Products and Furniture Dealers Association, which is a
division of the National Office Products Alliance. And this
represents over 900 businesses in the office products industry.
He is also the owner of a small business, George W. Allen
Company, located in Beltsville, Maryland. Welcome, Mr. Tucker.
Chairman Mulvaney. Gentlemen, thank you. Here is how the
housekeeping works. We have asked you to limit your statements
to five minutes, although typically in the Subcommittee we will
not enforce that rule very strictly. If you decide to go a few
minutes over, that is fine. If you start hearing me tap very
quietly on the desk that means make some effort to please wrap
it up. But please do not feel constrained by the five minutes.
We are here. Many of you have traveled a good ways to be here.
We would rather hear what you have to say than arbitrarily
enforce a five-minute rule.
Secondly, what we will do is we will start with Mr. Jacobs,
go down, and let all of you give your testimony first. Then,
Ms. Chu will have an opportunity to ask questions. I will go
last. And finally, and this is a little bit different in this
Subcommittee. We usually do the businesses first and then the
government witnesses second. But we welcome your questions of
them. So if you have things that you want us to ask those
folks, please let us know. And for the government witnesses,
and I do not recognize their faces, please be aware that we may
very well ask you questions based upon the opening testimony.
So that is an opportunity that we afford you folks.
Mr. Jacobs, please fire away and we will go to Mr. Allen
when you have completed.

STATEMENT OF THOMAS JACOBS

Mr. Jacobs. Chairman Mulvaney, Ranking Member Chu, and
members of the Subcommittee, I am Thomas Jacobs, AIA, principal
at Krueck Sexton Architects, an 11-person architectural firm
based in Chicago. Illinois. I would like to thank you for the
opportunity to testify today on behalf of my firm and the
American Institute of Architects.
The current economic crisis has affected every American,
but it has hit small businesses particularly hard. Architects
are, by and large, small business people. Ninety-five percent
of U.S. architecture firms employ 50 or fewer staff. In fact,
the vast majority practice in one or two person firms. Because
of a lack of financing in the private market, public sector
work has literally been a lifeline for many small design firms.
However, working with GSA and other agencies can be challenging
for small firms.
Federal agencies are required to procure architectural
services through qualifications-based selection under the
Brooks Act. The Brooks Act does not mean that price is not a
component of the negotiation. The price must be negotiated with
the firm that best meets the qualifications for the project.
This is similar to how private sector clients select architects
for their projects.
However, some agencies avoid using rooks Act by obtaining
architects through the Federal Supply Service. To participate
in the Federal Supply Service, the contractor provider must
post a price list for agency use. The agency then determines
the best value by reviewing prices and other optional criteria.
This ``best value'' process is in direct conflict with the
Brooks Act because it focuses almost entirely on price and not
the qualifications needed to protect the health, safety, and
welfare of the people who use the buildings. Moreover, in some
states, architects are prohibited from competing on price. This
puts architects in an untenable position of either violating
ethical obligations or being locked out of the federal
marketplace. GSA must cease to use the Federal Supply Service
program for architecture as it violates the Brooks Act.
Another issue small design firms face is in how GSA selects
architects for design build projects. The rewards are high, but
cost to compete is increasingly prohibitive for small firms. To
prepare for a design build competition, an architecture firm
spends an average $260,000 by creating plans, models, and other
materials. In almost 87 percent of federal design build
competitions, there are no stipends for the firm. Instead, the
firm must hope that they win to make up the lost costs.
Agencies have taken advantage of their purchasing power
during the recession and have expanded the number of short-
listed teams. In the past, three finalists were typical, but
now there may be as many as 8 to 10 teams on the final list.
The odds of being selected have dropped significantly. Small
firms also face competition from larger firms who can more
easily absorb the cost. We ask the Committee to look at
reducing the number of finalists on these types of projects so
that all firms participate in this market.
Finally, I ask, the Committee to urge GSA and other
agencies to expand the participation of small firms in the GSA
Design Excellence Program. My firm has been a successful
participant in this program, which streamlines the selection
process while stressing creativity in designing buildings which
represent the dignity, vigor, strength, and enterprise of the
U.S. government.
When we were shortlisted for our project, we were the only
small firm competing against five large architectural firms.
Because we had the talent, the design, and we were a small
business, we won. Once under contract, we designed a 475,000
square foot new federal office building in record time with
construction bids coming in below budget. Small firms are
competitive.
At a time when federal government is facing unprecedented
deficits, we need to ensure that every taxpayer dollar is spent
wisely. Ensuring that the most qualified designers are selected
at the outset of the project reaps financial benefits and true
value for years to come.
In conclusion, I would like to thank the members of the
Subcommittee for giving me the opportunity to testify today and
for your dedication helping small business drive the recovery.
I am happy to take any questions that the Subcommittee may
have. Thank you.
Chairman Mulvaney. Thank you, Mr. Jacobs. Again, we will do
questions all together at the end. So, Mr. Allen.

STATEMENT OF LARRY ALLEN

Mr. Allen. Thank you, Mr. Chairman, and good afternoon to
you Madam Ranking Member and other members of the Subcommittee.
It is an honor to have this opportunity to testify today
before you on the GSA Schedules program. This is a program I
have worked in for nearly 23 years. For 20 years I led the
Coalition for Government Procurement, an association
principally made up of small business GSA Schedule contract
holders, as well as businesses of other sizes. I served on the
Multiple Award Schedule Advisory Panel and continue to teach
and advise companies on government business matters.
The Multiple Award Schedule Program, in my view, is the
single best avenue for small businesses to compete for and win
government business in today's environment. Having a Scheduled
contract allows small firms to win and compete against larger
businesses every day. The thousands of successful small firms
that hold GSA Scheduled contracts are a testament to the
creativity, nimble solutions, and dedication to service that
are emblematic of small businesses everywhere. For over 20
years, small businesses have received between 30 and 33 percent
of Schedule task orders. It is clear that small businesses have
succeeded as the Schedules program has succeeded. No
procurement program open to businesses of all sizes can match
this consistent successful rate of small business success.
Yet, even this percentage of direct contracting tells only
part of the story. Thousands more small firms participate in
the program as dealers or subcontractors. Whether a small firm
holds its own contract or participates in a contract held by
another, the Schedules program supports thousands of small
businesses across the country and hundreds of thousands of
jobs.
Today, the Schedules program has new capabilities to
further enhance the ability of small firms. New rules allow
agencies to specifically set aside procurement for small
business. Although this rule is only seven months old, I
believe the data collected at the end of the fiscal year will
show that small businesses have already realized a steady
portion of Schedules-based work even at a time when Schedule
sales overall may have declined.
The current wording of this regulation, which may set aside
procurements for small businesses, I believe is more beneficial
than a must standard. Mandating set-asides on the Schedules
program is not, I believe, in the best interest of the
Schedules program or the small businesses that succeed on it.
New mandates that make the Schedules program more difficult to
use will drive buyers to other programs, many of which do not
have anywhere near the successful small business track record
of the Schedules program. Any mandate that hurts the Schedules
program therefore will have a proportional, if not greater,
negative impact on small firms.
It is imperative that the Small Business Administration
therefore more cautiously during its current round of
rulemaking. It is always appropriate to look for ways to
maximize small business participation but care is needed to
ensure that there are not any unintended consequences from new
rules. I recommend that the SBA examine other government
contracts that did not already exceed the government's small
business contracting goal by 10 percent.
Today's hearing also covers the topic of GSA's Federal
Strategic Sourcing Initiative for Office Supplies. I am well
acquainted with this procurement and the varying opinions
surrounding it. I believe that an entire hearing could be held
to discuss this program. The harmonization of positive
political and acquisition outcomes is often something difficult
to achieve. My hope is that GSA FSSI managers will exercise
sound business judgment when setting the future course for this
program, and like many of my colleagues, I await eagerly what
happened next with this acquisition.
GSA's Schedule managers have recently proposed demand based
changes that could affect small business Schedule contract
holders. One is a proposal to shut down Schedule contracts or
parts of Schedules. The other is to move more swiftly to remove
companies from the program that have not recorded any sales.
For a period of nearly 20 years, GSA consistently accepted new
offers and created new special item numbers and never had to
close the program. Over the last several years, however, they
have elected to look at closing the Schedules program. And
although unintended, there may be some opportunities here that
GSA does not realize when it closes the program. These closures
may assist GSA in managing its workload, but previously, when
contracts were only one to maybe three years in duration, they
could be justified as the closure time was typically short.
Today, however, Schedule contracts are awarded for a five-
year base period with three five-year options, and the
Schedules program finds itself in a highly competitive
contracting arena. Hundreds of smaller IQ contracts exist, and
some agencies openly talk about plans to set up their own
strategic sourcing initiatives, and at least one agency has
developed plans to create its own Schedules program. GSA should
be looking for ways to make its Schedules program as
competitive as possible and remain open to new offers in
innovations.
The issues surrounding GSA's desire to close part of its
Schedules are real. The staffing issues are, in fact, acute and
must be addressed by the agency. In the meantime, GSA leaders
should have the flexibility to bring resources in from other
parts of the agency. Periodic closings of your marquis
procurement program should be a last option, not the first
proposal out of the gate.
GSA leaders estimate that many of their 18,000 Schedule
contract holders record no Schedule sales. Schedule rules state
that a contractor must have 25,000 in sales within the first
two years to maintain that contract. While GSA is also
technically liable to pay each contractor that records zero
sales $2,500, I have never seen that happen in my 23 years in
the business. GSA does have the right to cancel contracts that
realize zero federal sales, and companies are told in writing
that they have to achieve minimums. However, many companies
obtained a Schedule contract because an executive with a state
or local government asked them to obtain a Schedule contract to
get it easier for them to do business with that state or local
government, and this provides a benefit to the small
businesses, at the same time posing a challenge to GSA.
GSA must now deal with the reality of being the auxiliary
arm of state government acquisition organizations. Businesses
were told by an important customer of theirs to obtain a
Schedule contract. GSA at the same time, however, must be
allowed to recover the cost for performing this service. GSA
should examine and Congress support if necessary the right of
the agency to collect Schedule industrial funding fees from
states that use local like contracts. Giving GSA the ability to
reach out to states that already rely on its work will allow
GSA to recover costs it is already incurring, and this approach
would also allow the agency to hire and train additional
contracting professionals and it will save hundreds, if not
thousands of small business Schedule contracts and the related
jobs tied to them.
Mr. Chairman, Madam Ranking Member, members of the
Subcommittee, I am a strong supporter of GSA and its Schedules
program. I believe the program fulfills an important need in
the acquisition system. While we may differ on specifics, I
believe that today's management team wants to move the
Schedules forward. With a little tweaking, the program's
success and that of its small business partners will only get
better. I appreciate this opportunity again to testify and look
forward to your questions.
Chairman Mulvaney. Mr. Allen, thank you very much.
Mr. Forman.

