[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




 
THE IMPACT OF CATEGORY MANAGEMENT ON THE SMALL BUSINESS INDUSTRIAL BASE

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JUNE 13, 2018

                               __________

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]            



                               

            Small Business Committee Document Number 115-076
             Available via the GPO Website: www.govinfo.gov
             
             
             
             
             
                           _________ 

                U.S. GOVERNMENT PUBLISHING OFFICE
                   
 30-318                 WASHINGTON : 2019                 
             
             
             
             
                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        TRENT KELLY, Mississippi
                             ROD BLUM, Iowa
                         JAMES COMER, Kentucky
                 JENNIFFER GONZALEZ-COLON, Puerto Rico
                    BRIAN FITZPATRICK, Pennsylvania
                         ROGER MARSHALL, Kansas
                      RALPH NORMAN, South Carolina
                           JOHN CURTIS, Utah
               NYDIA VELAZQUEZ, New York, Ranking Member
                       DWIGHT EVANS, Pennsylvania
                       STEPHANIE MURPHY, Florida
                        AL LAWSON, JR., Florida
                         YVETTE CLARK, New York
                          JUDY CHU, California
                       ALMA ADAMS, North Carolina
                      ADRIANO ESPAILLAT, New York
                        BRAD SCHNEIDER, Illinois
                                 VACANT

               Kevin Fitzpatrick, Majority Staff Director
      Jan Oliver, Majority Deputy Staff Director and Chief Counsel
                     Adam Minehardt, Staff Director
                     
                     
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Chabot................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Ms. Shirley Bailey, CEO and Managing Member, MSC Management 
  Services, LLC, Oakland, MD, testifying on behalf of the HUBZone 
  Contractors National Council...................................     4
Mr. Alan Chvotkin, Executive Vice President & Counsel, 
  Professional Services Council, Arlington, VA...................     6
Ms. Beth Laurie Strum, Vice President of Business Development, IT 
  WORKS, Washington, DC, testifying on behalf of the U.S. Women's 
  Chamber of Commerce............................................     7
Ms. ML Mackey, CEO, Beacon Interactive Systems, Waltham, MA, 
  testifying on behalf of the National Defense Industrial 
  Association....................................................     9

                                APPENDIX

Prepared Statements:
    Ms. Shirley Bailey, CEO and Managing Member, MSC Management 
      Services, LLC, Oakland, MD, testifying on behalf of the 
      HUBZone Contractors National Council.......................    26
    Mr. Alan Chvotkin, Executive Vice President & Counsel, 
      Professional Services Council, Arlington, VA...............    36
    Ms. Beth Laurie Strum, Vice President of Business 
      Development, IT WORKS, Washington, DC, testifying on behalf 
      of the U.S. Women's Chamber of Commerce....................    44
    Ms. ML Mackey, CEO, Beacon Interactive Systems, Waltham, MA, 
      testifying on behalf of the National Defense Industrial 
      Association................................................    49
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


