[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
ACTION DELAYED, SMALL BUSINESS
OPPORTUNITIES DENIED: IMPLEMENTATION OF
CONTRACTING REFORMS IN THE FY2013 NDAA
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
JULY 15, 2014
__________
[GRAPHIC] [TIFF OMITTED]
Small Business Committee Document Number 113-075
Available via the GPO Website: www.fdsys.gov
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMEYER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Richard Hanna............................................... 1
Hon. Grace Meng.................................................. 2
WITNESSES
Ms. Angela Styles, Partner, Crowell & Moring, LLP, Washington, DC 4
Ms. Charlotte Baker, President, Digital Hands, Tampa, FL,
testifying on behalf of Women Impacting Public Policy.......... 6
Mr. Larry Allen, President, Allen Federal Business Partners,
McLean, VA..................................................... 7
Mr. Damien Specht, Special Counsel, Jenner & Block, LLP,
Washington, DC................................................. 8
Hon. John Shoraka, Associate Administrator for Government
Contracting and Business Development, Small Business
Administration, Washington, DC................................. 17
APPENDIX
Prepared Statements:
Ms. Angela Styles, Partner, Crowell & Moring, LLP,
Washington, DC............................................. 25
Ms. Charlotte Baker, President, Digital Hands, Tampa, FL,
testifying on behalf of Women Impacting Public Policy...... 30
Mr. Larry Allen, President, Allen Federal Business Partners,
McLean, VA................................................. 34
Mr. Damien Specht, Special Counsel, Jenner & Block, LLP,
Washington, DC............................................. 40
Hon. John Shoraka, Associate Administrator for Government
Contracting and Business Development, Small Business
Administration, Washington, DC............................. 47
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
ACTION DELAYED, SMALL BUSINESS OPPORTUNITIES DENIED: IMPLEMENTATION OF
CONTRACTING REFORMS IN THE FISCAL YEAR 2013 NDAA
----------
TUESDAY, JULY 15, 2014
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:00 p.m., in
Room 2360, Rayburn House Office Building, Hon. Richard Hanna
[chairman of the Subcommittee] presiding.
Present: Representatives Hanna, Tipton, Meng, Velazquez,
and Clarke.
Chairman Hanna. Call this hearing to order.
Thank you all for being here. Nearly 4 years ago, this
Subcommittee began a comprehensive look at small business
contracting reform. We held numerous hearings and held round
tables, eventually settling on commonsense contracting reforms.
These reforms were passed by the Small Business Committee in
early 2012, adopted as part of the National Defense
Authorization Act in 2013 and eventually signed by the
President on January 2, 2013.
Unfortunately, what should have been a bipartisan success
story has soured due to inaction and inattention. A year and-a-
half later, the vast majority of these reforms remain
unimplemented, and this is causing real harm to small
businesses. We are a society of laws, and all businesses need
to know what laws apply to them so they can comply and so they
can thoughtfully chart their future course.
For example, Congress began reforming the mentor-protege
programs with the 2010 Small Business Jobs Act and then
continued this in the 2013 NDAA. However, no proposed
regulation or program guidance has been forthcoming from the
Small Business Administration on this topic. This means small
businesses don't know if they should pursue a mentor-protege
agreement at the Department of Homeland Security or if the SBA
will declare the program invalid in a year. This creates an
unnecessary barrier to growth.
Likewise, Congress has enacted numerous reforms to make it
easier for small businesses to team and these also have not
been implemented. Not only do they harm small businesses with
teaming, they also face contradictory regulations, statutes and
contract provisions. Small businesses are not set up to be
arbitrators of the law. We need agencies to implement
regulation in a timely fashion.
While I understand that some rulemaking issues may be
complicated, that does not excuse the failure to meet statutory
deadlines. Furthermore, I fail to understand why it took the
SBA 19 months to simply publish the name of their suspension
and disbarment officer online. This requirement required no
regulation and could have been done in a matter of minutes. But
the SBA didn't post it until this morning, 569 days after the
President signed this bill into law.
Further, while the information may be technically on the
Web site, it is exceedingly difficult to find. Typing
``suspension'' and ``disbarment'' into the search tool does not
actually take you to the suspension and disbarment officer or
office. This delay is a perfect example of how bureaucratic
barriers to private-sector growth work. SBA has been busy by
spending $39 million on SBA-created initiatives rather than
implementing the law passed by Congress and signed by the
President.
Today, our first panel will help us understand what the
lack of implementation means to small businesses in a practical
sense, then the SBA will join us for a second panel to explain
to the committee what steps are being taken to implement these
needed reforms.
I want to thank the witnesses again for being here.
I now yield to Ranking Member Meng for her opening
statement.
Ms. Meng. Thank you, Mr. Chairman.
I appreciate you holding this hearing on this critical
topic. The Small Businesses Committee, and this Subcommittee in
particular, have a long tradition of working in a bipartisan
manner on procurement and contracting issues. Together, we have
worked to modernize the SBA's contracting initiatives while
exposing fraud, waste and abuse in a range of small business
procurement programs. It is my hope that today's hearing will
continue in that direction.
By examining changes to small business contracting policy
included in last year's Defense Authorization Act, we can hope
to further improve this process for our Nation's entrepreneurs.
For small businesses, Federal agencies can be a great client.
Last year, the Federal Government spent $461 billion purchasing
a wide range of goods and services. Federal agencies require
everything from paper clips to air planes to landscaping to
construction, and small companies are vital to meeting these
needs.
Congress has long recognized the many benefits stemming
from small business participation in the Federal marketplace.
Helping small firms land these opportunities spurs job creation
and helps small companies grow into larger ones. Often, when a
larger company is awarded a Federal project, its existing
workforce can absorb the new demand for its products or
services. However, when small companies take on government
work, they often must increase their capacity, growing their
payroll and creating new jobs. This, in turn, generates greater
overall economic opportunity in communities where small
businesses are located.
The public also benefits from this arrangement. Small firms
provide excellent service and quality products at competitive
prices. When the government does business with them, taxpayer
dollars are well spent. Moreover, bringing additional small
companies into the procurement pool creates competition,
thereby driving down prices and boosting service quality. Given
the valuable public benefits of having government do business
with small enterprises, it is important that Federal agencies
be proactive in this area and that small firms be able to
navigate the procurement process.
Unfortunately, this has not happened. The 23 percent small
business contracting goal has not been met in many years;
although, it appears that objective may finally be met this
year. Still, those numbers are not final. Even if, at long
last, the Federal Government has finally met its 23-percent
goal, this alone is not sufficient. The 23-percent goal should
be considered a floor not a ceiling when it comes to small
business participation.
Similar initiatives aimed at helping women-owned businesses
have fallen short. The Service-Disabled Veteran-Owned Small
Business Program has also not kept pace. In that regard, it is
worth discussing whether raising these goals would be a useful
step. However, if they remain simply that, unenforceable goals,
and there is no penalty for failure to meet them, it is unclear
how changing the numbers will actually get more disadvantaged
and small firms involved in the procurement market.
Part of the issue has been a failure to invest the
appropriate resources to ensure small firm participation. An
overworked staff of procurement center representatives is
tasked with expanding outreach to the small business community.
However, with their ranks thinned, the fact is that they simply
do not have that manpower to police every procurement action
and ensure small businesses get a fair shake.
Of course, our committee is familiar with how big companies
have historically gamed the system, syphoning off projects that
should be designated for small firms. Whether it is HUBZones,
the Service Disabled Veterans Program, misuse of pass-through
arrangements or simply miscoding big companies as small ones,
we all know that there are significant problems in the
procurement process.
In sum, Mr. Chairman, there is no shortage of policy
obstacles that prevent small firms from winning their fair
share of Federal contracts. It is my hope that today's
discussion will take a broad look at how we can rectify some of
these problems while working to improve the process for
entrepreneurs. Whether it is the legislation passed by the
committee earlier this year, changes made through the Defense
Authorization Act, or simply enhanced oversight, we must
continue pushing to ensure small businesses are not locked out
of the contracting process.
Thank you to our witnesses for being here today, and I
thank the chairman again and yield back.
Chairman Hanna. Thank you.
I will just quickly explain the lighting system. It is 5
minutes. When it gets yellow, you have another minute. Try to
stay close. We want to hear what you have to say, so we will be
flexible.
For our first panel, I am pleased to welcome Angela Styles.
Ms. Styles is a partner with Crowell & Moring, specializing in
Federal contract law and proved herself a great friend to small
businesses when she served as the administrator for the Federal
procurement policy.
Next to her is Larry Allen. Mr. Allen, President of Allen
Federal Businesses Partners, a small business in McLean,
Virginia, that helps small and large businesses navigate the
Federal procurement landscape.
Our third witness is Ms. Charlotte Baker, the cofounder of
Digital Hands. Digital Hands is a woman-owned business, a small
business specializing in managed security services. She is here
today testifying on behalf of Women Impacting Public Policy.
Our fourth witness and final witness on this panel is Dr.
Damien Specht. Mr. Specht cofounded Jenner & Block's Government
Contracts Corporate Transactions Group.
Again, welcome you, Ms. Styles, you may begin.
STATEMENTS OF ANGELA STYLES, PARTNER, CROWELL & MORING, LLP,
WASHINGTON, D.C.; CHARLOTTE BAKER, PRESIDENT, DIGITAL HANDS,
TAMPA, FL, TESTIFYING ON BEHALF OF WOMEN IMPACTING PUBLIC
POLICY; LARRY ALLEN, PRESIDENT, ALLEN FEDERAL BUSINESS
PARTNERS, MCLEAN, VA; AND DAMIEN SPECHT, SPECIAL COUNSEL,
JENNER& BLOCK, LLP, WASHINGTON, D.C.
STATEMENT OF ANGELA STYLES
Ms. Styles. Thank you very much, Chairman Hanna,
Congresswoman Meng.
I appreciate the opportunity to appear before you today to
discuss the impact of the Small Business Administration's
failure to implement Federal contracting reforms mandated in
the National Defense Authorization Act for fiscal year 2013.
SBA's failure to act has created significant ambiguity for
Federal contractors, both small and large. While this
uncertainty keeps the lawyers, like me, busy, it costs
contractors and results in higher prices for the Federal
Government.
As chair of Crowell & Moring's government contracts group
and the former administrator of the Office of Federal
Procurement Policy, I work with contractors affected by SBA's
inaction every single day. We have started to see a dramatic
increase in compliance questions related to these unimplemented
provisions, but there is one specific provision and a
complicated one that I want to focus on today.
The 2013 NDAA modified the Small Business Act to change the
limitations on subcontracting for Federal prime contracts
awarded to small businesses under set-aside programs. So, for
example, when a Federal procurement is set aside for
competition among small businesses, the winning small business
prime contractor is restricted from subcontracting more than a
certain percentage of the amount paid by the Federal Government
to another business.
For service contracts, the NDAA provision provides that the
small business prime contractor may not expend on
subcontractors more than 50 percent of the amount paid to the
small business prime contractor by the Federal Government. So,
for example, if you receive a contract award for $100 as a
small business, you can't subcontract more than $50 of the
award to a large business. It is simple. It is easy to apply.
And it is really easy for everyone, whether you are a prime
contractor or you are a subcontractor or you are the
government.
The NDAA statutory provision was a meaningful change,
because for many years, and guess what, still existing in
current, unmodified form in SBA's regulations in the FAR, the
limitation on the subcontracting regulations require small
business prime contractors awarded a prime contract on a set-
aside basis to agree to something completely different; that at
least 50 percent of the cost of contract performance incurred
for personnel shall be expended for employees of the small
business prime contractor.
In practice, what constitutes the cost of contract
performance for personnel has been absolutely impossible to
understand or to implement. So, for example, if a small
business prime contractor is awarded $100,000 contract to
maintain trucks at a military base and the small business prime
contractor wants to subcontract, say, engine maintenance to a
large business, the small business prime contractor has to
convert the $100,000 firm-fixed price contract into a cost-of-
performance metric under the current regulations that have not
been modified to take into account the NDAA statute.
It is really a cost reimbursement contract that they have
to convert it to, and they have to compare the cost of their
small business cost of performance for personnel to the cost of
performance of the large business contractor. Nobody knows what
they are doing. Nobody knows how to administer this correctly,
and the uncertainty has led to many disputes with the
government and between prime contractors and subcontractors.
The NDAA changed this requirement into a simple
calculation. In my example, the small business prime
subcontractor--the small business prime contractor could
subcontract $50,000 of the award to a large business. Simple
and easy to administer and understand. The SBA's failure to
implement new regulations consistent with the NDAA is creating
chaos. A contract executed by a Federal agency today with a
small business contains the old regulation, which requires at
least 50 percent of the cost of contract performance incurred
for personnel is expended for employees of the small business
prime contractor.
The contract clause does not exempt the small business from
also complying with the NDAA provision. So compliant and
diligent small businesses are left in the position of
implementing two inconsistent provisions, one that is in
regulation and one that is in the statute. This inconsistency
is adding millions of dollars to compliance costs for small
businesses. SBA needs to immediately begin this rulemaking
process to resolve the uncertainty and to improve the business
climate.