STATEMENT OF CHARLES FORMAN

Mr. Forman. Thank you, Chairman Mulvaney, Ranking Member
Chu, and members of the Subcommittee. I am pleased to be
testifying before you today about the Multiple Award Schedule
Program specific to Schedule 75 and the Federal Strategic
Sourcing Initiative Generation 2 Blanket Purchase Agreement.
My name is Charles Forman and I am the executive vice
president of Independent Stationers, and I have been in the
office products industry for 23 years. Independent Stationers
is structured as a dealer-owned cooperative headquartered in
Indianapolis, Indiana, and has been in the office supplies and
related industries since 1977. Our small business dealer-owners
have varied tenure in the office products industry with some
dating back to the early 1900s.
Independent Stationers was certified as a small business by
the SBA in 2003, and is comprised of 351 members and
affiliates. Our dealer owners are small businesses and many
hold other socioeconomic designations. Today, 117 of our
members are certified and approved by GSA as participants of
our federal sales program and as such can utilize our MAS
Schedule 75 contract and related FSSI OS2 BPA.
Our model is similar to other successful cooperative
business models such as Ace Hardware, credit unions, and many
of the other nearly 30,000 cooperatives in the United States.
There are many different types of cooperatives, including
agricultural, financial institution, health care, housing.
However, some are formed for purchasing, which applies to
Independent Stationers. The reason Independent Stationers is in
existence is to give our small business dealer owners the tools
and resources they need to level the playing field with their
big box competitors. Like the federal government leverages its
purchasing power, we aggregate volume from our small business
dealer owners giving them lower cost of goods. The net result
is Independent Stationers dealer owners have the most efficient
re-supply operations model in the industry today allowing them
to deliver the highest value to federal government customers.
The independent dealer channel is the high-service, high-touch
customer care solution for the federal government.
In 2002, Independent Stationers was awarded a MAS 75 for
office supplies. Independent Stationers, together with GSA,
paved the way for federal government acceptance of GSA
contracts awarded to industry consortiums. To our knowledge,
this model was the first in the office products industry and
has resulted in significant savings to federal government
consumers and enabled more small businesses to sell in the
federal government marketplace.
In 2007, Independent Stationers was awarded under the first
generation of strategic sourcing for office supplies in the
categories of general office supplies and paper. Although the
first generation BPA did not meet expectations, Independent
Stationers took GSA at their word pertaining to the support
that would be given for the second generation of the FSSI OS2
BPA. In 2010, Independent Stationers submitted a proposal based
upon our proven cooperative business model that had brought us
and our small business dealer owners success over the previous
eight years. Not only did Independent Stationers' proposal
answer the desire for focus on socioeconomic factors, it was
deemed competitive and valuable to the federal government as
evidenced with the FSSI OS2 BPA award in Pool 1. In essence,
the award to Independent Stationers was made to more than 100
small businesses that would ultimately benefit, not just a
single corporation.
Since the FSSI OS2 BPA began in June 2010, Independent
Stationers has enabled GSA and the commodity team members to
meet their goals of achieving savings; capturing data; enabling
achievement of socioeconomic goals; driving compliance with
mandates, acts, and orders; conforming with agency business
practice; and been easy to use.
Independent Stationers' dealer owners have seen significant
sales growth. In Calendar Year 2011, our participating small
business members experienced a 302 percent increase in sales
over Calendar Year 2010 in selling to the federal government.
It is our estimate, through the Federal Strategic Sourcing
Initiative OS2 BPA, that those sales represent a 36 percent
savings as compared to our MAS 75 pricing.
In summary, participation in a cooperative business model
is beneficial to small business and the federal government
through cost savings and through small business participation.
We applaud GSA for recognizing the benefits our cooperative
business model afford small businesses with their award to
Independent Stationers. We understand and acknowledge the
common complaints expressed by those small businesses not
possessing an FSSI OS2 BPA, and we believe we are a solution
for those small businesses that fit our dealer-owned
cooperative model, to sell to the federal government agencies
through the FSSI OS2 BPA purchasing vehicle.
Thank you for the opportunity to testify.
Chairman Mulvaney. Thank you for the testimony, Mr. Forman.
We will come back to the questions in just a second after Mr.
Tucker is finished.