THE IMPACT OF CATEGORY MANAGEMENT ON THE SMALL BUSINESS INDUSTRIAL BASE

                              ----------                              


                        WEDNESDAY, JUNE 13, 2018

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 11:02 a.m., in Room 
2360, Rayburn House Office Building, Hon. Steve Chabot 
[chairman of the Committee] presiding.
    Present: Representatives Chabot, Luetkemeyer, Knight, Blum, 
Comer, Fitzpatrick, Marshall, Velazquez, Evans, Lawson, Adams, 
Espaillat, and Schneider.
    Chairman CHABOT. Good morning. The hearing will come to 
order. I want to thank our witnesses for being here.
    We are here today to continue this Committee's longstanding 
oversight of Federal procurement initiatives impacting small 
businesses. This Committee has long advocated for policies that 
ensure a strong industrial base. As we all know, small 
businesses play a critical role in increasing competition, 
innovation, and stimulating our economy.
    However, the industrial base has shrunk by as much as 27 
percent over the last decade, even as total dollar amounts 
awarded to small businesses remain level. Past Federal spending 
initiatives applying contract consolidation principles have 
contributed to this decline. The current Federal spending 
management framework, also known as category management, 
proposed by the Office of Management and Budget, raises some of 
these concerns of the past.
    While category management can be useful in tracking the 
Federal Government's purchasing habits in order to identify 
efficiencies and keep contracting costs down, the proposed plan 
may be problematic. There is great concern among the small 
business community that recent efforts steering spending 
towards best-in-class contracting vehicles will restrict 
competition and significantly reduce opportunities for the 
majority of small businesses. Current category management 
efforts seem to benefit the few, to the detriment of many.
    In the struggle to simplify and manage Federal spending, 
the Federal Government should not lose sight of its 
responsibility to maximize opportunities for small businesses, 
nor should it disregard the impact that this may have on the 
industrial base. Merely paying lip service to the small 
business community is not enough; the Federal Government should 
take proactive steps to ensure the majority of small businesses 
can thrive in this new environment.
    I would like to thank our witnesses for being here this 
morning and for their expert testimony that we will hear 
shortly. And I would now like to yield to the Ranking Member, 
Ms. Velazquez, for her opening statement.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman, for holding this 
important hearing.
    Our committee has long acknowledged small businesses' 
critical role in the $500-billion-a-year federal marketplace. 
When small firms are awarded federal contracts, the result is a 
win-win. The government and the taxpayer receive good value for 
their money, as small companies have the dexterity to provide 
high-quality supplies and services at competitive prices.
    It, therefore, comes as no surprise to those in this room 
that small businesses are at the heart of the government's 
supply chain. Recent data demonstrate that the average contract 
size is increasing, meaning more revenue for small companies if 
they get those contracts. However, this trend also suggests 
that more contracts are being consolidated, resulting in fewer 
opportunities for small businesses. I am particularly 
interested in hearing witnesses' perspective on this 
phenomenon.
    More broadly, numerous policies and protections have been 
implemented to ensure small firms' continued participation in 
government contracting. Many of these initiatives have evolved 
over the years to reflect the changing needs of small firms. 
One such evolution is the adoption of strategic sourcing and 
category management.
    Category management is a broad concept used to optimize 
acquisition vehicles, processes, and knowledge available to 
best address agencies' needs and generate savings. There are 
concerns that, despite any benefits, this model could result in 
greater consolidation and bundling of contracts and a reduction 
in the usage of the federal schedule system.
    While category management is billed as the strategy to get 
agencies the lowest price, our committee has heard the contrary 