The Small Business Administration's mission is to aid
counsel and assist and protect the interest of small
businesses. SBA's failure to act is crippling the very small
businesses it is supposed to protect and to assist. Congress
enacted commonsense reforms to clarify the complex limitations
on subcontracting, allow small businesses to team more
effectively, eliminate regulatory compliance burdens and
provide opportunity for new small businesses to get into the
government contracting business. SBA's failure to act has
denied these benefits to Federal contractors, large and small,
results in inefficiencies and lost opportunities for economic
growth.
This concludes my remarks, but I am more than happy to
answer questions.
Chairman Hanna. Thank you.
Ms. Baker.
STATEMENT OF CHARLOTTE BAKER
Ms. Baker. Chair Hanna, Ranking Member Meng and
distinguished members of the Subcommittee, thank you for the
opportunity to testify this afternoon. My name is Charlotte
Baker. I am the CEO of Digital Hands, a Tampa-based IT company
that provides innovative IT services to large enterprise
companies as well as public entities, helping them in their
ongoing war against growing cyber threats.
I am here today representing Women Impacting Public Policy,
or WIPP, as a member of their education foundation board. WIPP
is a national nonpartisan public policy organization advocating
on behalf of its coalition of 4.7 million businesswomen,
including 75 business organizations. My testimony will focus on
the urgently-needed rulemaking that will enable my business as
well as many other small businesses to win more Federal
contracts. Specifically, we need the SBA to implement Section
1651 of the fiscal year 2013 NDAA as soon as possible.
Previously, WIPP testified on the importance of changing
the law with respect to contracting, and this committee oversaw
its passage. So let me take this opportunity to say thank you.
I would also like to take a minute to explain the
subcontracting changes contained in Section 1651. The section
makes an important change that the 50 percent prime contractor
work requirement on set-aside contracts are made on the basis
of total contract dollars rather than based on the current
method of labor costs. This change ensures that the majority of
dollars set aside for small business goes to that small
business.
Equally important in Section 1651 is Subsection B, which
allows similarly-situated entities to contract with each other
without specifying a percentage of the work that each is
required to do. Previously, the law limited subcontracting to
50 percent of the labor cost on set-aside contracts. For
purposes of definition, a similarly-situated entity is a WOSB
prime contractor winning a WOSB set-aside and subcontracting
work to another WOSB firm. Another example is a small business
prime contractor winning a small business set-aside contract
and subcontracting to another small business.
So why is this important? Because it affects companies like
mine that perform complex IT services. Let me give you an
example. Several months ago, a significant IT requirement was
posted by an agency. Digital Hands and another EDWOSB planned a
team together to meet the scope of work. The other EDWOSB, the
prime, was to provide logistical support and access to a
Federal supply schedule while Digital Hands would have
subcontracted to provide an innovative technology solution
utilizing highly-trained IT security personnel.
In this case, Digital Hands subcontracting the work, the
portion of the cost of labor provided by Digital Hands higher-
paid security personnel would have resulted in a much higher
percentage of cost than the 50 percent allowed to
subcontractors. To further explain, while the majority of the
hourly work, the number of hours, would have been provided by
the prime through its lower-cost technicians, the bulk of the
labor cost would have come from us, from Digital Hands. Because
of the current subcontracting rule, the 50-percent limit
effectively prohibited us from bidding.
On a broader level, promulgation of Section 1651 will
ensure that dollars awarded remain with the companies who have
the same set-aside designation and increased access to Federal
contracts for businesses like mine. As we continue to respond
to Federal opportunities, these elements are critical. My
recommendation is simple: Urge the SBA to implement this
provision as quickly as possible. Thanks to this committee's
leadership, Congress passed the change. Now the SBA needs to
implement it. The longer the delay, the more small businesses
will miss out.
Thank you for the opportunity to testify today. Hopefully,
my story will expedite the enforcement of this rule. I am happy
to answer any questions.
Chairman Hanna. Thank you.
Mr. Allen.
STATEMENT OF LARRY ALLEN
Mr. Allen. Good afternoon, Mr. Chairman, Ranking Member
Meng and members of the Subcommittee.
I am honored to be here this afternoon to discuss the pace
of the Small Business Administration's implementation of three
sections of the fiscal year 2013 NDAA. These laws limit the
liability of companies receiving advice from Federally-
supported entities, provide greater clarity about small
business suspension and debarment procedures and provide this
body with additional reporting on that process. SBA delays in
establishing rules for each of these elements are harming the
small businesses that Congress wanted to protect.
Section 1681 establishes safe harbor protections for small
businesses that rely on advice given by either procurement
technical assistance centers or small business development
centers. Small businesses that take advice from these
organizations believe that it is correct and has the support of
an agency of the United States Government. Without the
implementation of this section, small contractors could find
themselves in significant trouble if they act based on
recommendations of an SBDC or PTAC that are inconsistent with
procurement rules.
There are many centers dispensing advice to many small
firms. It is very possible that either incorrect or incomplete
information could be dispensed. Without the protections in
1681, small firms that inadvertently fall into noncompliance
could find themselves exposed to a host of problems. Under the
Civil False Claims Act, for example, the government is entitled
to triple the amount of monetary damages actually incurred and
in addition to an $11,000-per-invoice fine.
Once a small company is through with litigation, fines,
attorney's fees and other costs, it may find that its very
viability has been compromised. The safe harbor provisions of
Section 1681 would protect small firms from the worst penalties
if their violations were caused due to reliance on faulty
information provided by a PTAC or SBDC. Among the penalties of
the government's disposal to discipline inappropriate
contractor behavior are suspension and debarment. These
penalties are commonly referred to as the death penalty in
government contracting.
A Federal suspension or debarment brings all of the
company's public sector work to a halt, even as a
subcontractor. Suspensions and debarments are currently
increasing. The GAO recently issued a report showing that
subsections have more than doubled since 2009. Ironically, the
same report identified improvements made in six government
agencies to bring consistency and transparency to their
suspension and debarment process, something the SBA is
specifically supposed to do per Section 1682.
The SBA was to introduce suspension and debarment
regulations, new standard operating procedures and identify a
suspension and debarment officer, which they did, as you have
mentioned, Mr. Chairman, this morning. Two things are happening
without these rules: First, companies wrongly identifying
themselves as small, an issue that this committee is familiar
with, have an easier time fighting suspension or proceedings;
second, truly small firms are suffering from the lack of a
consistent, transparent process from the agency charged with
protecting and promoting their Federal market participation.
Congress passed 1682 with the intent to protect small
businesses. As a result of the SBA's inaction, though, small
businesses may actually be treated more fairly at some of the
other agencies. Section 1683 requires that the SBA issue an
annual report to Congress on suspension and debarment. Since
the SBA oversees many types of small firms, there are special
precautions that must be taken. Congress is right in wanting to
review agency actions here.
While the initial intent may have been to suspend or debar
companies improperly calling themselves small, this section
could also protect real small firms from inconsistent
processes. The specific report details called for in Section
1683 will give Congress a fuller understanding of what is
happening. Publishing the information may actually result in
fewer companies being penalized.
Lastly, properly used, the information can also be used to
help Congress make future decisions on appropriate small
business legislation. We recommend that Congress continue to
provide oversight on the SBA's lack of progress in implementing
these three key elements of the 2013 NDAA and take steps to
hold senior agency officials accountable for this inaction.
I thank you for your time and attention and look forward to
your questions.
Chairman Hanna. Thank you.
Mr. Specht.
STATEMENT OF DAMIEN SPECHT
Mr. Specht. Chairman Hanna, Ranking Member Meng and members
of the Subcommittee, thank you for the invitation to appear
today. Before I begin, let me state that my comments are my
own, and I am not speaking on behalf of my law firm or any
specific client. My name is Damien Specht, and I am a
government contract attorney with the law firm of Jenner &
Block here in Washington, D.C.
When the 2013 NDAA was enacted a year and-a-half ago, I
discussed the legislation with both large and small clients. In
general, they considered the NDAA to be a mixed bag for small
government contractors, but reserved judgment until the
legislation was implemented by the SBA. As we all know, little
of that implementation has occurred. From my perspective, the
most important change in the 2013 NDAA relates to SBA's mentor-
protege program.
Many small contractors report difficulty convincing large
prime contractors or government customers that they can
successfully perform technically challenging or large-scale
work. Large contractors also report difficulty finding the
track record of success they need in the key small business
subcontractor. SBA's mentor-protege program fills this gap by
partnering large mentors with early stage 8(a) small
businesses. The 2013 NDAA gave SBA the authority to expand the
program beyond 8(a) firms, but I am not aware of any public
statement that SBA will exercise that authority.
This has led to significant uncertainty in the contracting
community as to whether expansion in this program will ever
happen. SBA's delay may be the result of a number of difficult
issues it must address. For example, does SBA have the
resources it needs to administer a significantly larger program
or will application processing times increase and oversight be
weakened? In addition, the NDAA states that the expanded
program shall be identical to the mentor-protege program for
8(a) concerns.
But the current program is limited to companies in the
earliest stages of the 8(a) process. As a result, SBA will have
to determine if all small businesses should participate in the
expanded program or whether participation should be limited to
early stage small businesses. From my perspective, the program
was designed for early stage businesses, so limiting proteges
to firms that fall below half of their relevant size standard
would be a good way to expand responsibly while focusing on
businesses that will benefit the most. SBA can then revisit
additional expansion in future years.
The NDAA also required reform of agency level mentor-
protege programs. In my experience, few clients are aware that
these programs exist, and many confuse agency programs with the
SBA's far more robust program. This can be a fatal error
because only the SBA's mentor-protege program offers an
affiliation exemption for a large mentor and a small protege
bidding as a joint venture.
Because of this confusion, the 2013 NDAA's effort to
increase uniformity among these programs was welcomed. Now, it
is SBA's responsibility to resolve some key policy issues.
First, will SBA impose a limit on the number of protegees a
mentor can have or the number of contracts a mentor and protege
can pursue? If so, will these limits apply across all mentor-
protege programs, or will limits be applied to participants in
each program?
Given the difficulties of tracking all mentor and protege
relationships, I would suggest that limits be imposed on an
agency-by-agency basis. After all, ensuring every willing
protege has a mentor for different aspects of its business can
only be beneficial. Second, should the joint venture
affiliation for the SBA program apply to other agency programs?
Expanding the exception would limit confusion and encourage
participation in all agency programs.
Third, SBA must decide whether the benefits of different
mentor-protege programs should be uniform. For example, some
agency programs offer small business subcontracting credit for
costs spent assisting the protege. This encourages the mentor
to follow through on its commitment, so it would argue that
such efforts should be adopted across the government and added
to SBA's program.
As these issues highlight, we are at a key moment in the
future of mentor-protege programs. The goal of this effort
should be expanding participation, but we cannot forget that
expansion will require additional resources. Not all of the
provisions of the 2013 NDAA are helpful for small businesses.
As you know, the Small Business Jobs Act of 2010 imposed
penalties up to the entire contract value on concerns that
misrepresent their size. Although the 2013 NDAA added a safe
harbor from this rule, the legislation and SBA's related
rulemaking have a number of critical flaws.
First, SBA's proposed allowing local development center to
choose whether to offer advisory opinions without offering
additional funding. Given the additional work involved, what
incentives to these centers have to issue opinions? Even if
some offices choose to issue these opinions, what will this
patchwork of resources mean for small businesses that are
outside the region served by these offices?
Second, SBA has not proposed a time limit for issuing these
opinions. Size determinations can take months and delays in
advisory opinions cause small businesses to miss out on
procurement opportunities. Third, SBA's proposed rule does not
allow a contractor to appeal an adverse decision. Given the
size determinations are regularly overturned by SBA's Office of
Hearings and Appeals, small businesses require an appellate
forum.
In sum, it is essential that small government contractors
and small businesses considering entering the Federal space
have the certainty of an effective safe harbor. Without
significant revision, however, the currently-posed safe harbor
is unlikely to meet that need.
Thank you for your time, and I look forward to your
questions.
Chairman Hanna. Thank you very much.
Amazing. I feel like we should be having a conversation
with the SBA, which we will have in a moment. I want to thank
you for being here and listening to this, too. That is a big
help, I think. Hopefully for you, too.
Mr. Allen, how does the SBA's suspension disbarment
guidance compare with other agencies, such as the Air Force?
And you mentioned that the remedy doesn't exist because you
can't find the officer and then you can't define the rules and
that people can be basically disbarred or suspended without a
way to seek a remedy. What does that look like compared to
other places you may know about?
Mr. Allen. Well, as I alluded to, Mr. Chairman, the GAO
recently identified the Air Force, the Department of Veterans
Affairs and a couple of other agencies that had taken
significant steps to improve the consistency and transparency
of their own suspension and debarment processes trying to make
this a real business case for why you take that type of
dramatic action.
Without having these reforms, the SBA is really operating
behind the curve, not using best practices. The result is that
you can't be assured of consistent decisions. You can be
assured that there will be perhaps in some cases a proper
reason to appeal a suspension or debarment decision, but
without that transparency and having best practices like those
recommended by GAO, it may be difficult and costly for a truly
small business to protect itself.
Chairman Hanna. Are you concerned that it is arbitrary and
capricious by virtue of what you just explained?