STATEMENT OF MIKE TUCKER

Mr. Tucker. Chairman Mulvaney, Ranking Member Chu, members
of the Subcommittee, I am Mike Tucker, chairman of the
Independent Office Products and Furniture Dealers Association,
and an owner of the George W. Allen Company located in
Beltsville, Maryland. I am here today representing one of the
IOP FDA's two memberships, the National Office Products
Alliance.
The Independent Office Products and Furniture Dealers
Association is a not-for-profit trade association established
in 1904 that represents and serves more than 1,000 small,
independent commercial dealers throughout the United States
along with their key suppliers.
I appreciate the opportunity to speak to the Subcommittee
today about the need to ensure small businesses in our industry
have fair, ongoing access to opportunities in the federal
market. There have been a number of developments since 2010
with respect to management of the GSA Schedule 75 program in
general, and implementation of the second generation Federal
Strategic Sourcing Initiative for office supplies in
particular, that have broadly impacted our members. I will
highlight these developments in my testimony today.
First and foremost, NOPA is greatly concerned about the
abrupt and widespread impact on small businesses in our
industry due to the General Services Administration's
implementation of the current FSSI program for office supplies.
We acknowledge that the FSSI program has generated new
opportunities for small businesses in our industry, including
some of our very capable members. At the same time, there have
been many other members who have invested with government
encouragement in obtaining their own Schedule 75 contracts,
only to see their current opportunity dramatically reduced as a
result of the near-mandatory, government-wide implementation of
this program.
Given the government-wide scope of this FSSI and the large
number of small businesses that were participating in this
market in Fiscal Year 2010, NOPA was surprised that GSA did not
undertake a small business impact study before launching its
second generation FSSI for office supplies. It then went a step
further and without any such study as required under the
Regulatory Flexibility Act, published a proposed rule in June
2010 that called for creation of a special reference for
Federal Strategic Sourcing Initiatives within the FAR.
As an association, we have worked to find the middle ground
within our membership on this issue. We do not wish to impair
the new opportunities of members who competed for and were
awarded FSSI blanket purchase agreements. At the same time, we
would be remiss if we did not highlight our concerns about FSSI
has been implemented.
After monitoring FSSI implementation for six to nine
months, and seeing its far-reaching impacts, we agreed within
the NOPA Board to urge GSA and the administration as a whole to
issue a Statement of Administration Policy to clarify to
federal agencies what our industry had been told by GSA and the
administration just prior to the bid process: that FSSI would
be implemented on a non-mandatory basis, allowing non-awarded
GSA Schedule 75 holders to continue to compete for federal
business. Since that time, it has become clear that FSSI volume
and its share of total federal spending on office supplies
would continue to grow as more and more major agencies issued
guidance to buyers that FSSI use was mandatory except in
unusual situations.
NOPA has maintained a dialogue with GSA and the Office of
Federal Procurement Policy on FSSI implementation since 2010
and I am here today to urge this Committee, the full Congress,
and the administration acknowledge and address the impact of
strategic sourcing on our industry in a forthright way. The
solution is simple and relies on allowing more competition and
flexibility in purchasing as ways to achieve FSSI's goals and
reduce job loss pressures in our industry.
First, the administration needs to issue a very clear
Statement of Administrative Policy that restores full
competition within the federal market for our industry's
products. This approach, if communicated and implemented
broadly, will ensure genuine ongoing choice of procurement
vehicles for agencies and will help the administration achieve
the overall budgetary savings it hopes to achieve through the
FSSI program. Mandatory implementation of FSSI on a government-
wide basis represents a massive form of contract bundling,
which has and will continue to reduce the opportunities and the
ultimate level of small business participation and healthy,
long-term competition in federal markets.
Second, there needs to be more flexibility to allow
individual dealers with their own GSA Schedules to participate
in FSSI as authorized participating dealers with dealers who
have received awards. Authorized dealers should be subject to
reasonable ground rules, but this should not mean they must
give up their rights to compete for non-FSSI federal business
opportunities using their regular GSA Schedule contracts. This
is essential since APDs will need to bear significant
administrative fees from GSA and their chosen FSSI BPA partner,
as well as normal costs associated with properly servicing
federal accounts. NOPA is in dialogue with GSA regarding the
APD option, and we ask this Committee to strongly encourage
them to work toward an expeditious and balanced conclusion.
We hope that this Committee will reflect on the history of
FSSI implementation in our industry and consider how the small
business impacts can be mitigated in the future. At the end of
Fiscal Year 2010 there were 550 mostly small companies and a
few dealer-based organizations competing for federal business
with one or more departments and agencies under the regular GSA
Schedule 75 contract program who were using individual blanket
purchase agreements. However, with the rapid and orchestrated
push by GSA and OFPP for use of FSSI on a government-wide basis
using just 2 large and 13 small vendors, the economic fallout
has been swift and dramatic for most of the remaining Schedule
75 contract holders.
The office products industry is one where small businesses
owned and operated by women, minorities, service disabled
veterans and second and third generation entrepreneurial
families have been well represented and highly successful
against much larger national competitors. It is hard to
understand how an FSSI program was implemented that did
significantly more harm than good to this already fragile
community of businesses.
We do not believe that this result, a new economic loss for
small business, is what Congress or the administration intended
or is what our nation needs as our economy is showing uneven
signs of recovery.
More competition, not less, is the solution and can readily
be restored in the federal market for office products by making
the FSSI program truly one option, rather than a mandatory or
quasi-mandatory option among those that have been in place and
work ineffectively for some time.
I ask that my testimony be made part of the official record
of this hearing and thank you for inviting me to testify on
behalf of NOPA.
Chairman Mulvaney. Thank you, Mr. Tucker. And just a point
to all of you, your testimony that you have prepared in advance
is part of the record. As will the questions and answers. So as
is my custom, I will defer to my ranking member and give her as
much time as she wishes.
Ms. Chu. Thank you, Mr. Chair.
I would like to follow up with you, Mr. Tucker, in terms of
the problems you talked about with regard to the Federal
Strategic Sourcing Initiative. You mention in your testimony
that despite GSA's assurance that FSSI would not be mandatory,
that in reality it has become that, and that agency's issue
guidance to buyers is that FSSI use is mandatory. I want you to
talk about how it is communicated to the buyers that it is
mandatory. And also, can you explain how mandatory FSSI has
prejudiced buyers away from regular Schedule 75 vendors and to
what degree this has impacted non-awarded small business?
Mr. Tucker. It is varied by agency, but basically they put
out an agency directive that you are required to use this
program and these 13 small businesses and two large businesses
for your office supplies. And if a cardholder wants to veer
away from that they either have a very, you know, strenuous
group of hurdles they have to go through to make that happen
and with official language are threatened with losing their
card because they are not following the guidelines of the
agency. But it was a very strong-arm push. There was nothing
non-mandatory about it. It was very strongly worded. I have
samples of those letters from all the agencies if you would
like to see copies of them.
Ms. Chu. I am assuming then there was a dramatic drop in
business for the other ones, for the other Schedule 75 vendors.
Mr. Tucker. Well, we are Schedule holders, so our sales
reps would show up at agencies that we had been doing business
with for years and we would just be flat-out told, ``Sorry, we
love you. Your pricing is good and your service is great, but
we cannot do business with you anymore.'' And it had a dramatic
impact on our business very quickly. Our sales are off 60
percent from what they used to be and we have lost nine
employees as a result of it.
Ms. Chu. I have also heard that the award application
process for the blanket purchase agreements is confusing and
there are many restrictive requirements. And as a result, many
of these small businesses were not able to apply for Schedule
75 BPAs and that this drastically limited the pool of small
businesses that could benefit from the opportunity. What would
you say about this application process? And was it transparent?
Why or why not?
Mr. Tucker. I have done a lot of proposals and I have won a
lot of BPAs over the years. This one was very different. I
think I heard that somewhere in the neighborhood of maybe 50
companies out of the 550 actually put proposals in. To Mr.
Forman's point, there were consortiums that also put proposals
in. His was the only one that was able to win it this time, but
it was very price-based where in the past a lot of these
solicitations have had a lot more technical requirements in
terms of past performance and ability to deliver on a national
basis and meet other technical requirements for reporting and
computer systems. Those were very much minimized in the new
bid. And it was primarily about price and then they also had a
calculator at the end of the bid that was based on volume
discounts that you would offer the government if you hit
benchmarks of $25, $50, $75, or $100 million. And you could put
a number in there. And most people, a responsible number might
have been a 1, 2, or 3 percent. There were people that put 6,
12, 18, 22 percent in those figures which made their bid
package come in ridiculously low compared to a more responsible
bid. But there was no accountability as to how you would get to
those discounts if you ever did reach those sales but it did
very much affect the award pool that came out of the
solicitation.
Ms. Chu. And let me ask also about the voluntary set-aside
because GSA is one of the few agencies that does not have a
mandatory set-aside for small business. And therefore, that
would seem to also lessen the opportunities for small business.
Have you participated in government contracting out of GSA
where there is the mandatory set-aside? And do you see a
difference here?
Mr. Tucker. Only on the furniture side for me. We also have
a furniture Schedule and we work with 8(a) partners or partners
with other minority designations when primarily the military
would have some kind of a set-aside where they had to spend a
certain amount of dollars with those and we were able to work
with a contracting partner on that. I really have not seen much
of that on the supply side and because so much of the
procurements are under the micro purchase threshold and its
credit card transactions, I do not think it lends itself to a
set-aside program. I know at some point they used to have set-
asides for under $25,000 if things were competed, but I think
the business has gone to more of a credit card base with
smaller pockets of business as opposed to supply rooms and
large procurements for full agencies or departments.
Ms. Chu. Mr. Allen, you talked about the $25,000 sales
minimum threshold and the effect that canceling contracts with
no sales will have on state governments that rely on GSA
Schedules for selecting vendors for their state programs. There
is this $25,000 minimum but canceling those particular
contracts right now could have, of course, a very difficult
effect. And in fact, in my own state of California, having a
federal Schedule contract makes it easier for a business to get
onto the state's own Schedule. But, you know, of course, being
canceled would really have a deleterious effect. So what effect
will GSA's enforcement of this contracting provision have on
the ability of businesses to compete in federal and state
markets?
Mr. Allen. Well, Madam Ranking Member, I think that the
process is GSA needs to look and see what businesses that
record zero federal sales are actually doing on some of these
state contracts and the example that you mention, the CMAS
program is certainly one of the most visible state contracts
that is based heavily on the federal program. And being able to
see that there are businesses that are doing robust state
government business and may very well have the intent but
because they are small, lack the bandwidth to sell federally
right now, is an important factor that needs to be considered
before those contracts are canceled. Unlike somebody who may
have gotten a Schedule contract four years ago to transaction
one specific piece of business and has never done anything
since, the types of contracts that are awarded that are
essentially the backbone of a state government contract do have
a purpose and I think that purpose needs to be investigated and
realized before there are any cancelations that take place.
Ms. Chu. And for anybody on the panel, the whole panel on
this $25,000 minimum, have you experienced this or know small
businesses that have had trouble meeting this annual minimum?
Would it be particularly difficult for a small business to meet
this threshold?
Mr. Allen. Well, in my experience, Madam Ranking Member, I
have seen small businesses that have struggled over a couple
years to achieve $25,000 in sales. Usually the ones that have a
dedicated or halfway dedicated federal program can achieve that
level in a couple of years, maybe three years, and if they are
showing good progress, historically GSA has been willing to
allow that contract to continue in anticipation that they will
build a base of business.
GSA's enforcement of the $25,000 limit has not always been
consistent over time. Now, I am speaking as somebody who has 23
years of experience with the program. More recently, they have
become a little bit more consistent about looking at companies
that have no sales, but again, no sales really should mean no
public sector sales and not just no sales to the federal
government.
Ms. Chu. Well, thank you. And I yield back.
Chairman Mulvaney. Thank you, Ms. Chu. We now recognize the
gentlelady from North Carolina, Ms. Ellmers.
Ms. Ellmers. Thank you, Mr. Chairman. And thank you to our
panel for being here today on this issue.
Mr. Allen, my questions are for you. I have a couple of
situations that I have run into with constituents, small
businesses back in North Carolina, on basically the GSA
scheduling issues. I would like to ask you about some of the or
what the process is sometimes if there is the possibility of
some of the abuses that could happen. One directly would be if
a small business is deemed to be not a small business and
something other than or larger than a small business but has
received funding, what is the process that would happen if they
have already received some funding? What is the process that
should take place? How prevalent is this? And how are abuses
like that monitored?
Mr. Allen. Well, some of it is dependent upon the basis
upon which the initial contract award was made. So if the
initial contract award was made based on small business size
standard and the business in question is no longer small,
proper notifications should be given by the business to the
government agency that it is no longer small and then it is up