at previous hearings. Vendors on the multiple award schedule 
continually provided lower prices than those offered by 
category management contract holders. Yet, agencies and 
contracting officers cannot take advantage of lower prices, 
because some category management vehicles have become mandatory 
by their agency.
    The current course of this administration is increasing the 
number of agencies heading in this direction. There is added 
concern that the best-in-class criteria poses a threat to 
emerging businesses that do not have the past performance to 
enter a vehicle and might be effectively locked out of the 
marketplace.
    All of this is not to say that category management is 
without merit. We certainly do not want agencies using less 
efficient, more expensive procurement processes. However, if 
small firms with a history of offering quality services are 
being locked out, we must consider if this initiative is 
achieving the intended result.
    During today's hearing, I look forward to learning about 
challenges facing small contractors and potential solutions. 
Doing so is not only essential for small firms and our nation's 
industrial base, but the overall economy.
    I want to thank the witnesses for being here today. I yield 
the balance of my time. And, Mr. Chairman, I would like to say 
hello to Anastasia MacEwen, a New York University student who 
was my district intern currently in the audience. Welcome.
    [Applause.]
    Ms. VELAZQUEZ. Thank you. I yield back.
    Chairman CHABOT. Thank you. The gentlelady yields back.
    And if Committee members have an opening statement 
prepared, I ask that they be submitted for the record.
    And I will take just a moment to explain our rules here, 
timing particularly. We operate under the 5-minute rule. Each 
of you will have an opportunity to talk for 5 minutes, and 
there will be a light on there. For 4 of those minutes, it is 
green; it will go to yellow when you have 1 minute to wrap up; 
then the red light will come on. And we ask that you try to 
stay within those constraints if at all possible, and we 
operate the same way. There will be 5-minute questions, and we 
will stay within those parameters also.
    And I would now like to introduce our distinguished panel 
here today. Ms. Shirley Bailey is testifying in her capacity as 
board chair of the HUBZone Contractors National Council. Ms. 
Bailey appeared before this Committee last year, discussing 
legislative reforms of the HUBZone Program undertaken by this 
Committee, and we welcome you back today.
    Our second witness will be Alan Chvotkin. Am I pronouncing 
that correctly? Thank you. He is also a familiar face at the 
Committee, and is testifying today in his role as the Vice 
President and Counsel of the Professional Services Council, 
where he is responsible for legislative and regulatory policy. 
Mr. Chvotkin brings extensive experience on a multitude of 
small business contracting issues, and we appreciate your 
expertise and thank you for your testimony to begin shortly.
    Our third witness is Ms. Beth Laurie Strum. Ms. Strum has 
over 20 years of experience advising and supporting contractors 
and government agencies on policy development and project 
management. She currently serves as the Vice President of the 
Business Development for Volanno.
    Ms. STRUM. Volanno.
    Chairman CHABOT. Volanno. Sorry about that. Volanno, 
formerly known as IT WORKS, a women-owned small business 
located in Washington, D.C. Volanno has successfully delivered 
innovative solutions to the transportation industry over the 
past 15 years, and we welcome you here, also.
    And I would now yield to the Ranking Member for the purpose 
of introducing our fourth and final witness.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    It is my pleasure to introduce Ms. ML Mackey, CEO of Beacon 
Interactive Systems, a company she cofounded in 1994. Prior to 
starting her company, she worked as an engineer at Digital 
Equipment Corporation, where she was on both hardware and 
software teams. Ms. Mackey is the past chair of the NDIA 
National Small Business Conference. She is a powerful advocate 
for women in business and a winner of the Women Entrepreneurs 
in Science and Technology Leadership award. Ms. Mackey holds a 
BS in electrical engineering from Lehigh University. Welcome, 
and thank you for being here today.
    Chairman CHABOT. Thank you, Ms. Mackey.
    And, Ms. Bailey, you are recognized for 5 minutes.