Mr. Allen. Certainly more arbitrary and capricious than it
is at other agencies.
Chairman Hanna. Uh-huh. So that really is dangerous when
you have----
Mr. Allen. Yes, sir. Particularly given the small business
nature of the companies that are doing business with this
agency.
Chairman Hanna. Thank you.
Ms. Styles, you explained a few things you thought could be
done pretty quickly, and yet, some of these rules, I think, 48
out of 52 requirements have not been dealt with, not been
formulated. Do you want to talk about that? I mean, what are
the ones that you think it is kind of ridiculous that hasn't
been done?
Ms. Styles. Well, I think the primary one that I talked
about----
Chairman Hanna. If that is true. I don't want to put words
in your mouth.
Ms. Styles. No, I think it is absolutely true. It is
unfathomable for me to understand how it has taken so long,
when it is really, many of these are minor regulatory changes
that have to occur to create consistency in how contracting is
happening even on the debarment one. You just, you want small
businesses to know where to go, how to get there, what the
process is for suspension and debarment and not have to pay the
lawyer.
Chairman Hanna. Let me explain to anyone listening, you are
an expert in this. This was your career.
Ms. Styles. Yes.
Chairman Hanna. So it is not as if you are just an angry
lady showing up here today.
Ms. Styles. I was in charge of the rules before. I know
that you can get them----
Chairman Hanna. You were in charge. So if you had that job,
you would have it done or at least you have some done. Right.
Ms. Styles. Absolutely. You know, it doesn't take that much
to issue interim rules where a statute says the regulation has
to change. It needs to happen. I mean, I can't tell you how
much companies are having to spend to understand the
differences and how much that is ultimately costing the
government, as well.
Chairman Hanna. Do you think that is keeping the government
from enjoying the best and most competitive opportunities?
Ms. Styles. Absolutely. Absolutely. I think small
businesses are confused and don't have access that they need to
have and don't understand the rules to contract.
Chairman Hanna. Thank you.
I am going to yield to Ranking Member Meng.
Ms. Meng. Question to Mr. Allen: In efforts to increase
small business subcontracting, commercial market
representatives advise large prime contractors on maximizing
subcontracting opportunities for small businesses and aids
small businesses in marketing themselves to large businesses.
In your opinion, are CMRs doing their job on this front, and
how can they be more effective in increasing subcontracting
opportunities?
Mr. Allen. I appreciate the question. My take is that you
find a high degree of variability on the effectiveness of that
type of advice from the SBA. It is really very highly dependent
on the situation. A lot of times you will find that the lists
of businesses that they reach out to and work with are fairly
tight and confined to ones that they perhaps worked with in the
past. And their comfort level and ability to work with other
businesses is not so good, so those companies don't get the
help that they need.
You are right in saying that large contractors take
seriously their small business contract use. It is those
efforts from the companies themselves that I think probably do
the best job; whereas the SBA's resources are perhaps a little
bit more scattershot in their effect. One of the best things, I
think, that the SBA could do would be to be very active at a
regional level with companies that can truly work with a larger
prime contractor or even another small prime, because you find
some very good people out around this country in those regions
that can help the government, whether it is here or elsewhere.
Ms. Meng. Thank you.
Question to Ms. Baker: The NDAA required SBA to provide a
Web site for large businesses to post subcontracting
opportunities. However, this has yet to occur, leaving
businesses with looking only to the existing sub net platform.
Have you found that this Web site has been helpful in providing
these opportunities?
Ms. Baker. No, not whatsoever.
Ms. Meng. Do you think there are deeper problems or
solutions that need to be rectified?
Ms. Baker. I think the dissemination of information through
a mechanism that can be trusted and that is updated and readily
available is important for all small businesses. Without this,
what happens is the cost of customer acquisition or the cost of
pursuing Federal contracts is much higher, and it is done in an
unorganized manner.
Ms. Meng. Thank you.
And question to Mr. Specht: The committee continues to hear
from numerous small businesses about the problem of contract
bundling. As a result of this practice, subcontracting and
teaming have become the best options for small businesses that
are unable to perform the entirety of these massive contracts.
Yet, small businesses have faced difficulty in this arena, as
agencies may prefer a single offer rather than offers received
from teams. What has your experience been when your clients
have teamed up with other businesses?
Mr. Specht. It is a great question, and it is an issue that
comes up quite a bit. Quite a bit of my practice is negotiating
these teaming agreements between large prime contractors and
subcontractors. And I can tell you that from the government's
perspective, you need to be crystal clear with the evaluators
as to who is performing what work and the small, that may be a
subcontractor, has to be extremely assertive about making sure
that that is mentioned in the proposal.
Because, unfortunately, what often happens is that a small
business will be part of a team, they will negotiate a teaming
agreement, and then after award, the small business will be
cast aside, the large business will absorb that work, and the
small business will have been used to get the award but not to
actually perform it.
Ms. Meng. And anyone else is welcome to answer.
Ms. Baker. That is exactly one of the fears of the small
businesses going together with a prime contractor. What has
happened to us in many cases is that we will put together the
work, we will spend a lot of time putting together our side of
it, and there is no assurance moving forward. You do have to be
aggressive that you will be the chosen one, but there is no
guarantee.
With our peers, we have found stories that there have been
promises made, and then in the end, the actual award that was
bid on by the small business subcontractor was taken by the
prime.
Ms. Meng. Thank you.
I yield back.
Chairman Hanna. Thank you.
Mr. Tipton.
Mr. Tipton. Thank you, Mr. Chairman.
Thank you, panel, for being here. Just a couple of quick
questions to follow up.
Ms. Styles, after the chairman's questions, in part of your
answer, you said how much it is costing the government in terms
of that. Can you expand on that a little bit? What is it
costing the government?
Ms. Styles. So it is probably impossible to quantify, but I
can tell you, not an insignificant number of small businesses
have come to my law firm to seek advice about how to comply
with and the limitations on subcontracting rule in particular.
If the rule is clear, if there was actually a rule in place
implementing the NDAA, they wouldn't have to come; they
wouldn't have to pay the bill. It adds to their cost.
And at the end of the day, even if it is a fixed-price
contract, they have to pass the cost along somewhere. They will
be passing those costs along in their contract because they all
have to figure out how to comply with two inconsistent rules
right now, and it has been going on for, what, you know, a year
and a half, if not more. And they have to figure it out in
order to the perform the contract. So they have to pay to get
legal advice to understand what is the right thing to do.
Mr. Tipton. Right. I am a small business guy. And you like
to be able to know the rules that you are playing under, you
know. Is this a chronic pattern that we are seeing? You know,
we had Mr. Allen speak that some of the other agencies are
doing a little better job in some specific components, but is
this a chronic problem that you are seeing?
Ms. Styles. I think so. I think that it is a chronic
problem in terms of getting the rules out on time,
understanding what the changes are and just the sheer
complexity of the rules themselves.
Mr. Tipton. Let's supplement, Ms. Baker. You just talked a
little bit about the Web site not truly being helpful in terms
of dispersing the information and in terms of the contracts.
You are out of Tampa, Florida, if I recall correctly?
Ms. Baker. Yes, sir.
Mr. Tipton. And your economy may be a little bit better
than it is in my district in Colorado, a little bigger area.
But do you have some people that could use some jobs down in
Tampa, Florida?
Ms. Baker. Yes, sir.
Mr. Tipton. If you had access to actually find out about
these contracts, to be able to have some actual certainty in
terms of going forward what the rules are going to be, any kind
of a guess on what type of jobs that might be able to create,
what kind of security that might be able to create for existing
jobs?
Ms. Baker. Yes. So the job creation for my sector of
industry is not a low-paying help desk arena. And so having
opportunities and having visibility to be opportunities that
are in cyber creates jobs that are six-figure jobs. And these
are newly created jobs. These are not allocating jobs from one
area of commercial, the commercial segment to the Federal
segment. It is actual new creation.
So, you know, what could it mean? The size of the contracts
that are due and the new opportunities for cyber threat
detection really, you know, create, in terms of compensatable
jobs, millions and we are talking, you know, a job with one
agency just on a cost basis could be a $2 million underlying
cost structure.
Mr. Tipton. Right. And I like the chairman, and I know the
ranking member, as well. Appreciate the administration, Small
Business Administration, for taking the time to be able to be
here and listen to some of your comments. They are here. What
would you like to be able to tell them? What can help?
Ms. Baker.
Ms. Baker. My gist today and the thing that I would love to
urge, it is desperately needed, is that we invoke and we put
into practice the similarly situated entities. Small businesses
do not have the ability to go together when they are in the
same class and compete without that 50 percent rule applying.
In industries and in services, in goods that are of higher
value, it is impossible for somebody to come in and be a sub
and meet that rule. As long as all the moneys are going to the
class of the similarly situated entities, I just urge that what
the good work that has already been done by this committee gets
put into place so that we can move forward and not lose out on
more opportunities.
Mr. Tipton. Mr. Allen, what advice would you give in what
she described as the death penalty when it comes to suspension
and debarment?
Mr. Allen. I believe that the SBA needs to come up to speed
on the suspension and debarment practices, follow the
recommendations set forth by GAO. They are now easily
identifiable as best practices as implemented by other Federal
agencies. That will let people know at least whether they are
on one side of the fence or the other, much more clearly. For
those that are on the wrong side of the fence, that will
hopefully clarify the process and not waste resources. And for
those that are on the right side of the fence, they will know
that and they will be able to proceed accordingly.
Mr. Tipton. Thank you.
I yield back, Mr. Chairman.
Chairman Hanna. Ms. Clarke.
Ms. Clarke. Thank you, Mr. Chairman.
And thank you Ranking Member Meng.
I would also like to thank our witnesses for your testimony
today.
My question is to Mr. Specht. Your written testimony goes
to great lengths to discuss the mentor-protege program, a
program I share enthusiasm for, as well. Could you dig a bit
deeper and flesh out your concerns regarding the possible
opportunity cost should the SBA not exercise the NDAA's
authority to further expand the program?
Mr. Specht. Absolutely. And yes, you are right. I am
enthusiastic about the mentor-protege program because I have
seen it in action. I have seen large contractors work with
smalls and help them build up the infrastructure and make them
successful. But the concern is that right now, the only
businesses that can be proteges are essentially early-stage
8(a) participants, so small, disadvantaged businesses in the
early stages of their business career.
And the problem is that many of those businesses are not
yet sophisticated enough to really pursue the large contracts
that interest a large business mentor. And so if SBA expands
the program and we get more small businesses into the program,
larger small businesses, somewhat more advanced small
businesses, if we do that sooner rather than later then more of
these smalls will find more willing mentors who are willing to
pursue these opportunities with them and willing to share their
experience with the small business contractors.
Ms. Clarke. Thank you.
I saw a lot of heads nodding at the table over there as you
were speaking.
Would you like to add something, Mr. Allen, Ms. Baker, Ms.
Styles?
Mr. Allen. I would only add, Ms. Clarke, that I think he is
absolutely right. Mr. Specht is absolutely right. In my
experience, I have seen hundreds of small companies who are not
ready to take that next step, even though they may initially
think that they are. And those are the ones that can sometimes
end up getting very easily frustrated, walking away from the
market entirely, and the government misses out on some of the
innovations that those companies can provide and are providing
the commercial market. So staying with these businesses and
giving them a real sense of understanding that this can be an
18- to 24-month process will, I think, encourage more of them
to stay in and we will all benefit from that.
Ms. Clarke. Ms. Baker, did you want to add something?
Ms. Baker. In my experience, and in talking to fellow WIPP
members, the mentor-protege program is something that is very
attractive. It is very hard to come by and one of the reasons
will be that you don't meet a designation, such as an 8(a), or
you don't have experience in the government market, even though
you may have experience in the commercial market, and so there
are a lot of barriers in the conversation about why you are
qualified.
And so it appears to me that we would benefit from opening
up that dialogue about what the mentor-protege program is truly
designed to do and the fact that it is not a program for small
businesses just to bring in their relationships. We have had
conversations, a number of conversations that say, you know,
prime contractor X, and this has happened, discussions with
about five of them, would love to do a mentor-protege program.
And the way that you get to get into the mentor-protege
program is you bring them business. You bring them business.
And then, you know, you have got to think about it. Then, who
really needs who in this situation? So it is a source of
frustration, and it is one in which my company would love to
participate in, but I just don't see how it is worth the hassle
and the time for us. We don't have an 8(a) designation. We are
an EDWOSB. And it just seems that we have other to take another
route.
Ms. Clarke. Mr. Chairman, I yield back.
Chairman Hanna. Thank you.
We are privileged today. Ranking Member Velazquez is here.
Ma'am.
Ms. Velazquez. Thank you, Mr. Chairman.
And let me take this opportunity to thank the witnesses for
being here today. This is an area where I have devoted so much
energy and time throughout the years as a member of this
committee in advocating, if there is a way where we could help
small businesses do what you can do best and that is creating
jobs, is to have a level playing field for businesses to be
able to access federal contracts.