to the agency to decide whether they need to actually keep this
as a set-aside piece of business, in which case they would at
some point in the not too distant future after receiving that
information, cancel the current contract and then go out and
recompete among eligible small businesses. Contracting officers
in the government as well have the ability to ask businesses of
any size to recertify their size status at the time of any task
order being issued against that contract, and small businesses
have to answer.
Your question, however, is a very good one because that is
what is supposed to happen. In reality, there is not always the
communication that should take place between the contractor and
the buying agency, and the buying agency sometimes does not ask
the questions that perhaps it should ask about a company's
small business status. Typically, it is usually up to a
competitor company to call attention to change in size status
or some other issue with an existing contract and then again,
it is up to the agency usually to decide, well, do we want to
maintain this as a small business set-aside or are there other
opportunities that we can do as small business set-asides and
still continue to do business with a company that is no longer
small but is meeting our needs?
Ms. Chu. Just as a follow-up question to that, and this is
a very specific situation, if the Small Business Administration
had been the one to basically point out that that business was
no longer considered small on more than one occasion, would you
not feel that that was more than justification for that process
to end?
Mr. Allen. Yes, ma'am. There is no question. If the SBA
says formally or even semi-formally that this business is no
longer small, that should be the last word.
Ms. Ellmers. Okay. Well, thank you so much, Mr. Allen. And
I yield back the remainder of my time.
Chairman Mulvaney. Thank you, Ms. Ellmers.
Mr. Jacobs, a couple of questions for you. We talked--
because I have not had a chance to talk much about the Brooks
Act--you talked about the qualification-based selection system
where supposedly you are not competing on price, you compete on
qualifications and then the government will negotiate with the
most qualified provider. And I think you compared it to what we
call the best value process. Did I get that right? Is that what
they----
Mr. Jacobs. I think in my testimony, best value was used in
conjunction with the Federal Supply Service. But I think the
definition of value has inherently to do with what I think we
are trying to communicate.
Chairman Mulvaney. My understanding of the Brooks Act,
which is fairly limited, is that if we did that that would be
in violation of the Brooks Act. Would it not?
Mr. Jacobs. Correct. If Architectural Services are awarded
based on the Federal Supply Schedule, that would be in
violation of the Brooks Act because--and I think this has
everything to do with the nature of architectural services as
opposed to a physical commodity which I believe is the intent
to be covered by the Federal Supply Service. So the
professional services that we sell consist of time, experience,
ingenuity, and we are, you know, we spend time with our
clients, with agencies very early on in a process that
frequently takes a number of years. And so I may be able to
give you one example how I think we can affect cost control
specifically much more accurately at the very upfront end of a
job as opposed to, and even if you might have built your own
house, the worst thing that can happen is two weeks before you
want to move in something does not work and now you have to
make changes. It is very cost prohibitive to do this because
everybody is already onsite and now you have to order materials
and so forth.
If you compare that with the ability that we, as planners
and problem solvers, have at the beginning of a multi-year
process that it takes to design and engineer a building, we can
run various scenarios that upfront can show which design or
which approach can yield long-term savings. And so this is
think fundamentally how the architectural profession sees its
values or its value with regards to providing accurate
information for decision makers. So if we do our job right, it
puts the government in a position to make informed and the most
accurate decisions, and those are the ones upfront that can
actually save real dollars long term.
Chairman Mulvaney. You also mentioned something, and I have
done some work with architects in my previous life, but you
mentioned something that I was not familiar with. Did I hear
you say correctly that architects are prohibited in some states
from competing on price?
Mr. Jacobs. That is correct.
Chairman Mulvaney. Give me an example. What states would
that be?
Mr. Jacobs. I would actually have to look that up. I am
generally informed that out of the 50 states I think two, and I
cannot point you to which ones they are, but two of those, that
the statutes of the profession in those state prohibit people
from just competing on price.
Chairman Mulvaney. All right. Let us assume for the sake of
this discussion that is correct. I have no reason to think that
it is not. If the government is actually employing this best
value process in either intentional or unintentional violation
of the Brooks Act, would that not automatically disqualify
every single architect in those two states from competing?
Mr. Jacobs. I think based on professional ethics standards,
yes, it would. But I think this is somewhat of a gray area in
that it puts architects in this difficult position. As you
know, the economic climate is such that I think firms in a case
like that may have to--may be forced to make a decision in
interpreting their professional ethics standards or basically
still applying for federal work.
Chairman Mulvaney. In your last comment, and I am going to
ask each of you this before it is finished, in your last
comment you urged the GSA to do something regarding expanding
participation. I could not write as fast as you were speaking.
Say that for me again because I am going to have the GSA come
up in a second. I will be happy to pursue that topic with them.
Mr. Jacobs. Yes. We would like the Committee to consider
urging the GSA to expand the Design Excellent program. And this
is the exact program that we were involved in in this federal
office building that I described. And I think this is for
probably three primary reasons. This Design Excellence program
explicitly meets the intent of the Brooks Act in our opinion
because it is a two-stage selection process. And actually,
before you get to that process, all of these opportunities are
posted on Fed Biz Ops, completely open and transparent and
easily accessible to all. And then this two-stage selection
process is first a broad qualification of experience and
expertise. And based on that, the government then creates a
short list. And typically, members of that short list get to an
interview or in a competition mode where they literally are
pitted against each other in terms of who is more experienced,
innovative, and actually might have some real ideas with
design.
So because that process is literally set out to give the
government sort of the benefits of the competitive environment
we are in, we believe, and our experience is that that yields a
very good result.
Chairman Mulvaney. Thank you, Mr. Jacobs.
Mr. Forman, a couple of questions for you. Walk me through
the process. I ran a small business. I had some encounters with
the SBA but I never did what you all are testifying about
today. Walk me through the process by which you all won the OS2
BPA, and tell me if you participated in any of the GSA outreach
programs as they developed the requirements for that contract.
Mr. Forman. Chairman Mulvaney, I will answer the second
question first if that is all right. We did participate in some
of the outreach meetings that GSA had, and we provided input
and we worked many times with NOPA on providing that input and
trying to affect change on those types of solicitations. In
terms of responding to the bid, as I indicated in my testimony,
we have been a Schedule 75 holder since 2002. We meet the
requirements, and so when it came to responding to the
technical requirements of the bid and the competitiveness of
the bid in bidding on the market basket items and how that
filters down to other items outside of just the market basket,
I would state we were the third, I believe, lowest bidder on
the market basket. So we competed both on a technical--from a
technical standpoint met the requirements of reporting and
whatnot and the socioeconomic, being a small business, and also
price.
Chairman Mulvaney. You mentioned in your testimony that the
GSA had pledged to be more helpful to small business through
this OS2 BPA process. How did they do, in fairness? Again, I am
going to ask them the same question in a few minutes.
Mr. Forman. Sure. I think to some degree numbers speak for
themselves, and there is a higher degree of the overall spend
going through small business today than there was in the past.
But I think that it is a higher dollar--is a higher percentage
of the spend to a fewer number of small businesses. So I would
say that you would have to look at it both ways. Fewer number
dealers are getting a bigger piece of the pie. And in the case
of us, we are a, again, cooperative, viewed as a consortium of
dealers by the federal government, and we have a number of
dealers who never had any piece of that business in the past
and have been able to participate in our program and share in
some of the sales to the federal government.
Chairman Mulvaney. Thank you, Mr. Forman.
Mr. Allen, I have some questions for you, very similar to
what Ms. Ellmers asked you, and in consideration of time I am
instructed we are going to have votes in about 45 minutes, I am
going to skip you now and go to Mr. Tucker.
Mr. Tucker, very briefly, I take it you oppose the OS2 BPA
process?
Mr. Tucker. Not so much that I oppose the process as much
as the way it was implemented and the way it limited the
participation of eligible dealers who were qualified to perform
under the program. And there were two other teaming agreements
that were in place before the second FSSI that did not get
awards. The group that I was running with had over 100 members.
There was another group called AOPD with 50 or 60 members.
Those two groups basically got washed out of the process and
other GSA contract holders, either that did not participate or
wanted to participate in the program, were given the
restrictions of having to limit the products that they offered
on their GSA Schedule as a condition of participation as a
dealer in another program. So a company like mine, we would
have had to basically wipe out the last 40 percent of our
business with agencies that we had other agreements that we
were still fulfilling in order to try and jump over and be a
participating dealer with an awarded company.
Chairman Mulvaney. And is the circumstance that you just
described which you were referring to when you said that the
FSSI process was sort of a de factor or in essence a form of
contract bundling. Is that what you are talking about when you
use those words?
Mr. Tucker. That is how it appears to me that it came.
Because you had 400, well, about 400 dealers competitively
participating for the business. And especially in pocket
markets. So you have small companies with a contract that maybe
were outside a military base or next to a veterans hospital or
something where getting a Schedule, you know, they had a great
opportunity to do business. But they did not have the
wherewithal to compete for a national contract or a national
BPA like this, and as a result they got swept away by the wave
when this came through. And even us being in the Washington,
D.C. area and a veteran company by most measures, you know, we
did not have a way to effectively get in the game even though
we were right on the cusp of being qualified for an award.
Chairman Mulvaney. All right. I am going to press you on
something that actually was not in your presentation today but
it is in your written testimony, which deals with the Statement
of Administrative Policy, the SAP, because I think you are
encouraging the GSA apply that instead of the traditional
rulemaking. As a lawmaker, did I mischaracterize that?
Mr. Tucker. No, I think, I mean, we represent a lot of
companies and some got awards and some did not. We saw that as
a compromise vehicle that could allow other companies to get
in. If the guy outside the veterans hospital or the military
base had something in writing from the administration that says
FSSI is not mandatory, he may be able to use that to counter
the written guidelines that that agency put in place that made
FSSI mandatory.
Chairman Mulvaney. And I will just ask you, Mr. Tucker, as
a lawmaker, SAP does not appeal to me very much. You recognize,
of course, number one, it does not have the force of law, so it
may not be as powerful a tool as you think that it is. And
perhaps more importantly, it does not provide for comment
period input from the business community. It is sort of a fete
accompli. It is a done deal once the administration issues it.
So I guess I do not have a question for you but I just tell you
there will be folks who will press you on that simply because
we would like to participate in the process.
Mr. Tucker. That was a compromise solution to try and come
up with something that could help our members.
Chairman Mulvaney. Thank you. Gentlemen, again, I am not
trying to rush anybody through but they do tell me that we are
operating under some loose time constraints. A quick question
to each of you. Mr. Jacobs, I think I know the answer to what
your question is, so I will start with Mr. Allen. Mr. Allen, in
a few minutes here the GSA is going to come up and other folks
from the government. Any questions you want me to put to them?
Mr. Allen. I think the biggest question for GSA, Mr.
Chairman, is what they are going to do in terms of these
discussions that we talked about, the demand based changes. I
think that on some level, an administrative level, I understand
what they are trying to achieve but I do not know that the
process that they are going to propose to go through is the
best way. What other processes, what other alternatives are
there that would allow them to manage their administrative
challenges without causing this type of disruption to their
overall business?
Chairman Mulvaney. Thank you. That is one of the questions
we had as well.
Mr. Forman.
Mr. Forman. If I were to ask a question it would be would
there be additional consideration of the cooperative business
model as a means to help GSA achieve some of its goal in terms
of reducing administrative burden in terms of managing hundreds
of contracts when it can utilize a cooperative and in essence
support small business, numbers of small businesses through one
contract?
Chairman Mulvaney. Mr. Tucker.
Mr. Tucker. Just that they would continue the dialogue with
us and with a short-term solution in mind of trying to get more
participation from companies that have held GSA contracts in
the past and without any burdensome requirements.
Chairman Mulvaney. Thank you, gentlemen. I thank all of you
for your time, for your effort, for your input. I especially
thank those of you who traveled today for this. And I will tell
you what I tell everybody who comes to these things, because
some folks come in and they say, Mr. Mulvaney, no one showed up
for this. Was this a complete waste of time? I can assure you
that it is not. I can assure you that this is where the
dialogue starts on policymaking, on rulemaking, on everything.
You might have made a comment today, Mr. Jacobs, regarding
the Design Excellence Program that someone sitting in the back
will pick up and write about in one of the local trades and it
will end up being a discussion item at your next symposium and
a year from now it will end up being a piece of legislation. We
see that every single time. And so please do not be discouraged
by the fact that there was not a lot of media, a lot of press.
This is an extraordinarily helpful part of the process, and you
gentlemen have contributed greatly to the dialogue today and I
really appreciate your time. So thank you for coming in. With
that we will excuse you and ask the next folks to come up.
Chairman Mulvaney. Gentlemen, thank you. We will introduce
you very briefly and go right to the testimony.

STEVEN J. KEMPF, COMMISSIONER, FEDERAL ACQUISITIONS SERVICES,
GENERAL SERVICES ADMINISTRATION, WASHINGTON, D.C.; WILLIAM T.
WOODS, DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT,
GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, D.C.

Chairman Mulvaney. So for the record we know who you are,
the first witness is Commissioner Kempf, Steve Kempf. He is the
commissioner of GSA's Federal Acquisition Services, which
manages and oversees the Schedules. While Mr. Kempf has been
commissioner for about two years now, he has been with GSA
since he started there as an intern in 1947. Is that what it
says here? 1992. So am confident he will be able to answer the
questions.
Our second witness is Bill Woods, the director of
Acquisition and Sourcing Management. That team is at the U.S.
Government Accountability Office. He is responsible for
providing overall direction for the GAO review of contracting
activities at defense and civilian agencies. Last fall, under
his direction, GAO issued a report on GSA's Federal Strategic
Sourcing Initiative for office supplies.
Gentlemen, thank you as always for being here. Commissioner
Kempf, I think you are first.

STATEMENT OF STEVEN J. KEMPF

Mr. Kempf. Good afternoon, Chairman Mulvaney, Ranking
Member Chu, and members of the Committee staff.
My name is Steven Kempf, and I am the commissioner of the
United States General Services Administration's Federal
Acquisition Service. I want to thank you for providing me the
opportunity to discuss GSA's accomplishments and continued
efforts to improve the efficiency and effectiveness of the
Multiple Award Schedule's program (MAS). Over time, the
Schedules have proven to be the most effective contracting
vehicle for small business in the government marketplace.
I would like to discuss three specific initiatives and have
I addressed several related programs in my written testimony
that operate to ensure the success of MAS and maximize the use
of taxpayer dollars. These three things are: implementing the
Small Business Jobs Act of 2010; the Federal Strategic Sourcing
Initiative; and finally, the MAS Demand Based Model.
The MAS is the most successful government contracting
program in terms of creating opportunities for small
businesses. The MAS program routinely exceeds the government-
wide business contracting goal of 23 percent. Specifically,
more than 70 percent of all MAS vendors are small businesses,
and approximately 34 percent of all dollars spent in the MAS go
to small businesses. This success is not accidental; it is the
result of robust programs and a commitment to the success of
small businesses across our agency.
Our expectation is that the full implementation of Section
1331 of the Small Business Jobs Act of 2010 will drive even
more market share to small businesses. Since promulgation of
the FAR Rule in November of 2011, GSA has trained approximately
1,700 members of the federal acquisition workforce.
While we are pleased with our progress, we continue to
identify additional ways to ensure that the authority continues
to be a success. For example, in partnership with the Federal
Acquisition Institute and Defense Acquisition University (DAU),
FAS has launched a four-hour course on how to use the new
authority, and we are in the process of working with the Office
of Federal Procurement Policy (FAI) and DAU to make the case
that MAS training, and as a consequence, training on Section
1331, should be a required component of the federal acquisition
certification. We look forward to continuing to work with you
to ensure success of this program.
Over the last few years, we have placed renewed effort in
GSA on data collection, analysis, and enhanced competition.
These are the things that allow us to make the best purchases
at the best prices. Such leveraging of government spending is
at the heart of the Federal Strategic Sourcing Initiative. FSSI
is governed by the Office of Management and Budget in concert
with the Chief Acquisition Officer Council's Strategic Sourcing
Working Group. It is important to understand that price is only
one of FSSI's key priorities. Socioeconomic goals, including
small businesses, understanding the government's spending
patterns, ease of use, and removing government cost drivers are
other key goals. To accomplish these goals on each specific
initiative, we work closely with other agencies to develop
features and requirements, as well as obtain industry feedback
and expertise. This thoughtful process has resulted in
significant savings and smarter acquisitions in all of the
initiatives we have undertaken.
The MAS is a great acquisition tool. However, fundamental
MAS business models have not changed since 1992, despite
significant market changes since that time. The MAS model needs
to change to address new realities, and we must ensure that our
vendors are able to respond effectively and efficiently to
market demands. This is why GSA is committed to implementing a
new business model we call Demand Based Model. The MAS program,
with limited exceptions, is perpetually open to qualified new
offers. And while vibrant markets exist in some of our
Schedules, we have reached the point of saturation in others.
In some instances, well over 60 percent of the contract holders
receive little or no business. Furthermore, competition that
takes place in an oversaturated environment is often not
effective.
These concerns form the basis behind our Demand Based
Model. This model allows us to focus our limited resources and
capacity on the most critical areas.
Over the last several years, the volume of MAS offers
received has roughly doubled, and the number of modifications
has nearly tripled. Much of this increase is the result of
numerous contractors offering the same items at different price
points. GSA projects that well over 50 percent of the MAS
contracts awarded in 2011 will not have significant sales, and
the government will spend over $20 million to support and
manage low or no sales contracts. The current fiscal challenges
facing agencies require GSA to refocus its acquisition
professionals on helping agencies use the MAS program more
effectively by bringing new solutions to the market faster,
improving pricing and simplifying the buying process.
Small businesses will only succeed if GSA is positioned and
able to provide opportunities, respond quickly, and offer the
technical assistance needed to navigate the procurement
process. The Demand Based Model will increase our agility,
provide agencies with faster and better access to emerging
solutions, send clear signals to the marketplace so contractors
can identify where the demand lies, and respond accordingly.
On behalf of GSA's Federal Acquisition Service, I again
thank you for this opportunity, and I would be happy to answer
your questions.
Chairman Mulvaney. Thank you, Commissioner.
Director Woods.