Ms. Baker, I would like to ask you a question. There are
multiple advocates in place to ensure that small businesses
receive a fair share of federal contracts and are not
disproportionately affected by acquisition policies. Businesses
have reached out to these advocates for guidance in navigating
the in-sourcing process. Do you believe that these offices are
doing enough at the front end of the decisionmaking process to
ensure that small businesses receive fair treatment?
Ms. Baker. I truly believe that the intent is there, and I
truly believe that shepherding small businesses to the right
decisionmakers is something that the liaison officers have well
embraced. The issue often that we have to overcome is,
especially in my industry with cyber, is the thought process
that the decisionmaker or the contracting officer does not
believe that a small business can do the quality of work that
we actually do and win awards for in the commercial sector.
So, you know, to deal with the small business liaison
officer to get to the right contracting officer or the actual
buyer is something that is embraced by the advocate in the
agencies, but they are not always effective in finding and
reaching and being knowledgeable about the opportunities. And
often, when they are educated, it is to bring in a small
business that really is a sub, when often we can actually be
primes.
Ms. Velazquez. Okay. Thank you.
Mr. Allen, contracting officers are supposed to use market
research to aid them in determining what contracts go to what
small business program. Have you found that contracting
officers are doing the research prior to releasing
solicitations?
Mr. Allen. In many cases, Ms. Velazquez, no. And some of
that has to do with the fact that contracting officers have a
lot on their plate. They are very overworked. We have seen
their numbers dwindle, particularly the ones that are
experienced, leaving the government. The result is that you
have a very uneven amount of experience in the acquisition
workforce, so we don't always see that market research being
done.
Ms. Velazquez. So perhaps you will agree that sometimes the
rhetoric ``doing more with less'' might sound good but not in
this case, where we have an agency that has one of the smallest
budgets throughout the federal government. And yet, we love to
preach and talk about the important role that small businesses
play, but if we don't provide the resources for the Small
Business Administration to do their job as well as the
committee to do the work that we are supposed to do here--
because I think that we could come here and criticize SBA for
not issuing the regulations, but then we have to understand
what type of record--congressional record--there is that would
allow for those who will be issuing those regulations to go
back and see the intent of Congress when we pass legislation
here. It would be much easier for the SBA to have that wealth
of information coming from the committees work. It is not right
that we come and allow for other committees to introduce and
put provisions in their defense authorization when we didn't do
the work here on the Small Business Committee.
So it would be difficult for the SBA, and that creates
confusion. You touched on the debarment issue. Well, they need
to go back and check, what was the intent. If we don't have the
congressional record, they will not have that information,
which will make their job more difficult and complex.
With that, I yield back, Mr. Chairman.
Chairman Hanna. I want to thank our first panel and invite
you to stay if you would like. I know at least one of you has a
plane to catch. And we have votes at around 20 after, perhaps.
So we should be able to hopefully work through this. Thank you
again for your time and your willingness to participate at this
hearing.
I want to welcome SBA Associate Administrator John Shoraka.
Mr. Shoraka is responsible for all the government contracting
and business development programs at the SBA, including the
insurance procurement regulations. Mr. Shoraka has appeared
before this Subcommittee many times, and I am happy that he is
here.
And I am glad you brought reinforcement. So welcome.
STATEMENT OF THE HONORABLE JOHN SHORAKA, ASSOCIATE
ADMINISTRATOR FOR GOVERNMENT CONTRACTING AND BUSINESS
DEVELOPMENT, SMALL BUSINESS ADMINISTRATION, WASHINGTON, D.C.
Mr. Shoraka. Thank you for having me. Chairman Hanna,
Ranking Members Meng and Velazquez, and members of the
Subcommittee, I am honored to be here today to present SBA's
ongoing efforts to expand access to Federal contracting
opportunities for America's 28 million small businesses. SBA's
Office of Government Contracting and Business Development
oversees the Federal Government's performance against the
statutorily-mandated small business prime contracting goal of
23 percent.
This includes ensuring that agencies meet the socioeconomic
goals of 5 percent for socially-disadvantaged small businesses
and women-owned small businesses and 3 percent for small
businesses located in historically underutilized business zones
and service-disabled, veteran-owned small businesses.
For Federal agencies to meet these goals, they need to have
the right tools in place. The National Defense Authorization
Act for fiscal year 2013 contained provisions to provide
acquisition personnel resources to help small businesses
receive approximately $80 billion annually in contracts. SBA
has made significant strides implementing many of the
provisions included in NDAA 2013.
We have revised our regulations to eliminate the caps on
the dollar threshold of contracts that could be awarded under
the Women-Owned Small Business Contracting Program. The cap
removal will help close the gap between WOSB accomplishments
and the 5 percent goal. SBA understood the importance of
eliminating this barrier and acted quickly to issue an interim
final rule to implement the change, which was incorporated into
the Federal acquisition regulations last June.
We continue to review and update as necessary all size
standards. SBA has completed its review of all revenue-based
size standards and issued an inflation adjustment last month.
As a result, thousands of additional small businesses will be
able to qualify for Federal contracting opportunities. As we
continue our review of size standards, we have integrated the
relevant changes from NDAA 2013 into our process.
Additionally, SBA raised surety bond guarantee limits from
$2 million to $6.5 million and allows for bonds up to $10
million if the contracting officer certifies it is necessary
for award of the contract. This provides small construction
companies with the ability to bid on and obtain larger
construction contracts. We are also aware of the importance of
senior-level accountability to small business contracting
goals.
We have worked with procuring agencies to ensure that
senior executives receive training on small business
contracting and that meeting small business contracting goals
are actually a part of their performance evaluations. SBA's
procurement center representatives have also incorporated new
small business contracting provisions into the trainings they
regularly provide to contracting officers. We continually
leverage our work with the Small Business Procurement Advisory
Council to share best practices and review the performance of
the OSDBU offices at every agency.
At the beginning of June, SBA submitted a draft rule to the
Office of Management and Budget's Office of Information and
Regulatory Affairs authorized by NDAA 2013, which will allow
the small business prime contractors to utilize similarly-
situated small business subcontractors to perform the required
percentage of work on contracts. This will allow small
businesses to work together to win contracts that are larger
and have more complex requirements and that have historically
not been suited for small business participation.
In the near future, SBA will publish a rule to implement a
new government-wide mentor-protege program. The mentor-protege
program will be for all small business concerns including
socioeconomic subcategories. This program will be consistent
with SBA's mentor-protege program for participance in the
agencies 8(a) business development program.
Last month, we published a proposed rule on advisory size
determinations which establishes the criteria that small
business status advisory opinions must meet in order to be
deemed adequate and specifies the review process for such
opinions. This rule further amends SBA's regulations to update
the circumstances under which the agency may initiate a final
or a formal size determination.
SBA continues to review the small business contract goaling
guidelines and has now included leasing, to the extent
reported, which was a category spend previously excluded. SBA
is reviewing the SBA's Office of Advocacy's recently published
recommendations for improving the goaling process, and we are
working with OMB's Office of Federal Procurement Policy,
General Service Administration and other agencies to determine
any future improvements to this process.
At SBA, and across the administration, we are committed to
ensuring that more small businesses have access to contracting
opportunities, to grow their businesses and create jobs in our
communities. As Administrator Contreras-Sweet highlighted in
her priorities speech last month, the SBA will be a market
maker for small companies by opening new business channels
within the Federal Government.
Thank you for your continued leadership and support, and I
look forward to your questions.
Chairman Hanna. Thank you.
I appreciate the laundry list of what you have completed,
but we are really here to talk about what isn't done of the 54
regulations and the 40, I think, roughly that have been not
completed. So that is the gist of the argument here today.
Not--I appreciate the work you have done.
Also, the notion that was put out there somehow that you
were underfunded for this work, yet some $39 million has been
spent on things like a Web site, $6 million for a Web site, a
new Web site. And so I just, I guess what I am saying is, this
is the law. There is a requirement. There was a schedule, a
time. And you also heard Ms. Styles say clearly that there were
things that are very important and they are not done. So I
guess, I would just like to know how you feel about the
comments you heard and give you an opportunity to talk freely
about your opinion of what you heard.
Mr. Shoraka. Sure. First of all, thank you for the
question. I appreciate having been here to hear those comments.
It is very helpful in my role to understand the impact that we
are having in the community. And I really appreciate when I am
out in the field and actually meet with small businesses to
receive those comments.
What I will say is, with respect to NDAA 2013, where we
found opportunity to move quickly, especially under the women-
owned small business cap removal where we think that will gain
significant traction and help us to achieve our goals, we moved
rather quickly and did an interim final rule and actually
worked with the administration to adjust the Federal
acquisition regulations to take effect immediately, or at least
by June of last year.
Where we have to work with our sister agencies, where we
have equities in our sister agencies, where rules can impact
those agencies, I think it is very critical for us to work very
closely with those agencies to make sure we get the rulemaking
process correct the first time. These are rules that do have
significant impact and will have significant positive impact.
But we want to make sure we get them correct the first time
around, and we also want to make sure that they go through the
public comment period and that the public small businesses, the
small businesses that are going to be effected by these rules
have an opportunity to actually comment on them.
Chairman Hanna. So what would you say to someone who said
that you are ignoring those you don't like and addressing those
that you like? Because that is kind of what it feels like. And
I appreciate that you have other agencies to coordinate that
with, but 19 months is a long time. And the fact that you put
up an officer's--a Web site today, you know, there are
questions that really need to be answered, and I think that it
is important that everybody trust the system----
Mr. Shoraka. Sure.
Chairman Hanna.--that you have administered.
Mr. Shoraka. And obviously, I would argue that, you know,
there is always room for improvement in the rulemaking process.
I would argue that the rulemaking process within our agency is
such that we want to make sure all the various equities within
the agency understand the impact that this is going to have. We
work closely with all the other affected offices at the SBA.
But at the same time, when there are opportunities to move
quickly and go to interim final rule, we have been able to find
those opportunities and take advantage of them.
Chairman Hanna. Are there rules that you have no intention
of following of the 40 that are left to address?
Mr. Shoraka. I would argue that of the rules that were
mentioned today, as I mentioned in my testimony, both with
respect to the subcontracting requirements, that rule is at a
OIRA for clearance, interagency clearance, and will be going
out for public comment shortly, and we look forward to
receiving public comment on that.
Chairman Hanna. Do you have some kind of timeline of when
you expect to----
Mr. Shoraka. Certainly.
Chairman Hanna.--finish the rest of it? I mean, it is a
long list.
Mr. Shoraka. Certainly. I think the----
Chairman Hanna. There were numerous hearings to make those
rules come about.
Mr. Shoraka. I think the NDAA 2013 rule that is currently
in OIRA takes quite a load of the laundry list that was
presented here today. The mentor-protege rule that is also
waiting for our administrative signature and should go out
shortly for interagency clearance, that also takes a
significant stab at what we have heard here today.
Chairman Hanna. Have you heard someone suggest that mentor
policy should be expanded or moved down the food chain,
actually, to smaller businesses as opposed to--I will yield to
Ranking Member Meng. Thank you.
Ms. Meng. Thank you, Associate Administrator Shoraka, for
being here today. You mentioned the SBA's mentor-protege
program where small businesses can receive subcontracting
opportunities. This allows mentors to pass subcontracts to
small business protege firms. Can you tell us how many of these
opportunities small businesses have received through this
program?
Mr. Shoraka. Currently, the mentor-protege program that we
have is for our 8(a) business development program. And I don't
have the exact numbers but would be happy to share those with
you in the future.
What I will say is that the mentor-protege program is a
business development program, right. It shouldn't be viewed as
a contracting program, as I am sure you are aware. The intent
of the program is to provide some benefit to the protege, be it
technical experience, management experience, financial where
with all. And that transitionary period helps to grow that
protege so that in the future, it can go after contracts on its
own.
So the metro-protege program for the 8(a) program, as we
have heard here today, has been very beneficial in providing
opportunities for small 8(a) firms, and the intent is to expand
that to all small businesses.
Ms. Meng. I yield back.
Chairman Hanna. Ms. Clarke, we have votes in a few minutes,
but we do have time.
Ms. Clarke. Thank you, Mr. Chairman.
Administrator Shoraka, I have a fairly basic question. The
broad lack of compliance regarding the Office of Small and
Disadvantaged Business Utilization is staggering. OSDBU is a
critically important agency, yet almost all of the mandated
reforms are, as yet, unmet. I don't believe that SBA is
maliciously ignoring congressional intent, so could you give us
a better understanding as to why, as we sit here today, the
guidelines and/or regulations have not been issued?
Mr. Shoraka. Certainly. Statutorily, we don't have
authority over an agency's OSDBU, however we work very closely
with them through this Small Business Procurement Advisory
Council. SBPAC meets regularly, and we talk ability and present
best practices that have been successful in our sister agencies
and how those can be implemented at other agencies and how
OSDBUs can be more successful in presenting small businesses to
the contracting community and representing small businesses in
the contracting community and making sure that the agency
actually meets its goals.
What I will say is that the administration, through the
White House Small Business Procurement Group, ask that agencies
look at OSDBU's reporting directly to a deputy secretary or
higher. And we spent some time, as the agency sort of
responsible for monitoring that, spent some time working with
each OSDBU and tracking the fact that more and more of them
over time have been compliant with that request, and I know
that that became effective in NDAA 2013.