STATEMENT OF WILLIAM T. WOODS

Mr. Woods. Thank you, Mr. Chairman, Ranking Member Chu.
I would like to cover three areas this afternoon. One is a
GSA study on office products that they completed on behalf of
the Appropriations Committee. Secondly, our observations on the
conclusions in that study. And then thirdly, to talk about the
Office Supplies II contract that we have heard about already
this afternoon.
The Appropriations Committee has heard, as have many
others, that the prices on GSA Schedule contracts were not
nearly as good as some agencies could obtain on the open
market, and they asked GSA to conduct a study to either confirm
or deny that. GSA spent about a year performing that study, and
their conclusion was that about 58 percent of office supply
purchases were made outside the Schedule. And when those
purchases were made, the agencies were paying price premiums, a
higher price buying off the Schedule than they would buying
under the Schedule. Those price premiums were significant.
Seventy-five percent higher prices paid off Schedule than they
would have paid purchasing under the Schedule, and some 86
percent higher making purchases off Schedule than they would
under the OSII program.
We spent time looking at the data that GSA had collected,
as well as their methodologies, and we had some concerns about
their findings. The finding on the amount of the price premium
we thought was too high. And the reason is that they did not
properly account for variations in quantities. Let me give you
just one example. They used part numbers in order to be able to
determine whether a purchase that was listed as a pen was a
single item, a box of three items, or a box of a dozen or more.
That simply was not a sound methodology to allow them to come
to the conclusion that they did. We questioned the magnitude of
the finding. We did not question the direction because we still
believe that agencies can do better under the Schedule than
they can do on an open market basis.
Other studies confirmed our view and GSA's view that
agencies could do better under the Schedule and through
leveraged purchasing. We talked to the Air Force. We talked to
the Department of Homeland Security. They had conducted their
own studies and came to the same conclusion. But we were
concerned about the magnitude of the cost savings that the GSA
study found.
The other thing I would like to mention in the time we have
available is the Office Supplies II initiative that we have
heard so much about this afternoon. That has tremendous
benefits, and let me just list a few. Saving money is number
one. GSA estimates that buyers save about eight percent when
agencies use OSII versus using the Schedules program. They
estimate that agencies in total have saved some $39 million so
far just in the last couple of years by using OSII. Further
savings are possible. This is a big market of about $1.8
billion, so we can see that further savings are indeed
possible. But there are other advantages as well. This is part
of a Strategic Sourcing Initiative, and the essence of
strategic sourcing is that entities, whether they are
government agencies or private businesses, need to know where
their money is going, how much they are spending, what they are
spending it on, and who they are spending it with. And the
Strategic Sourcing Initiative, by collecting data from vendors
and doing that kind of market analysis, allows agencies to make
very informed decisions.
It also allows them to better manage their vendors. They
can spot more quickly when vendors are failing to comply with
their contractual requirements and they can take specific
action. And we found, in fact, a number of instances where the
General Services Administration had issued notices or, known as
cure notices, to vendors that were not measuring up and
demanding that they improve their performance.
And then lastly, another advantage that we identified and
the GSA is rightly very proud of is that when agencies make
purchases using the purchase card, they do not have to identify
themselves as making a purchase under OSII. That is automatic.
If they use the purchase card, if the card gets swiped, they
get the OSII price. They also get relief from state sales
taxes, which is important. That in itself is an enormous
saving.
So we have concluded that there are benefits from the OSII
initiative. It is not without problems. There are certainly
some growing pains, but fundamentally, the government is better
off using OSII than otherwise. Thank you.
Chairman Mulvaney. Thank you, Director Woods.
Ms. Chu.
Ms. Chu. Commissioner, the Small Business Jobs Act allows
agencies to voluntarily apply set-asides to Schedule orders.
However, the GSA Schedule is the only procurement program that
does not mandate set-asides. Why should the Schedule be exempt
from these mandatory small business set-asides?
Mr. Kempf. Well, I would focus on the results that we have
shown thus far. I think that the program has exceeded almost
any other measure that you might have in terms of results. And
when we are talking about 34 percent results over to small
businesses across the program, that is substantial. It is well
above the targets that many, many agencies and programs do not
meet.
But I really want to focus in on what we have seen since we
have implemented the discretionary set-asides. That happened
last November. We were ready right out of the gate to help the
agencies understand how to use it. We provided the training to
them. We have, as one of the tools we offer as part of this
Schedules program, something called eBuy, which is an
electronic marketplace for ordering and doing RFQs. And in the
last two months we have been able to track the number of
procurements in eBuy where they have actually used the
discretionary authority. And in the last two months, we saw
1,776 actual set-asides being done by the agencies.
So when you look at the uptake, and that is out of 12,000
actual procurements that were actually put into eBuy, and that
is not the entirety of what happens on the Schedules program.
So when you look at the amount of uptake and as quickly as it
occurred.
Additionally, when we have been out to train, I have a
couple of anecdotal responses that we saw at the agencies. At
the Air Force we saw them move a full and open procurement to
the Schedules and use as a set-aside a $40 million procurement.
Additionally, when training the Energy department, we saw them
move or set-aside, expect a set-aside a $200 million and a $50
million procurement. These are not small procurements. They are
having the opportunity to actually really impact their numbers,
and those are two agencies that have struggled. And it is tough
for them because of what they buy to actually meet their small
business goals. So I think, you know, as we are seeing the
voluntary or discretionary set-aside, we are seeing real impact
on the program. And what we expect and hope is that it drives
that number up from 30, 33, 34 into the higher 30s.
Ms. Chu. I just wanted to have some idea of how long this
program has been in effect and the kind of data that you have,
like how many agencies are participating and how many orders
have gone through the voluntary set-aside system versus the
regular GSA Schedule system. So how long has this program been
in effect? And also, how many orders have been placed through
the voluntary set-asides?
Mr. Kempf. Again, the discretionary authority was granted
in I think it was November of last year. So we are talking from
November through now. We have only actually been able to
identify in the eBuy system the last two months. It took a
while for us to change the system so that we could track those
orders that were actually set-asides. It takes us a while. We
have got some old systems that need help. So when we change
things, it takes us a while to get them running. But again,
over the last two months we have been able to track. Again, I
do not know exactly what the percentage is, but 1,776 out of
roughly 12,000. So you are seeing about 14 percent of the
orders actually being set aside through the electronic system.
Now, agencies, like I said, they do not all use eBuy when
they do the purchases. But it is one indices that we are
looking at where we are tracking and seeing that the agencies
are actually picking up that discretionary and using it. Plus,
you know, the number that we have been able to--the number of
people we have been able to train, 1,700 across the federal
government, and then again, we have seen about 7,000 hits on
the webinars and the information that we have on our websites
looking for the information on how to use.
Ms. Chu. And how many small businesses are receiving orders
through voluntary set-asides versus the regular Schedules? And
what are the relative volumes of sales?
Mr. Kempf. That I do not know that we can even track, at
least at the moment. So I would have to defer on that. I just
really do not know that.
What I would really like to look and watch for is do we see
a market increase in the amount of business actually going to
small business by the end of the year? If we see that number
moving and nothing else has really substantially changed, I
think we can, you know, we will have a better indication of
what kind of real impact it had to small businesses. And like I
said, we are really expecting to see some of the impact coming
by the end of the year. So I think we will know by the end of
the year--expect to see some substantial impact.
Ms. Chu. So, well, apparently you are putting the system in
place to track the effect of the voluntary set-aside program,
but can we get that data?
Mr. Kempf. We would be able to see actually if the actual--
sometimes people use the eBuy system to do part of the
procurement and then they finish it up in their own agency
acquisition system. Sometimes they actually use the system to
actually make the procurement. We would probably be able to
tell the set-asides that were actually done in eBuy because we
would be able to track that. So that data we would be able to
tell. So those that use the eBuy system, we would be able to
see which ones were actual set-asides. On the agencies, I do
not know if we would be able to see that data in FPDS on set-
asides and FPDS NG. I just do not know enough to answer that.
Ms. Chu. I am asking if you can look into that.
Mr. Kempf. We will look into that and provide more
information to you.
Ms. Chu. On the Blanket Purchase Agreements, the BPAs have
not raised complaints from small businesses in four out of the
five GSA Schedules when they were introduced. But in the Office
Supply Schedule, the Schedule 75, there were complaints as what
you have heard today. So what is different about Schedule 75
that caused the sales volume and opportunities to climb for
small businesses that were not awarded the BPAs?
Mr. Kempf. Well, most of the other areas where we have done
the FSSI initiatives were generally large businesses, were
players. So for instance, ground domestic delivery, as you can
imagine, you are talking about the FedEx and UPSs of the world.
So it has caused some concern for us. Whenever there are
winners and losers there is always people who are disappointed
and upset with the process when they do not win. And we have,
of course, heard from that. And in all of the procurements that
we have had, that is normal.
But I think the problem here in the strategic sourcing
around the office products is that this is an area that has
been under a lot of intense market pressures generally. So this
has been a very tough business to be in. I have a lot of
empathy for those who are in this business, but we have--this
is our second generation. We learned a lot from the first
generation. I think Director Woods points to some of the
lessons we applied that brought us some good results. I wish we
were further along than we are. When I look at we are about 120
million this year in a marketplace where the government will be
spending well over a billion. So we are not capturing
everything. The government is still spending more than they
need to by not using FSSI OSII. So we are not even capturing a
majority of the market.
And there are agencies that are doing a great job. A lot of
them are with us in Office Supplies I, so for them they had
already instituted the discipline within their purchasing
community to actually use this. So when we changed over to
OSII, they moved over very quickly. Their people were already
disciplined in doing that as part of their agency trying to
save money. Others are just getting along.
When you look at the way the government buys office
supplies, it is probably one of the most distributed purchasing
patterns in the entire federal government. So it is really hard
to change buyer behavior when you have literally hundreds of
thousands of people buying and with authority to buy.
Ms. Chu. So is it true that you are mandating that the
federal agencies purchase all goods within the BPA awarded
vendors even if the goods and services are not part of the
basket of goods covered by the BPA? Is this a mandate?
Mr. Kempf. GSA is a non-mandatory source, so we provide the
services, among them OSII. What agencies do within their own
agencies and their authorities and how they direct their
purchases to be made within their own agencies is up to them.
Now, I know some agencies have done--they have said we are
going to use this so if you are not going to use this you need
an exception. Other agencies have said here it is, use it.
Other agencies have tried something in between. So you have a
lot of agencies doing different things. And for some of them it
is about getting small business credits. For some of them it is
about saving money. For some of them it is about getting the
data that we provide so they know what they are spending and
where it is going to.
Ms. Chu. So you are saying that it is not a mandate?
Mr. Kempf. Not from GSA.
Ms. Chu. Because you heard the gentleman, Mr. Tucker?
Mr. Kempf. Well, I think what he is responding to is agency
mandates. So individual agencies have set up their own policies
about how they buy, what they buy, what discretion the people
in their agencies have. And like I said, some of them, for
legitimate business reasons, have chosen to set up constraints
around the buying within their agencies.
Ms. Chu. Well, let me ask about the $25,000 annual sales
minimum that small businesses have a hard time meeting. And you
have heard Mr. Allen talk about that. While you are having
success with this voluntary set-aside program, there are small
businesses that will have a hard time meeting this $25,000
minimum. Can you respond to what Mr. Allen said?
Mr. Kempf. Sure. We have had, as part of the Schedules
program for many, many years, a minimum sales clause as part of
the agreement that we enter into with industry. And we have had
over the years differing approaches to actually following
through with enforcing that agreement. And what we have been
looking at and what we have been seeing in some of our
Schedules is just the enormous number of Schedule contractors.
We are right now up to well over 19,000 contractors on the
Schedules program just in the GSA portion of it. And we are
seeing some things that cause us concern in terms of the
numbers, not the least of which is what it is costing us to
operate it. And then also what we are seeing with what is
happening within the specific agencies.
So at some level we have become a little bit more
aggressive in enforcing the provisions of the agreement that we
have with the vendors. We have never raised the $25,000 minimum
sales guarantee. It has been the same for probably 20, 25
years. When you consider that the average Schedule order is
about 67,000, what we are asking them to do is get less than
half of an average order in two years and then to continue that
for the next three years.
I understand that navigating the federal marketplace is
very difficult, but we have done some things, too, that I think
are helpful to industry. We have had a mentorship protege
program. We have developed a business breakthrough program.
There is online support to help industry understand how to
market to the federal government. And one of the things we are
trying to do is help industry understand upfront before they
actually get into the program, that it is the right time for
them to come. And what we have seen is that a lot of industry
has been jumping into the program probably at the urging of
folk who get paid for helping them into the program because it
is a must do for them. And for some of them it is just not the
right time to be in.
At a recent GSA expo, I went to a session with our mentor
proteges, and one of the proteges was there telling the story
about he had his Schedule contract RFP in hand and his mentor
said, ``Hang onto that. Hang onto that till you are ready.'' So
he waited two years and he said it was the smartest thing he
ever told me. I was not ready. I would not have sold anything.
And it was not the right time.
And so what we are asking industry to do before they get in
is really look at where you are. Are you ready to come into the
program? Are you going to be successful? We have a Pathways to
Success course that we ask small businesses to take, I think we
actually require at this point, before they come in. We want
the right kind of people in, but we also want people who are
going to be successful. We do not want people coming in having
a bad experience and then leaving frustrated that they spent
all this money to get in and then it just did not go anywhere
for them.
The other thing that I would like to say is that we use a
lot of discretion. Typically, when people are at that point
where we have to make a decision, oftentimes the industry comes
to us and says, ``I am getting there. I have got three
procurements that I am waiting to hear from.'' We extend for
them. But on the other hand, we have a lot of people who have
just turned off to GSA. They are just not even participating
anymore. And I think it is time to sort of cull the numbers
down. They are not really participating and they are costing
the government money. The users do not really need them around
so they will send them an RFQ and nothing comes back.
Ms. Chu. Well, I am wondering about this discretion. So you
are saying that a business could intervene before their
contract is ended? Because in my state of California, a GSA
Schedule contract is a prerequisite for state level
contracting.
Mr. Kempf. We reached out to both California and Texas and
we talked to them. I think their discussion with us was that
they use our Schedule as a marketing tool, a market research
tool. So they use it to find price, but it was not actually a
prerequisite for joining. And we reached out to both Texas and
California because that is also what we understood, too, was
you get on GSA's Schedule, then you get on California. And
actually, when we reached out to both of them, they were both
experiencing some of the same problems we had. They had a lot
of vendors who had no sales and they had a lot more and the
increase of the number of offers and modifications that they
were doing was beginning to cause them problems as well.
Ms. Chu. I see. Okay, thank you. I yield back.
Chairman Mulvaney. Gentlemen, I have got some questions all
over the place. I am going to go in no particular order,
although I want to try to start with you, Director Woods. You
heard Commissioner Kempf talk about his frustration at the
participation rates as far as agencies using OS2. I hope I
stated that correctly. And then you mentioned something that
caught my attention regarding about 58 percent of purchases are
made off the Schedules, which I assume in this circumstance
means not using the Schedules.
Mr. Woods. That is correct. At retail stores.
Chairman Mulvaney. That number surprises me. Did it
surprise you that it was that high?
Mr. Woods. I personally was surprised it was that high.
Yes. Because GSA goes to a lot of effort to make the Schedules
available and they publicize the availability of Schedules and
companies do a lot to sharpen their pencils to make sure that
their prices are good. So that number did surprise me.
Chairman Mulvaney. That is the whole concept here behind
the Schedules, is that you all negotiate on behalf of the
federal government as a whole, try to get the best possible
price for our agencies, and our agencies take advantage of that
work that you performed in order to buy products at the lowest
possible price. That is the basic summation of the system.
Right?
Mr. Woods. That is exactly right.
Chairman Mulvaney. And if we have 58 percent of purchases
of office products--I guess that is office products. Is that
what you are talking about?
Mr. Woods. That is right. Just for office products.
Chairman Mulvaney. So they are going down the corner to
Office Depot? Not that I have anything against Office Depot,
but it sort of defeats the purpose, does it not?
Mr. Woods. That is right.
Chairman Mulvaney. How can we fix that? I read the rule, by
the way, and it is exactly, not surprisingly, as Commissioner
Kempf said, that they are encouraged to use it but there is no
requirement. How do we help fix this?
Mr. Woods. We need to make it as easy as possible for the
consumer, government agencies to be able to make purchases
using the GSA Schedule.
Chairman Mulvaney. Did you ask any of the folks why they
were not using the Schedules?
Mr. Woods. Convenience, I think, is probably a fair
characterization of the reason. And that is why GSA needs to
make every effort to make it as simple and easy as possible for
agency users to use either the Schedule program or OSII.
Chairman Mulvaney. And when you say convenience, give me a
practical example. What does that mean? If I am the Air Force
and I want to go out and buy pens, why do they say--and again,
this is hypothetical--why would they say that it is not
convenient to use the Schedules? Whereas, it is more convenient
to go down the street?
Mr. Woods. Well, delivery time is probably the best
example. If a user just goes down the street they get it today.
If they order off the Schedule, it is unlikely they are going
to get same day delivery.
Chairman Mulvaney. Could pressure on them to keep their
inventories down because of costs contribute to this
circumstance?
Mr. Woods. That is possible. Agencies sometimes will
inventory quantities of office supplies to make them available,
and I know many organizations, both public and private are
cutting back on inventories in order to streamline operations.
Chairman Mulvaney. Thank you, Director Woods.
Commissioner Kempf, a couple different questions for you.
We have got some numbers about some of the set-asides which six
months ago were at zero and in the last two months have
actually picked up considerably, looking like 14.8 percent. Are
you concerned that implementing DBEM right now may negatively
impact that positive trend?
Mr. Kempf. DBEM?
Chairman Mulvaney. The Demand Based Efficiency.
Mr. Kempf. Oh, Demand Based.
Chairman Mulvaney. Did I get that wrong? DBEM. I am sorry.
Just ask me an alphabet soup question.
Mr. Kempf. It is now. I did not even recognize my own
acronym.
Here is what we are actually looking to do. We know that
there are some Schedules that we manage that have enormous
numbers of people who are not getting any business. Some of
them upwards of 60 percent. We also know on some of them that
the demand is going south. And in some cases substantially,
like shipping and packing Schedule, photographic equipment, the
people that sell typewriters. There is nothing that we are
going to be able to do that is going to change that demand
curve. However----
Chairman Mulvaney. What is the harm in just leaving them
there?
Mr. Kempf [continuing]. Well, the harm in leaving them
there is it costs us money to just leave them there. Well,
actually, let us separate people who are not meeting their
minimum sales guarantees and the Demand Based Efficiency Model.
They are two different things.
Chairman Mulvaney. Okay.
Mr. Kempf. So Demand Based Efficiency Model, we have looked
at some Schedules where we know we really do not need any more
competitions. And when we looked at that, we have looked at
areas where we know there is substantially no innovation going
on. We have looked at areas--in many of these cases we have 400
or 500 contractors on the Schedule already. One of the things
we are hoping to do is just at least preserve the market for
those that are already on. So people who have invested in
getting on the Schedule, let us not divide that market up by
adding 50 more people and divide the pie up just a little bit
more.
And we have talked to our customers. And our customers have
told us if I have got 500 choices and I am not really buying
that much, why are you wasting your time adding more people
when you could be dropping the time it takes to get on the
Schedules where I do have demand, where there is innovation,
where I do need people? Also, they are saying to us can you go
out and do some more of this Federal Strategic Sourcing
Initiative? Or can you help us understand how to do Strategic
Sourcing Initiative? Or for our industry partners, can you go
out and train people how to use the Schedule better? Help them
write difficult statements of work so that we can actually use
GSA's Schedule better, much to what Director Woods is saying.
Can you make yourself easier to do business with or help us
understand how to do business? So you drive up the pie that is
actually being spent under the Schedules program.
We only have limited resources in the Federal Acquisition
Service, and what we are looking to do is shift some of those
resources, some to help industry and drive higher sales, some
to work with our agency customers and develop secondary uses of
the Schedule or help them understand how to use it. But in any
case, what we have done is we have actually looked at--we