I think that is really critical in making sure that the
small business community's voice is heard at the agency. And I
think as we see OSDBU's reporting to senior executives at the
agency, small business procurement has become major initiatives
at those agencies, and we have seen a lot of traction when it
comes to small business procurement.
Ms. Clarke. Well, I want to encourage as probably part of
that, that working group, that, you know, there be some
pressure applied here. Because their role is just so critical
for them to be sort of trailing behind.
Mr. Shoraka. Absolutely.
Ms. Clarke. You know, it doesn't accrue to a benefit to our
businesses. And so to the extent that through your relationship
you can urge and also express to them our concern here at this
committee that that would make all the difference in the world.
Mr. Shoraka. Thank you.
Ms. Clarke. With that, Mr. Chairman, I yield back.
Chairman Hanna. Ms. Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
Administrator Shoraka, I continue to be frustrated by the
lack of progress on the women's business procurement program.
When you have only 806 contracting actions worth approximately
$40 million awarded last year, there is no other way to
describe it other than a failure because it really has been a
failure. I need to ask you, what steps are you taking to ensure
that the program is fully utilized?
Mr. Shoraka. Thank you, Congresswoman. I think the program
itself has been critical in bringing visibility around women-
owned small business procurement. As you are----
Ms. Velazquez. The numbers.
Mr. Shoraka. Sure. And as you are aware much more than I
am, the program, the law was established in the early 2000s and
the administration really took the effort in 2009 to establish
the program. What I would say is that our administrator is very
keen on making sure that this program is effective. It is
unique. There are 83 NAICS codes where contracting officers can
set aside a contract for women-owned small business programs.
I think with removal of the caps, we are seeing more and
more traction where set-asides can actually happen, because
with caps of $4 million and $6.5 million, you can imagine how
many thousands of contracts would have to be set aside to
achieve that 5 percent goal. So I think that was really
critical, and it was critical that we moved quickly to take
those caps out.
What I will say is that we will work continuously to train
contracting officers. And not only that, we have cosponsorships
with American Express OPEN and Women Impacting Public Policy to
bring education around the program to women-owned small
businesses, because when they take ownership, they have really
been demanding at agencies to take ownership of it, as well.
Ms. Velazquez. We will see next time you come before this
committee.
Mr. Shoraka. Thank you.
Ms. Velazquez. We heard one of the witnesses on the first
panel raise concerns over two regulations within debarment that
seem to conflict with each other. And without getting into
those specific details, I want to ask you, if this committee
had actually done its work by reporting bills, filing a
committee report, debating these bills on the floor and going
to conference with the Senate and producing a conference
report, would that have made it easier for you to reconcile
what Congress' intent was on this provision as well as helping
speeding up the process in getting those regulations done?
Mr. Shoraka. Sure. Thank you for the question. With respect
to that particular question around suspension and debarment,
that is obviously not necessarily in my lane. It is our Office
of General Counsel.
Ms. Velazquez. Uh-huh.
Mr. Shoraka. What I will say is that anytime the intent of
Congress can be clearly discerned by us is very helpful in
developing results and regulations based on that.
Ms. Velazquez. But would you agree on my estimation that
when you build a congressional record, it makes it easier on
those who are working on drafting and issuing those
regulations?
Mr. Shoraka. Sure.
Ms. Velazquez. Because, you know, regulations are a very
complex action, and sometimes you need to go back and look at
the intent of Congress. When you lack a committee report and
when you lack debate on the House floor, then that record
doesn't exist. And what I am asking is, do you think it would
make your work easier?
Mr. Shoraka. So, again, thank you for the question. My
involvement in the rulemaking process, being that I am not the
lawyer at the agency and I don't actually draft the rules, is
making sure that they are timely, as to the extent possible,
and making sure that they reflect congressional intent and
making sure that they reflect the statute. What I would say is
that in my view, anytime that can be discerned more clearly, it
is helpful to the process.
Ms. Velazquez. Thank you.
Thank you, Mr. Chairman.
Chairman Hanna. Thank you, Ranking Member Velazquez.
There are committee reports to look at for all of the
hearings that happened. And as a practical matter, these are
the law, so we are not here to interpret them. We are here to
respond to them and put these in place.
So I want to thank you here today for being here, sir. I
know you have been here many times, and you are always
gracious. I appreciate that.
I think that it is important that we all owe small
businesses as quick and efficient and clear a response as we
possibly can and try to help weave them through the
bureaucracy. To that end, I don't know what this committee can
do, but I think if you are experiencing trouble with agencies
in getting them to respond, I am sure that Chairman Graves and
Ranking Member Velazquez, if I speak for her, would be happy to
help you navigate that and perhaps make people more responsive.
I ask unanimous consent that members have 5 legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered.
This hearing is now over. And, again, I want to thank
everyone for being here.
[Whereupon, at 2:19 p.m., the Subcommittee was adjourned.]
A P P E N D I X
STATEMENT OF ANGELA B. STYLES
PARTNER, CROWELL & MORNING LLP
BEFORE THE HOUSE COMMITTEE ON SMALL BUSINESS
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
JULY 15, 2014
Chairman Hanna, Congresswoman Meng, and Members of the
Subcommittee, I appreciate the opportunity to appear before you
today to discuss the impact of the Small Business
Administration's failure to implement federal contracting
reforms mandated in the National Defense Authorization Act for
FY 2013 (``NDAA''). SBA's failure to act has created
significant ambiguity for federal contractors--both small and
large. While this uncertainty keeps the lawyers busy, it costs
government contractors--and ultimately results in higher prices
for the federal government and taxpayers. As the chair of
Crowell & Moring's government contracts group, the Coordinator
of the Defense Industry Initiative on Business Ethics and
Conduct and the former Administrator of the Office of Federal
Procurement Policy at the Office of Management and Budget, I
work with government contractors effected by SBA's inaction--
every day. What we have started to see is a dramatic increase
in compliance questions related these unimplemented provisions.
Businesses are concerned and confused by SBA's failure to
implement a number of NDAA provisions. This legal uncertainty,
and the resulting increased compliance costs, need not exist.
Subcontracting Limits
In a much needed reform, the NDAA modified the Small
Business Act to add a new provision relating to limitations on
subcontracting for federal prime contracts awarded to small
businesses under ``set-aside'' programs. So, for example, when
a federal procurement is ``set-aside'' for competition among
small businesses, the winning small business prime contractor
is restricted from subcontracting more than a certain
percentage of the amount paid by the federal government to a
large business. For service contracts awarded as a ``set-
aside'', the new statute provides that the small business prime
contractor ``may not expend on subcontractors more than 50
percent of the amount paid to'' the small business prime
contractor by the federal government.\1\ The new NDAA statutory
provision is a meaningful change in two ways. First, the
limitation on subcontracting regulations for many years (and
still existing in the current unmodified form) require small
business prime contractors awarded a prime contract on a set-
aside basis to agree that ``[a]t least 50 percent of the cost
of contract performance incurred for personnel shall be
expended for employees of'' the small business prime
contractor.\2\
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\1\ 15 U.S.C. Sec. 657(s)(a)(1) (2014).
\2\ 48 CFR 52.219-14(c)(1) (emphasis added).
In practice, what constitutes the ``cost of contract
performance'' for personnel has been impossible to understand
or implement. So for example, if a small business prime
contractor was awarded a $100,000 contract to maintain trucks
at a military base and the small business prime contractor
wants to subcontract engine maintenance to a large business,
the small business prime contractor would have to convert the
firm fixed price into a ``cost of performance'' metric and
compare their cost of performance for personnel to the cost of
performance of the large business subcontractor. No one (the
businesses or the government) really knows if they are
administering the limitations on subcontracting correctly and
this uncertainty has led to many disputes with the government
and between prime and subcontractors. Fortunately, the NDAA
changed this vague requirement into a simple calculation. In
our example, the small business prime contract awarded a set
aside contract could subcontract $50,000 of the award to a
---------------------------------------------------------------------------
large business--simple and easy to administer.
The problem, however, is the SBA's failure to implement new
regulations consistent with the new NDAA limitations on
subcontracting statutory provision. A new contract (executed by
a federal agency today) would contain the old regulation (FAR
52.219-14) which requires the contractor by contract term to
ensure that ``[a]t least 50 percent of the cost of contract
performance incurred for personnel [is] expended for employees
of'' the small business prime contractor. The contract clause,
however, does not exempt the small business prime contractor
from also complying with the new NDAA statutory provision on
limitations on subcontracting. Compliant and diligent small
business are left in the position of implementing two
inconsistent provisions, a statute that allows them to
subcontract 50% of the amount they are paid and a contract
clause which requires them to perform 50% of the cost of
performance with their own employees.\3\ This inconsistency is
adding millions of dollars to compliance costs for small
businesses.
---------------------------------------------------------------------------
\3\ In accordance with 41 U.S.C. 429-431, commercial item contracts
and contracts below the simplified acquisition threshold are likely not
subject to the new NDAA statutory provision until a determination is
made by the Federal Acquisition Regulatory Council as to their
applicability.
Second, the new statute allows a small business prime
contractor winning a set-aside contract to subcontract any
amount of work to similarly situated small business. Under the
existing regulation, with minor exceptions, the limitation on
subcontracting applies to subcontracts with both large and
small businesses. So a small business prime contractor winning
a ``set-aside'' award has significant limitations on the amount
of work that could be subcontracted to another small business--
treating subcontracts with large business the same as
subcontracts with small businesses. The regulation also
prevents joint ventures among small businesses where for
example 45 percent of work would be completed by one small
business in a joint venture, 45 percent by another small
business in that joint venture, and only 10 percent
subcontracted to outside business entities. The NDAA clarified
this restriction with a simple rule that would allow the prime
small business subcontractor to subcontract any dollar amount
---------------------------------------------------------------------------
to a similarly situated small business.
SBA needs to immediately begin this rulemaking process to
resolve the uncertainty and improve the business climate.
First, the SBA needs to change its regulations to reflect the
laws Congress explicitly changed.\4\ That action will spur the
Federal Acquisition Regulation Council to change the FAR's
limitation on subcontracting clause.\5\ Neither of these
entities has taken action, and that failure is increasing the
cost of doing business with the government.
---------------------------------------------------------------------------
\4\ 13 C.F.R. 125.6(a).
\5\ 48 C.F.R. 52.219-14.
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Other Unimplemented Reforms
Small Business Opportunities Website
Finding federal contracting opportunities can be an
intimidating proposition. Even large contractors with hundreds
of federal contracts under their belt have questions about the
intricacies of the process. For small businesses, especially
those that have never competed for these contracts, finding
federal opportunities can be doubly hard. Faced with that
complexity, many small businesses are deterred from the process
altogether.
To help allay those fears, Congress mandated that SBA
establish a website to allow large businesses to post
subcontracting opportunities for small businesses.\6\ SBA has
not yet implemented that requirement, and thus, it has denied
small businesses from having a user-friendly means to access
and compete for federal subcontracts. Not only should SBA
implement such a website, but it should also expand the
website's reach by allowing existing small business prime
contractors to access the forum to post their own
subcontracting opportunities. SBA has still not completed this
relatively simple act, and is depriving small businesses of the
access to contracting opportunities that Congress hoped to give
them.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 637(k)(1) (2014).
---------------------------------------------------------------------------
Mentor-Protege Program
In another attempt to encourage inexperienced small
businesses to compete for federal contracts, Congress
established a mentor-protege program--pairing small businesses
with larger, more experienced federal contractors.\7\ Congress
tasked SBA with outlining the requirements for the program,
including which contractors would be eligible for the program
and the types of assistance mentors could provide their
proteges.\8\ If properly implemented, this program could
significantly expand the number of small businesses actively
competing for government contracts. However, without SBA
implementation, the program will never materialize. Congress
gave SBA 270 days to issue regulations governing this
program;\9\ today, 562 days later, SBA has still not done so.
---------------------------------------------------------------------------
\7\ 15 U.S.C. Sec. 657(r)(a)(1) (2014).
\8\ 15 U.S.C. Sec. 657(r)(b)(3)(A-J) (2014).
\9\ 15 U.S.C. Sec. 657(r)(b)(3) (2014).
Safe Harbor for Good Faith Efforts to Comply with Size
---------------------------------------------------------------------------
Regulations
Prior to the NDAA, well-meaning small businesses that
misinterpreted the complex small business size regulations
could be convicted of fraud, subjecting them to fines of up to
$500,000 and 10 years of imprisonment for misrepresenting their
status as a ``small business concern.'' \10\ Recognizing that
this rule might inadvertently punish successful and honest
small businesses trying to comply with size restrictions,
Congress mandated that SBA to create a ``safe harbor'' process
for small businesses to obtain a written advisory from a Small
Business Development Center for Procurement Technical
Assistance Center for good faith attempts to comply with these
size regulations.\11\ Congress gave SBA 270 days to issue rules
defining the contours of this provision;\12\ today, 562 days
later, SBA has only found the wherewithal to issue a proposed
rule for public comment. It is difficult to fathom why SBA,
taking the effort to draft and issue proposed rule for comment,
did not simply issue the rule as an immediately effective
interim rule. By issuing a proposed rule, the harshness of
potential penalties remains for an unlimited period of time.