expect that if we implement this as we are planning right now,
we would only be impacting about 25 percent of the Schedule
sales. So for 75 percent of the Schedules and 75 percent of the
sales--and by the way, the growing part of those sales, it will
be open and it will continue to be open.
And one other benefit to industry, it identifies the dead-
ends. And it also identifies the opportunities. And I think
this has some value for industry, which is basically this.
Helping them understand where the government is not going to be
buying, where it would be a waste of their time and money to
come into the program. And we are not doing that right now. So
we are just saying we are taking all comers. So in many ways,
diluting some of the potential partners that once they get in--
and I get these calls from vendors. I just got in. I am so
excited. And some of these areas I just know there is no
business coming. So it is helpful to them.
Chairman Mulvaney. And I cannot argue with the logic,
although in this sea of paper I have on my desk now, staff just
handed me something that said that the special item numbers
that you all are proposing closing as part of DBEM, they
represent over $8 billion in sales, or about 16 percent of all
the GSA Schedule sales. Is that not a fairly--it does not sound
to me like it is typewriters. Does it buy that many
typewriters?
Mr. Kempf. It is a lot of things. It is two whole Schedules
and parts of, I think, 14 others. But again, we selected those
special item numbers or SINs based on where the government--
where we have seen sales go down, where we know there is no
innovation, and where we have, you know, in many of these areas
we have looked and seen what the number of Schedule holders
with low or no volume sales are. And in most of these areas it
is upwards of 40 percent, and in many of them, upwards of 60 or
80 percent.
Chairman Mulvaney. Before we leave DBEM, one more question.
The written testimony that you submitted claims that the GSA
will save roughly $20 million using DBEM, but prior written
materials provided by your office say that the savings have
been scaled back to about $6 million. Is that apples to apples?
Did something change? Tell me about the discrepancy between
those two numbers.
Mr. Kempf. I think the discrepancy between the two numbers
had to do with when we first started this we were looking at
actually closing a lot more SINs than we ended up. So after
talking with stakeholders with OFPP and others, we pulled that
number back to a smaller number of SINs being closed.
Additionally, some of the numbers actually take into account
both the savings from folks being--their Schedules being ended
due to low or no volume sales, in addition to the DBEM model.
Chairman Mulvaney. Let us transition now to the issue that
Ranking Member Chu mentioned to you briefly and that I think
Mr. Allen raised during the first panel discussion regarding
the use in various states of these Schedules. And all I can
tell you is that in our preparation for the research for this
hearing, we reached out to Texas and talked to the Texas
controller's office. That may have been the wrong person with
whom to speak, but they said they never talked to anybody about
GSA. So clearly there may be a misunderstanding at some point,
and I would encourage you to reach out to both Texas and I
suppose California, although you said you spoke with them as
well because they are telling us that they anticipate if the
vendors in year 3 or later of a contract that are not meeting
the threshold and if removed it would affect nearly $25 million
in state purchases or about 15 percent of the Texas Multiple
Award Schedule purchases, almost all of whom are small
businesses. I think Texas thinks there may be a problem. Texas
may think there may be a negative effect, a pejorative effect
on small business in that state because of what is going
through. So I encourage you to reach out to them if you get a
chance.
But it raises a question for me which is coming back to the
point about why not just leave these folks on the list? I think
if I can sell my $25,000 worth of stuff every single year, I
think I pay you $187, $200. Why not just charge me $250 to stay
on the list?
Mr. Kempf. Well, we looked at a lot of different things
that we could do. We looked at closing them for a while. Right
now we normally just look at the end of the five-year period
and if they have not had any sales in five years we do not
renew their option. We have looked at a lot of things but it
does cost us money. And actually, oftentimes the
nonparticipating Schedule holders are the ones that cause us
the most cost because they are not really playing. So when we
have mass mods--when I say mass mods, mods that everybody needs
to do--we have a process for doing that. They do not respond,
so we have to hunt them down and follow through with them. So
oftentimes, they tend to be the ones that cause us the most. We
also have contract administration duties that we have to do
with all of our contract holders, whether they are making sales
or not. So it is a costly thing for us.
Chairman Mulvaney. I just encourage you as you go forward
to consider the fact, as you know, because you know more about
this than probably anybody, and certainly than I do, that there
are folks that are using this, not for the purpose of selling
to you folks or to us, but to selling to their various states.
So maybe to figure out a way to allow them to continue to do
that without prejudicing their ability to deal with the states.
Mr. Kempf. Two things about that. We did talk to Texas. I
believe we talked to the people that actually run the Texas
Schedule, so there may be some perception. We will probably go
back to them and make sure we have that right.
The other thing is that state and local authorities do have
the authority on some of our Schedules to actually buy directly
from us. So on the IT Schedule, Schedule 84, the Security
Schedule, and during times of emergency, most of them have the
authority, or actually, all of them have the authority, at
least from our perspective, to buy from us directly. And they
do.
Chairman Mulvaney. All right. And as I promised the first
panelists I would, I will pass on their questions to the best
of my ability. Mr. Jacobs raised the issue about the Design
Excellence Program. I do not know to whom to address this, but
tell me your thoughts about the program and whether or not you
are exploring the possibility of expanding it.
Mr. Kempf. Well, I do not think you have either of the
people here who should be. That is actually part of the Public
Building Service side of GSA.
Chairman Mulvaney. Thank you.
Mr. Kempf. So that would probably be directed best to them.
I understand vaguely what it is but I am not competent to
comment.
Chairman Mulvaney. Now, the Brooks Act. You? Somebody else?
Mr. Kempf?
Mr. Kempf. I can tell you what we do with respect to the
Brooks Act.
Chairman Mulvaney. An allegation is not the right word but
you heard what the concern was, which is that in some
circumstances the GSA might not be following the Brooks Act to
the letter and they may be looking at price instead of just
qualifications. How would you respond to that?
Mr. Kempf. We have for years highlighted on training, on
our websites, in our direction to contracting officers who use
the Schedule that work under the Brooks Act should not be
purchased and cannot be purchased under the Schedules. It is
outside the scope of the Schedules. And we have done some
things in the last years to actually validate and verify that.
Chairman Mulvaney. How do you do that? How do you enforce
this?
Mr. Kempf. We have industrial operations analysts, people
who actually go out and sit with the contractors and say show
me your files. What is going on? What are you selling? They do
some scope reviews. In particular, they look for this once in a
while. We have asked. There is a group called Cup Face that we
have had discussions with over 13 years, and we have said if
you see violations of this would you send them to us and we
will follow them. In fact, one of them sent me one two weeks
ago and we are running it down to see, in fact, if it really is
or if it is an interpretation issue. We also have addressed
this with Public Building Service, our sister service, who
actually buys these kinds of things. And we have had their
chief architect and others actually go through the files of the
task orders that they have written under the Schedules to look
to see if they feel that they have purchased anything that was
really irrelevant under the Brooks Act, and they have come back
empty-handed with that. And in fact, one of the individuals who
looked at that to me said, ``I am surprised at what I found.''
And what he was saying to me was he was surprised at some of
the work that the architectural engineering firms had done,
which he indicated seemed to be an indication of the tough
times that they had fallen on, that they were taking work well
outside the typical architecture and engineering work and
actually taking work that normally an architectural firm would
not be doing if they could get architectural work. It just is
not around.
Chairman Mulvaney. Before I move on, I suppose if I have a
question about the design build process and possible ways to
make that more accessible to small business, that would be for
the Public Building folks as well?
Mr. Kempf. Certainly.
Chairman Mulvaney. Okay. Mr. Forman asked a question about
additional consideration of the Cooperative Business Model.
Talk to me about that for a second.
Mr. Kempf. I believe he is talking about--we have been in
discussion with NOPA for quite some time about ways that people
who are not or contractors that are not part of the OSII could
actually be part of the program much like the other witness had
spoken about where they have a consortium and there is a way
that they could partner a team with the existing vendors. And
we are actually working with them on that. I think he alluded
to that fact that we are actually working with them and looking
into that. We have not come to a conclusion yet; we are still
in discussions with them.
Chairman Mulvaney. Go back to the Brooks Act for just a
second. If someone like Mr. Jacobs believed that he was
prejudiced by a violation of that act, what would be the best
steps for him to take?
Mr. Kempf. If he would just send me something, we would
look at it and see, in fact, if we felt there was an actual
violation. We would work with the agency who had written the
order to look at, you know.
Chairman Mulvaney. Can you do that anonymously? Can you do
it anonymously?
Mr. Kempf. Well, one of the ways people have done that in
the past, and not necessarily about the Brooks Act violation,
but to a hotline complaint, to our IG. I have actually even
gotten letters in the mail, unsigned, saying I think this is
wrong. This happened. So sometimes it is not even the IG that
gets it. We usually follow those up and see. As long as they
seem reasonable.
Chairman Mulvaney. I get my letters in the mail all the
time. It is usually very interesting.
Mr. Woods. Mr. Chairman.
Chairman Mulvaney. Yes, sir.
Mr. Woods. On the Brooks Act point, a couple of areas where
the Government Accountability Office might be of assistance to
Mr. Jacobson. One is that we have a bid protest function so
that if any offeror or an interested party feels that the
process was not followed properly, they have the option to file
a bid protest with the Government Accountability Office and we
will review that.
Secondly, we are starting some work at the Department of
Veterans Affairs looking at their construction procurement
operation. And of course, that will involve A&E Services. And
we can be on the lookout for instance where there might be
possible misuse of the Schedules.
Chairman Mulvaney. Thank you. Gentlemen, I appreciate your
candor. I appreciate your participation. I especially
appreciate your forthrightness. I think Ms. Chu and I both try
and give the impression that we are not here to beat up
anybody; we are actually pulling in the same direction on this.
All we are interested in is making sure that small businesses
are having every opportunity that we can give them. So I
appreciate you doing that.
That said, I understand that we are getting ready to vote
very shortly on a fairly significant item that we will need to
step out and prepare for. And I have a couple extra questions
and what I would like to do is simply send them to you in
writing. And if you could get back to us that would be greatly
appreciated.
Mr. Woods. Absolutely. We will be happy to receive those.
Mr. Kempf. Absolutely.
Chairman Mulvaney. With that, unless you have anything
else?
Ms. Chu. No.
Chairman Mulvaney. Thank you all very much for coming. And
thanks again everybody for participating. That will adjourn the
meeting.
[Whereupon, at 4:27 p.m., the Subcommittee was adjourned.]

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