---------------------------------------------------------------------------
\10\ 15 U.S.C. Sec. 645(d) (2014).
\11\ National Defense Authorization Act for FY 2013, Pub. L. No.
112-239, Sec. 1681(a) (2012).
\12\ Id., at Sec. 1681(b).
---------------------------------------------------------------------------
Other Reforms
Recognizing the complexity of the federal contracting
process, Congress mandated that SBA create a compliance guide
for small businesses attempting to determine their size status.
This guide would ``assist business concerns in accurately
determining their status as a small business concern'' to
prevent inadvertent fraudulent misrepresentations.\13\ A
relatively straightforward task, Congress gave SBA 270 days to
conduct this revision;\14\ today, 562 days later, SBA has not
taken any action.
---------------------------------------------------------------------------
\13\ Id., at Sec. 1681(c).
\14\ Id.
---------------------------------------------------------------------------
Congress mandated that SBA issue clear guidance listing the
Administration's standard operating procedures for suspension
and debarment, as well as publicizing the name of the ``senior
individual responsible for suspension and debarment
proceedings.'' \15\ Congress gave SBA 270 days to take these
simple actions;\16\ today, 562 days later, SBA has not issued
any guidance. SBA, however, continues to actively suspend and
debarment companies and individuals without standard operating
procedures.
---------------------------------------------------------------------------
\15\ Id., at Sec. 1682(c).
\16\ Id.
---------------------------------------------------------------------------
Conclusion
If SBA continues to withhold these regulations, federal
contractors may have legal standing to sue the SBA over its
failure to act. The Administrative Procedure Act, which governs
agency rulemaking procedures, allows a court to compel an
agency to act if the agency has ``unlawfully withheld'' or
``unreasonably delayed'' \17\ some ``discrete agency action
[the agency] is required to take.'' \18\ Such failure to act,
the Supreme Court has made clear, includes ``the omission of an
action without formally rejecting a request--for example, the
failure to promulgate a rule or make some decision by a
statutory deadline.'' \19\ SBA has failed to promulgate the
rules that Congress mandated that it promulgate. SBA was under
a clear legal obligation to issue several sets of regulations
within 270 days; its inaction for nearly twice that amount of
time constitutes both an unlawful withholding and an
unreasonable delay. But what small business has the money to
launch such legal action?
---------------------------------------------------------------------------
\17\ Administrative Procedure Act Sec. 706(1); see also
Administrative Procedure Act Sec. 551(13) (stating that agency action,
under the APA, is defined to include ``the whole or a part of an agency
rule, order, license, sanction, relief, or the equivalent or denial
thereof, or failure to act'') (emphasis added).
\18\ See Norton v. S. Utah Wilderness Alliance, 542 U.S. 55, 64
(2004) (emphasis in original).
\19\ Id., at 63.
The Small Business Administration's mission is to ``aid,
counsel, assist and protect the interests of small business
concerns.'' \20\ SBA's failure to act is crippling the very
small businesses it is supposed to protect and assist. Congress
enacted common-sense reforms in the NDAA--reforms that (1)
clarify the complex limitations on subcontracting, (2) allow
small businesses to team to more effectively, (3) eliminate
regulatory compliance burdens, and (4) provide opportunities
for new small businesses to get into the government contracting
business. SBA's failure to act has denied these benefits to
federal contractors large and small, resulting in
inefficiencies and lost opportunities for economic growth.
---------------------------------------------------------------------------
\20\ U.S. Small Business Administration, Mission (June 10, 2014),
http://www.sba.gov/about-sba/what--we--do/
mission.
This concludes my prepared remarks. I am happy to answer
any questions you may have.
[GRAPHIC] [TIFF OMITTED]
Testimony of Charlotte Baker, CEO, Digital Hands, on behalf
of Women Impacting Public Policy to the House Small Business
Subcommittee on Contracting and Workforce
Chair Hanna, Ranking Member Meng, and distinguished Members
of the Subcommittee, thank you for the opportunity to testify
this afternoon.
My name is Charlotte Baker and I am CEO of Digital Hands. I
also serve on the Education Foundation Board of Women Impacting
Public Policy (WIPP). Based in Tampa, Florida, Digital Hands
provides IT services to large enterprise companies as well as
public entities--in essence, helping them in their ongoing war
against growing cyber-threats.
I am here today representing Women Impacting Public Policy
(WIPP). WIPP is a national nonpartisan public policy
organization advocating on behalf of its coalition of 4.7
million business women including 75 business organizations.
WIPP plays a key role in developing women-owned businesses into
successful federal government contractors through its Give Me 5
and ChallengeHER programs.
The title of the hearing sums up our testimony today.
``Action delayed: Small Business Opportunities Denied'' is the
reason the women-owned business community needs the Small
Business Administration (SBA) to implement Sec. 1651 of P.L.
112-239 as soon as possible. This provision should be a top
priority for the agency tasked with assisting our community,
because it allows small businesses to work together on federal
contracts without unnecessary subcontracting restrictions.
Moreover, women-owned companies like mine can better take
advantage of the Women-Owned Small Business Federal Contract
Program, because prime contractors will have greater
flexibility to subcontract with other women-owned contractors.
While many small business provisions of P.L. 112-239 affect
contracting, Section 1651 focuses on subcontracting
requirements. The section makes an important change--that the
50% prime contractor work requirement on set-aside contracts is
made on the basis of total contract dollars rather than based
on the current method of labor costs. This change ensures that
the majority of dollars set-aside for a small business goes to
that small business.
Within this section, however, is subsection ``(b)'', which
focuses on an exemption to this requirement for ``similarly
situated entities.'' This change, in particular, will increase
the ability of small businesses to work together on federal
contracts.
The Importance of Implementing ``Similarly Situated
Entity'' Provisions
For my company, and many other women-owned businesses, the
``Similarly Situated Entities'' provision will reduce barriers
to contracting. For purposes of definition, a ``similarly
situated entity'' is a WOSB prime contractor winning a WOSB
set-aside contract and subcontracting work to another WOSB
firm. Another example is a small business prime contractor
winning a small business set-aside and subcontracting to
another small business.
For businesses new to procurement, subcontracting is often
the first step toward entering the federal marketplace. In its
description of subcontracting, the SBA goes so far as to call
it, ``a great way to `get a foot in the door' of government
contracting.'' \1\ Statute, however, places limits on the
amount of work subcontractors can perform.
---------------------------------------------------------------------------
\1\ U.S. Small Business Administration. ``Sub-Contracting.'' http:/
/www.sba.gov/category/navigation-structure/contracting/contracting-
opportunities/sub-contracting. Accessed May 25, 2014.
The ``Similarly Situated Entities'' provision of Section
1651 would change that requirement for small businesses with
similar designations. This is a change WIPP advocated for
before this Committee. On October 6, 2011, Board Chair Jennifer
Bisceglie urged the Committee to change it and this Committee
---------------------------------------------------------------------------
shepherded this change through the Congress.
Again, current law requires that at least 50% of any
contract dollars awarded through a small business contracting
program go to that small business. This ensures that contracts
set-aside for certain groups (e.g. Small Business, WOSB/EDWOSB,
HUBZone, 8(a), SDVOSB) ultimately go to businesses of that
type--and are not rerouted to other designations or large
contractors.
Provision (b) of Section 1651 permits subcontracting of any
amount when the subcontractor is a ``similarly situated
entity.'' Once it is implemented, an EDWOSB may subcontract any
amount to another EDWOSB. This is a change we strongly support
because: 1) dollars awarded remain with companies who have the
same set-aside designation and 2) access to contract
competition for small businesses is increased. As we continue
to respond to federal opportunities, these elements are
critical.
Benefits of ``Similarly Situated Entities'' Provision in
Section 1651: Digital Hands Example
The delayed implementation of this ``similarly situated
entity'' provision has negatively impacted the WOSB community.
Digital Hands' recent experience is a clear example of why this
is so important.
Several months ago, a significant Information Technology
(IT) requirement was posted as a set-aside opportunity for
EDWOSB competition. Digital Hands and another EDWOSB planned to
work together. The other EDWOSB, the prime, was to provide
logistical support and access to a Federal Supply Schedule
(FSS), while Digital Hands was to subcontract to provide an
innovative technology solution. In this case, Digital Hands'
subcontracting work would have resulted in a much higher total
labor cost as it would have necessitated the placement of
highly trained IT security personnel to meet the agency's
requirements.
While the majority of the hourly work would be provided by
the prime through its lower cost technicians, the bulk of the
labor cost of the work would be from the sub, i.e., more highly
trained, higher paid, IT personnel. Digital Hands was
eliminated from bidding on this project because of the current
subcontracting rule. The 50% limit effectively prohibits such
an arrangement.
Under provision (b) of Section 1651, such partnerships
would be allowable--effectively securing the entire contract
for the targeted small business companies in the determined
set-aside category and increasing access to the federal
marketplace for the subcontractor. Both of these are stated
goals of the program. However, as this rule has yet to be
promulgated, EDWOSB's, like Digital Hands, are very limited in
our ability to team with other women-owned companies or for the
matter, any small companies.
My recommendation is simple: urge the SBA to implement this
provision as quickly as possible to bring these necessary
changes that impact businesses who are the economic engine in
the United States. Thanks to this Committee's leadership,
Congress passed the change; now, the SBA needs to implement it.
The longer the delay, the more that all small businesses will
continue to miss out on opportunities.
Thank you for providing a forum to present at this hearing
today and for your efforts to make the contracting environment
better for women-owned businesses. Hopefully my story will
expedite the enforcement of this rule. I am happy to answer any
questions.
About Digital Hands
Digital Hands is a certified woman-owned small business
(EDWOSB), providing IT operations support with core
capabilities in cyber security, infrastructure management and
help desk. The company provides solution architecting,
strategic sourcing, deployment, and ongoing operational
support. A key differentiator of Digital Hands is the company's
ability to develop innovative service solutions around emerging
technologies as well as having two service models; a remote
model (from secure onshore locations) and the traditional
customer on-premise service model. Digital Hands leverages the
cloud to reach global clients and provide Tier 1 through Tier 3
support services, on a 24x7x365 basis, for complex IT
environments.
Some of North America's largest airlines, telecoms,
financial services companies, and hotel chains rely on Digital
Hands' SLA-based managed IT and security services every day.
The company offers business model alignment that caps risk and
optimizes costs. In addition, Digital Hands provides reliable
and predictable IT operations support that allows organizations
to focus on core business needs.
The company has received numerous awards from the
Technology Services Industry Association, including the 2013
TSIA Star Award for ``Innovation in the Delivery of Managed
Services'' and 2011 for ``Complex Application Support'' and,
previously, ``Best Practice Awards--Customer Commitment'' and
``Service Excellence--Integrated Services.''
TESTIMONY OF
LARRY ALLEN
PRESIDENT
ALLEN FEDERAL BUSINESS PARTNERS
House Small Business Committee
July 15, 2014
Good afternoon, Mr. Chairman and Members of the Committee.
I am honored to be here this afternoon to discuss the pace of
the Small Business Administration's implementation of three key
small business provisions that became law upon the passage of
the National Defense Authorization Act (NDAA) of 2013. Thee
provisions are intended to provided clarity and protection to
small firms doing business with the US government. Delays in
establishing rules through which the implementation of the
legislation is executed harm the small businesses that Congress
wanted to protect by passing the original legislation.
I have worked in government procurement and contracting for
25 years. During that time I have worked with thousands of
small firms that sell to the US government as either a prime or
subcontractor. I have both extensive policy and business
planning experience. When President of the Coalition for
Government Procurement, I was privileged to work on legislation
such as the Federal Acquisition Streamlining Act, Clinger-Cohen
Act and legislation requiring Federal Prison Industries to
compete more evenly with small businesses. I have advocated for
a level playing field for small firms throughout my
professional career and, as a small business myself, continue
to work for a federal business climate that promotes common
sense.
The federal government relies on small business contractors
to make it possible for agencies to meet their missions. Small
businesses help ensure that programs assisting low income
households have the money they need to feed their families.
Small firms help provide for the national defense. Others
perform critical, cutting edge research that will help solve
problems in healthcare and technology that many of us do not
know yet exist.
The diverse nature of small firms doing work with federal
agencies makes it essential that the rules governing this
business are as clear and well-known as possible. Today's small
business supplier base includes firms with substantial federal
experience as well as those just entering the market.
Experienced firms need to know if the ground beneath them is
shifting, while new market entries need to ensure they have a
good map in the first place.
I am here today to discuss Sections 1681, 1682, and 1683 of
the FY'13 NDAA. Collectively, these laws will limit the
liability of companies receiving advice from federally-
supported entities on government contracting matters, provide
greater clarity about small business suspension and debarment
procedures, and provide this body with additional reporting on
that process to ensure the fair treatment of small business
government contractors.
Section 1681
Section 1681 establishes Safe Harbor protections for small
businesses that rely on advice given by either Procurement
Technical Assistance Centers (PTAC's) or Small Business
Development Centers (SBDC's). PTAC's provide local, in-person
counseling and training services for small business owners.
SBDC's provide services through professional business advisors
such as the development of business plans; manufacturing
assistance; financial packaging and lending assistance, and
other services small firms need to become successful. These two
organizations work in tandem with the US Small Business
Administration to offer assistance to small firms seeking
information on how to get established as a government
contractor. Information on both PTAC's and SBDC's can be found
on the SBA's own web site. Small businesses that take advice
from these organizations implicitly believe that it is correct
and has the support of an agency of the United States
government behind it.
Yet, without the implementation of Section 1681 small
contractors could find themselves in significant trouble if
they act based on recommendations of an SBDC or PTAC that are
inconsistent with established procurement rules. There are many
centers dispensing advice to small firms of all kinds and,
despite the best intentions of those involved, it is very
possible that either incorrect or incomplete information could
be dispensed. If, though, a company believes that it has
received correct advice from an organization to which a US
government agency directed it, and acts on it, it could be in
violation of a host of federal procurement rules. Without the
protections envisioned by Section 1681, small firms that
inadvertently fall into non-compliance could find themselves
exposed to government audits, investigations or whistleblower
actions.
The myriad federal contract oversight organizations
ensuring contract compliance are extremely active in the
current market. I spend a significant amount of time in my
business explaining government contract compliance to clients
and emphasizing its importance. The need to ensure strict
contract compliance can best be summarized by my current motto:
``When selling to the government, it's not about how much money
you make, it's about how much you keep.''
Failure to properly follow applicable laws and regulations
can have a significant negative impact on a small firm's
ability to operate. Under the Civil False Claims Act, for
example, the government is entitled to triple the amount of
monetary damages it actually incurred, in addition to an
$11,000 per invoice fine. Once a small firm that has committed
a False Claims Act violation is through with the litigation,
fines, and attorney's fees associated with a negative action,
it may find that its very viability has been compromised.
The Safe Harbor provisions of Section 1681 would protect
small firms from the worst penalties if their violations were
caused due to reliance on faulty information provided by a PTAC
or SBDC. Violators would not be off the hook for all problems,
but rather have limited liability for any portion of their
violations that came from advice supplied by a PTAC or SBDC.
Section 1681 calls for the SBA to establish a process by
which small businesses receiving information and advice from
PTAC's and SBDC's would receive a standard letter noting that
the business has some limited legal protection if advice from
the organization relied upon turns out to be incorrect. As with
any other issue surrounding government contracting, having a
written determination on government letterhead is essential if
proper protection is to be provided contractors during an audit
or investigation.
Having a standard, transparent, consistent practice for the
issuance of such letters is critical if Section 1681 is to
operate as intended. SBDC's and PTAC's are operated by a wide
array of organizations in over 1,000 locations throughout the
world. A common standard, therefore, is essential to ensure
that all businesses operate on an equal platform and have the
protections intended no matter where a firm is doing business.
One particularly important matter where accurate guidance
is needed is on the matter of whether a particular business can
actually be considered ``small''. As the Committee is aware,
the regulations governing business size are complex and vary
widely. While intended to be an objective standard, the nature
of business and commercial market evolution injects a
considerable degree of subjective judgment into the proper
identification of some companies. Section 1681 recognizes this
reality by requiring that the SBA issue a Compliance Guide to
assist in ensuring that companies are properly classified. This
Guide could be a valuable tool to reduce the chances that a
firm would be improperly classified.
As the Committee is certainly aware, being mis-categorized
as a small firm can lead to significant negative consequences
for a business. Just some of the penalties that can be levied
include contract cancellation, post-award contract audits,
negative performance evaluations and, of course, suspensions
and debarments. Companies that could have been protected from
these penalties by the issuance of the Guide called for in
Section 1681 are still in as much risk as they were before the
law was passed.
Despite the obvious benefits to small firms of having the
protections provided for in Section 1681, the SBA has yet to
promulgate a rule implementing it. Congress is now far down the
road on completing the NDAA for FY'15, meaning that nearly two
years have lapsed since the implementation of the FY'13
measure. Small businesses continue to be exposed to potential
litigation and other negative actions today due the agency's
inability to move forward. Put another way, the SBA's inability
to act is costing small firms money and placing them in
unnecessary risk.
Section 1682
As noted above, among the penalties at the government's
disposal to discipline inappropriate contractor behavior are
suspension and debarment. These penalties are, quite rightly,
referred to as the ``death penalty'' by some in the federal
contracting world. A federal suspension or debarment brings all
of a company's public sector work to a halt at the federal,
state, and local government levels and as either a prime or
sub-contractor.
Suspensions and debarments are currently increasing. Just
last month, the Government Accountability Office issued a
report showing that such actions have more than doubled
government-wide since 2009. Ironically, the same report
identified improvements made in six government agencies to
bring consistency and transparency to the suspension and
debarment process, something the SBA is specifically supposed
to do per Section 1682. The GAO noted the positive progress in
the agencies it tracked, making a lack of progress at the SBA
more notable.
Section 1682 calls on the SBA to issue new suspension and
debarment regulations within 270 days of enactment of the
original bill. Similarly, new Standard Operation Procedures
(SOP's) were to be developed in the same timeframe. Among the
latter was a requirement that the name of a specific Suspension
and Debarment Officer (SDO) be identified.
We are now significantly beyond the 270 day limit. Without
newly issued rules, two things are happening in the small
business world. First, companies wrongly identifying themselves
as small, but working under a contract as a small business,
have an easier time fighting suspension or debarment
proceedings. This is in part the case because the provisions in
Section 1682 allowing contracting officers to take such an
action regardless of whether the firm is providing satisfactory
work have yet to be implemented.
Secondly, truly small firms are suffering from the lack of
a consistent, transparent suspension or debarment process from
the agency charged with protecting and promoting their federal
market participation.
Neither of these outcomes can be called acceptable. The
consequences of a suspension or debarment action can be truly
business-ending. This is why such proceedings have
traditionally been above the political fray and carried out in
a clear cut manner. There simply must be an updated, standard
set of procedures that the SBA will follow when its officials
literally hold the life or death of a firm in their grasp.
Other agencies have taken necessary steps to improve their
processes, even in the absence of specific legislative guidance
to do so. These recent actions have created a set of real-time
best practices that the SBA could draw upon to establish their
own rules. Congress passed Section 1682 with the intent to
protect small businesses, whether it be from competition from
firms that are not actually small or from patchwork suspension
and debarment practices that can lack transparency and insert
subjectivisim into the suspension or debarment process.
As a result of the SBA's inaction, small businesses may
actually be treated more fairly at other agencies.
Section 1683
This section requires that the SBA issue an annual report
to Congress on suspension and debarment activities. The SBA
oversees many types of small firms doing business with the
government, including companies with special socio-economic
designations. There are special precautions that must be taken
when moving against such firms and Congress is right in wanting
to review agency actions in this area to ensure that all firms
are treated fairly.
As with Section 1682, while the initial intent may have
been to suspend or debar companies improperly calling
themselves ``small'', this section also has the ability to
protect actual small firms from inconsistent processes.
Including specifics such as the number of companies proposed
for suspension, the number actually suspended, and the reasons
for such actions, as Section 1683 does, gives Congress a fuller
understanding of what is happening in this important area.
Other provisions in this section will provide information on
how the SBA is working with its Office of the Inspector General
and the Department of Justice, to ensure positive procurement
outcomes. If these reports work as intended the information in
them may actually result in fewer companies being penalized if
they can use the information to better understand what it is
that gets firms in trouble in the first place.
In addition, properly used, the information in the report
can be used to help Congress make future decisions on
safeguards, preferences, goals or other public policy measures
that impact the manner in which small businesses sell to
government agencies. Should, for instance, small firms be
subject to the same monetary penalties as a much larger
business? The answer to that and other questions may come from
the information provided in an annual report. If the report
shows that today's monetary fines are overly punitive on small
firms, thus driving some out of the market or keeping others
from coming in, Congress could change the rules for small firms
if it believed that doing so would be in the government's best
interest.
Conclusion
Our firm recommends that Congress continue to provide
oversight on the SBA's lack of progress in implementing these
three key elements of the 2013 NDAA and take steps to hold
senior agency officials accountable for this inaction. Small
firms are not getting the benefit of the protections originally
envisioned. Businesses that are not truly small are still
competing with legitimate businesses for small business work.
Due to these, and other lapses at the SBA, small businesses are
not receiving the support Congress envisioned. As a result,
those small firms that are conducting business must often face
an uphill battle, while others simply stay out of the market
due to their inability to crack the code. This, ultimately, is
not in the government's best interest as it deprives it of
unique and cutting edge solutions.
Thank you for your time and attention. I look forward to
your questions.
Testimony of
Damien Specht
Special Counsel
Jenner & Block, LLP
Co-Chair, Government Contracts Corporate Transactions Practice
Group
BEFORE THE UNITED STATES HOUSE OF REPRESENTATIVES
COMMITTEE ON SMALL BUSINESS
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
Regarding ``Action Delayed, Small Business Opportunities
Denied: Implementation of Contracting Reforms in the FY 2013
NDAA''
July 15, 2014
Chairman Hanna, Ranking Member Meng and Members of the
Subcommittee, thank you for the invitation to appear today. it
is a privilege to share my views on the issues facing small
business government contractors with all of you. Before I
begin, let me state that my comments are my own and I am not
speaking on behalf of my law firm or any specific client.
My name is Damien Specht, and I am a government contracts
attorney with the law firm of Jenner & Block here in
Washington, D.C. My practice focuses on corporate transactions
and compliance counseling for large and small government
contractors. Because of my broad-based practice, I have the
opportunity to work with businesses ranging from 8(a) program
participants, whose company is just beginning to take off, to
large prime contractors that have tends of thousands of
employees. As I am sure you all are aware, all of these
businesses are keenly interested in the small business policies
pursued by this body and the Small Business Administration.
When the 2013 National Defense Authorization Act was
enacted a year and a half ago, the small business community
immediately took notice. The initial reaction from my clients,
and the opinion I share, is that the legislation is a ``mixed
bag'' for small government contractors, but that much will
depend on how the legislation is implemented by the SBA.
In my limited time, I would like to address three reforms
presented, but not yet fully implemented, from the 2013 NDAA.
SBA's Mentor-Protege Programs
From my perspective, the most important change in the 2013
NDAA relates to SBA's mentor-protege program.
One of the major benefits of SBA's mentor-protege program
is that it closes the gap between customer needs and small
business capabilities. Many of the small contractors I work
with report difficulty convincing large prime contractors or
government customers that they can successfully perform
technically challenging or large-scale work. Even when they are
successful in capturing a large award, small firms face
challenges in quickly creating the contract administration,
supply chain and compliance infrastructure required to comply
with government contracts regulations.
Those facts likely sound familiar to the members of this
subcommittee. There is, however, another aspect to this
problem. With the increasing pressure to meet small business
subcontracting goals and achieve strong past performance
reviews, large business contractors are constantly pursuing
reliable small business subcontractors. These large contractors
report difficulty finding the advanced capabilities and track
record of success they need in a key small business
subcontractor. After all, it is not enough merely to put a
small business subcontractor on your team: Successful contract
performance by that subcontractor is vital.
That is where SBA's mentor-protege program is invaluable.
Partnering mentors with 8(a) small businesses gives the small
business the chance to leverage the mentor's experience and
understand what infrastructure is needed to reach the next
level. Mentors benefit by gaining a trusted small business
partner that, in time, can be used for more sophisticated work.
The ability of the mentor and protege to pursue contracts
together as a joint venture is a necessary ingredient to
cementing the benefits for both parties.
Currently, these benefits are limited to a very narrow
group of small businesses. For a small business to qualify as a
protege under the SBA mentor-protege program, it must be an
8(a) concern that (1) is in the developmental stage of program
participation; or (2) has never received an 8(a) contract; or
(3) has a size that is less than half the size standard
corresponding to its primary NAICS code.
Because I believe that the SBA mentor-protege program has
been a success, I was pleased to see language the Small
Business Jobs Act of 2010 expanding the program to the Service
Disabled Veteran-Owned, HUBZone, and Women-Owned Small Federal
Contract Business Programs and, in Section 1641 of the 2013
NDAA, authorizing expansion to include all small business
concerns. Although SBA has stated that it will make it a
priority to issue regulations establishing the three newly
authorized mentor-protege programs set out in the 2010 Small
Business Jobs Act, I am not aware of any public statement from
SBA that it will exercise the 2013 NDAA's authority to further
expand the program. This has led significant uncertainty in the
contracting community as to whether the expansion will ever
happen.
SBA's delay may be the result of a number of difficult
issues it must address. For example, does SBA have the
resources it needs to administer a significantly larger
program? More specifically, will application processing times
increase or oversight be weakened by expansion? Because
contractors face hard deadlines for proposal submission, an
extended wait for application processing would hamstring
potential mentor-protege joint venturers and undermine the
program. Weakened oversight raises its own concerns and may
limit the benefit of the program to small businesses.
In addition, the NDAA states that the expanded program
``shall be identical to the mentor-protege program'' for 8(a)
concerns. But, as discussed earlier, the current mentor-protege
program is limited to a small subset of 8(a) concerns that is
in the earliest stages of the program, has not been awarded an
8(a) contract or is half the size of its applicable size
standard. Obviously, these criteria cannot be applied to other
small businesses that are not 8(a) firms. As a result, SBA
faces a choice: Should it allow for small businesses to
participate in the expanded program, which would be
inconsistent with the current program's focus on only the
smallest firms, or should it limit the expanded program to
early-stage small businesses as measured by some other
yardstick? My own view is that the program was designed for
early-stage businesses, so limiting proteges to firms that fall
below half of their relevant size standard would be a good way
to expand responsibly while focusing on businesses that will
benefit the most. If that effort is successful, SBA can revisit
further expansion in future years.
Another issue is the fact that the current program is time-
limited because 8(a) firms are ineligible for mentor-protege
joint venture. Under the 8(a) program, a large business mentor
can perform 60 percent of the set-aside work awarded to a joint
venture, but this conflicts with the FAR's subcontracting rules
requiring the small business to perform the majority of the
work. Whether it does it as part of this rulemaking or another,
this inconsistency should be addressed by SBA.
In short, SBA will have a very challenging task
implementing these changes. These are not questions with easy
answers, and the position that the agency takes will be
critical to the future health of what is now an excellent
program.
Other Mentor-Protege Programs
As effective as I believe the SBA Mentor-Protege program
is, I do not think there is sufficient information available to
judge the efficacy of other agency mentor-protege programs. As
you are aware, a number of agencies have created their mentor-
protege programs that offer to compensate large contractors for
assisting small businesses and have other benefits, such as
allowing mentors to apply assistance given to a protege against
small business subcontracting performance.
In my experience, few clients are aware of agency mentor-
protege programs. Some that are aware of these programs confuse
them with the SBA's far more robust program. This can be a
fatal error because only the SBA's mentor-protege program
offers an affiliation exemption for a large mentor and small
protege bidding together as a joint venture. As a result, a
situation could arise where a protege in ineligible for set
aside award because it incorrectly believes that another
agency's mentor-protege program provides a joint venture
affiliation exception.
Because of this confusion, I welcome the 2013 NDAA's effort
to increase uniformity among these programs and assess how they
relate to the SBA's mentor-protege program. In SBA's
implementation of this legislation must address a number of
policy issues:
The SBA currently imposes a limit on the
number of proteges a large business can have and the
number of mentors a small business can have. Will these
limits apply across all mentor protege programs or will
the limits be applied for participants in each program?
Given the difficulties of tracking all mentor and
protege relationships, I would suggest that any limit
be imposed on an agency by agency basis. After all,
ensuring every willing protege has a mentor for
different aspects of its business can only be
beneficial.
The SBA also limits the number of contracts
that the mentor and protege can pursue as a joint
venture. If the same mentor and protege participate in
multiple programs, should that limit apply to all of
their awards? If mentor-protege joint ventures will be
allowed in other agency programs, imposing such a limit
does not make sense. A higher, cross-program limit
could be considered or the three-contract limit could
be imposed on a per agency basis.
Should the joint venture affiliation
exception for the SBA mentor protege program apply to
other agency programs? If so, what is the scope of the
exception? In my experience, this exception is one of
the most attractive parts of the program. Expanding the
exception will limit confusion and encourage
participation in all agency programs, but that should
be coupled with aggressive oversight to ensure that the
program does not become vulnerable to abuse that will,
in the long term, undermine its credibility.
Similarly, SBA must decide whether other
mentor-protege program benefits should be available
across all agencies. For example, some agency program
offer small business subcontracting credit for costs
spent assisting the protege. This encourages the mentor
to follow through on its commitments, so I would argue
that such efforts should be adopted across the
government and added to SBA's program. However, the
more uniform the program benefits, the more questions
are raised as to why we have separate agency programs
at all.
As discussed above, SBA must also decide who
can be a protege in these programs. Many agency mentor-
protege programs are available to all small businesses
while SBA's program is currently limited to 8(a)
concerns. This is part of the larger debate I discussed
earlier, but I would suggest that having different
eligibility criteria for each agency's program is
confusing and unnecessary.
As these issues highlight, we are at a key moment in the
future of the mentor-protege program at SBA and across the
government. The goal of this effort should be expanding access
and increasing clarity with regard to the benefits of entering
into a mentor-protege relationship. In doing so, however, we
cannot forget that administration and oversight of these
programs will require resources for each agency with a program.
Limited Safe Harbor
As I noted earlier, not all the provisions of the 2013 NDAA
are helpful for small businesses. One of the areas where the
NDAA falls short is with regard to the safe harbor for size
misrepresentation. Although Section 1681 of the NDAA required
the creation of a safe harbor for good-faith reliance on a
written size opinion from SBA, SBA has only recently issued a
proposed rule on this topic. More frustrating than the delayed
rulemaking, however, is the extremely limited scope of the safe
harbor.
As you know, the Small Business Jobs Act of 2010 increased
the penalties for concerns that misrepresent their size or
status to receive the award of a federal contract to the total
amount expended by the government under the contract,
subcontract, grant or cooperative agreement.
Although the penalty is harsh, it seems easy enough to
comply with this rule: Don't misrepresent your size. However,
having litigated size protests in front of SBA's Office of
Hearings and Appeals, I can tell you that size cases are very
fact specific and SBA's affiliation rules allow for different
good-faith interpretations.
For example, the Office of Hearings and Appeal has held
that a concern was other than small because it was 18 percent-
owned by a large business, which was more than the next largest
shareholder at 8 percent.\1\ That case is published, so small
businesses are, at least in theory, on notice that this
specific fact pattern is not acceptable. But what if we change
the facts so that the large business is a 15 percent
shareholder? Or what if the next largest shareholder holds 11
percent? How is a small business to predict how the Office of
Hearings and Appeals would decide that case? It is appropriate
to impose a penalty of the entire contract value--potentially
trebled--if the small business guesses wrong?
---------------------------------------------------------------------------
\1\ Size Appeal of Novalar Pharms., Inc., SBA No. SIZ-4977, at 17-
19 (2008).
Without an effective regulatory safe harbor to control for
situations like this, we are asking small businesses to bet
their company on the accuracy of each and every size
representation they make. As a practical matter, that risk is
prejudicial to the very constituency this subcommittee and the
SBA seek to help. The tremendous risk associated with an
incorrect representation is also a barrier to entry for small
firms in the government contracts marketplace. Why would small
business owners pursue federal business when they could lose
their business based on a regulatory nuance? For those small
government contractors who are successful, an ineffective safe
harbor limits the value of their companies, as possible
investors will have to factor in the potential for business-
---------------------------------------------------------------------------
crushing losses.
The 2013 NDAA added a safe harbor for small businesses that
misrepresent their size in ``good faith reliance on a written
alert opinion from a Small Business Development Center ... or
an entity participating in the Procurement Technical Assistance
Cooperative Agreement Program...'' Unfortunately, SBA's recent
proposed rulemaking raises real doubt as to whether this safe
harbor will provide any real benefit to the small business
community.
The most fundamental concern I have about this safe harbor
is that it may never actually be implemented. Although the NDAA
lists the entities that can issue advisory opinions, it goes on
to say that ``nothing in this Act shall obligate either entity
to provide such a letter ....'' In its rulemaking, SBA
emphasizes this point by giving each individual Small Business
Development Center (SBDC) or Procurement Technical Assistance
Center (PTAC) the individual choice whether to offer advisory
opinions. Moreover, the rule confirms that no additional
funding will be provided to offices that offer advisory
opinions. Given the additional work involved, it is not clear
what incentive individual SBDCs or PTACs will have to issue
opinions, thus rendering the safe harbor moot. Even if some
offices choose to issue these opinions, it is not at all clear
what this patchwork of advisory opinion resources will mean for
small businesses that are outside the regions generally served
by a particular office.
Further, even if an SBDC or PTAC chooses to issue advisory
opinions, neither SBA's proposed rule nor the 2013 NDAA
includes a time limit for issuing those opinions. In my
experience, size determinations often take months. If advisory
opinions are handled in a similar manner, small businesses that
want to rely on this safe harbor may be forced to endure an
open-ended delay in submission of proposals and may miss out on
procurement opportunities.
In addition, although SBA's rule provides for a 10-day
review of advisory opinions by its Office of General Counsel
(OGC), the proposed rule does not allow a contractor to appeal
an adverse SBDC, PTAC or OGC decision. Given that size
determinations are regularly overturned by SBA's Office of
Hearings and Appeals, small businesses plainly need an
appellate forum. The rule's failure to provide an appeal
mechanism puts substantial risk on the small business community
for possible errors at the SBDC or PTAC level, which a 10-day
review by the OGC is unlikely to resolve.
In sum, it is essential that small government contractors--
and small businesses considering entering the federal space--
have the certainty of a safe harbor from the presumed loss
rule. Without significant revision, however, the currently
proposed safe harbor is unlikely to meet that need.
Conclusion
In conclusion, I would like to emphasize that large and
small government contractors need regulatory certainty to plan
for the coming years. Whether they consider the 2013 NDAA to be
a positive, negative or a mixed bag, the government contracts
community is looking forward to working with this subcommittee
and the SBA to implement these provisions as quickly and
effectively as possible.
Thank you for your time and I look forward to your
questions.
[GRAPHIC] [TIFF OMITTED]
Chairman Hanna, Ranking Member Meng, and members of the
Subcommittee, I am honored to be here today to present SBA's
ongoing efforts to expand access to federal contracting
opportunities for America's 28 million small businesses.
SBA's Office of Government Contracting & Business
Development oversees the federal government's performance
against the statutorily-mandated small business prime
contracting goal of 23 percent. This includes ensuring that
agencies meet the socio-economic goals of 5 percent for
socially disadvantaged small businesses (SDBs) and woman-owned
small businesses (WOSBs), and 3 percent for small businesses
located in historically under-utilized business zones
(HUBZones) and service-disabled veteran-owned small businesses
(SDVOSBs). For federal agencies to meet these goals, they need
to have the right tools in place. The National Defense
Authorization Act (NDAA) for fiscal year (FY) 2013 contained
provisions to provide acquisition personnel resources to help
small businesses receive approximately $80 billion in contracts
annually.
SBA has made significant strides implementing many of the
provisions included in NDAA 2013. We revised our regulations to
eliminate the caps on the dollar threshold of contracts that
could be awarded under the WOSB Federal Contract Program. The
cap removal will help close the gap between WOSB accomplishment
and the 5 percent goal. SBA understood the importance of
eliminating this barrier, and acted quickly to issue an interim
final rule to implement the change, which was incorporated into
the Federal Acquisition Regulations last June.
We continue to review, and update as necessary, all size
standards. SBA has completed its review of all revenue based
size standards, and issued an inflation adjustment last month.
As a result, thousands of more small businesses will be able to
qualify for Federal contracting opportunities. As we continue
our reviews of size standards, we have integrated the relevant
changes from NDAA 2013 into our process.
Additionally, SBA raised surety bond guarantee limits from
$2 million to $6.5 million, and allows for bonds up to $10
million if the contracting officer certifies it is necessary
for award of the contract. This provides small construction
companies with the ability to bid on and obtain larger
construction contracts.
We are also aware of the importance of senior-level
accountability to small business contracting goals. We have
worked with procuring agencies to ensure that senior executives
receive training on small business contracting and that meeting
small business contracting goals are part of their performance
evaluations. SBA's Procurement Center Representatives have also
incorporated new small business contracting provisions into the
trainings they regularly provide to contracting officers. We
continually leverage our work with the Small Business
Procurement Advisory Council to share best practices and review
the performance of the Offices of Small and Disadvantaged
Businesses at the agencies.
At the beginning of June, SBA submitted a draft rule to the
Office of Management and Budget's (OMB) Office of Information
and Regulatory Affairs, authorized by NDAA 2013, which will
allow small business prime contractors to utilize similarly
situated small business subcontractors to perform the required
percentage of work on the contract. This will allow small
businesses to work together to win contracts that are larger
and have more complex requirements and that have not
historically been suited for small business participation.
In the near future, SBA will publish a rule to implement a
new Government-wide mentor-protege program. The mentor-protege
program will be for all small business concerns, including
socio-economic subcategories of small businesses, consistent
with SBA's mentor-protege program for participants in SBA's
8(a) Business Development Program.
Last month, we published a proposed rule on advisory size
decisions, which establishes the criteria that small business
status advisory opinions must meet in order to be deemed
adequate and specifies the review process for such opinions.
This rule further amends SBA's regulations to update the
circumstances under which the Agency may initiate a formal size
determination.
SBA continues to review the small business contracting
goaling guidelines and has now included leasing, to the extent
reported, which was a category of spend previously excluded,
into the small business goals. SBA is reviewing the SBA's
Office of Advocacy recently published recommendations for
improving the goaling process, and are working with OMB's
Office of Federal Procurement Policy, General Services
Administration, and other agencies to determine any future
improvement to this process.
At SBA, and across the Administration, we are committed to
ensuring that more small businesses have access to contracting
opportunities to grow their businesses and create jobs in our
communities. As Administrator Contreras-Sweet highlighted in
her priorities speech last month, ``The SBA will be a `market
maker' for small companies by opening new business channels
within the federal government.''
Thank you for your continued leadership and support, and I
look forward to your questions.