   STATEMENT OF SHIRLEY BAILEY, CEO AND MANAGING MEMBER, MSC 
 MANAGEMENT SERVICES, LLC, TESTIFYING ON BEHALF OF THE HUBZONE 
  CONTRACTORS NATIONAL COUNCIL; ALAN CHVOTKIN, EXECUTIVE VICE 
PRESIDENT & COUNSEL, PROFESSIONAL SERVICES Council; BETH LAURIE 
   STRUM, VICE PRESIDENT OF BUSINESS DEVELOPMENT, IT WORKS, 
 TESTIFYING ON BEHALF OF THE U.S. WOMEN'S CHAMBER OF COMMERCE; 
 AND ML MACKEY, CEO, BEACON INTERACTIVE SYSTEMS, TESTIFYING ON 
     BEHALF OF THE NATIONAL DEFENSE INDUSTRIAL ASSOCIATION

                  STATEMENT OF SHIRLEY BAILEY

    Ms. BAILEY. Thank you. Chairman Chabot, Ranking Member 
Velazquez, and members of the Committee, my name is Shirley 
Bailey and I appreciate the opportunity to be here today to 
provide testimony on behalf of the HUBZone Contractors National 
Council. I am also CEO and managing member of MSC Management 
Services, LLC, a women-owned HUBZone small business located in 
Garrett County, Maryland.
    Today's topic, ``The Effect of Category Management on Small 
Businesses,'' is a policy that greatly concerns the Council. 
The cause for concern is pretty simple: small business access 
to contracts. But understanding category management has been 
difficult because there are so many moving parts and confusing 
terms.
    Category management is another iteration of the 
government's desire to consolidate purchases to achieve cost 
savings. Since 1997, Congress and small business advocates have 
raised concerns about the effect procurement initiatives have 
on small businesses. In 2005, the OMB directed agencies to use 
strategic sourcing and establish the Federal Strategic Sourcing 
Initiative Program to manage governmentwide efforts. Strategic 
sourcing has now morphed into category management. So here we 
are today, raising the same objections that these practices 
shut out small businesses.
    Category management breaks Federal buying into 10 
categories, assigning different agencies the lead. The 
government has put contracting vehicles in four categories: 
Tier Zero, which are direct contracts with companies or termed 
local by the OMB; Tier One, agency-wide contracts; Tier Two, 
governmentwide contracts; Tier Three, best-in-class contracts.
    The President's management agenda set two goals for Federal 
agencies in fiscal year 2018. The first, a 20-percent 
requirement for agencies to move contracts in Tier Zero to 
agency-wide or governmentwide contracts. The second goal is to 
move 35 percent of existing contracts in Tier Two and Three to 
best in class.
    Currently, there are 36 BIC contract vehicles identified on 
the GSA acquisition gateway. These vehicles totaled 
approximately $27 billion in spend in fiscal year 2017. Not to 
be forgotten is the President's management agenda's goal of 
meeting small business goals. According to the PMA, achievement 
of category management goals is not an excuse for missing an 
agency's small business goal. Every agency is expected to work 
with solution providers and small business offices at the 
agency to meet or exceed the baseline.
    We are gratified that the small business goals apply to the 
agencies and category management. That being said, the HUBZone 
Council believes that relying on agency-wide or governmentwide 
contracts erects barriers to small businesses. We want to raise 
the following concerns: One, as the government moves away from 
direct contract with businesses, the Tier Zero opportunities 
decrease for smaller businesses. The vehicles used in category 
management require substantial resources to bid and to win task 
orders. These contract vehicles do not lend themselves to small 
businesses trying to enter the market. So our concern is pretty 
obvious: A strong industrial base requires a continuous 
pipeline of emerging companies with innovative solutions.
    Two, most big dollars go to a small share of companies, 
meaning the same ones continue on managed contracts. In fiscal 
year 2017, just 4.3 percent of BIC contract holders received 80 
percent of all BIC dollars. Also, in fiscal year 2017, 63.5 
percent of the fiscal year 2013 incumbents received 91 percent 
of BIC spending. This is counter to other government 
procurement objectives that seek to diversify the small 
business base that performs in the Federal marketplace.
    Three, we are concerned that category management 
consolidates contracts into larger and longer term contracts 
and task orders with limited, if any, on-ramping provisions. If 
the government is going to issue larger and longer-term 
contracts and task orders, small business size standards and 
certification processes must reflect this new reality, and the 
contracts should provide on-ramping to ensure adequate 
competition and representation of all socioeconomic 
classifications within contract vehicles.
    Four, the criteria for a contract vehicle to be designated 
as best in class is unclear, and we are unsure whether or not 
there will be consistent criteria across contract vehicles. The 
term itself, best in class, also raises concern.
    Five, the Council believes the government policy of 
counting a company with more than one certification multiple 
times skews the reporting data. For example, 75 percent of all 
HUBZone dollars credited towards goals are solicited under 
other set-asides. We suggest Congress take a look at this 
policy so that the true number of contracts awarded to 
socioeconomic set-aside programs is accurate.
    In conclusion, no one would disagree with the goals of 
efficient government buying and saving the taxpayer money. 
However, we believe that category management comes at a cost. 
Fewer small business awards not only limits the supply of 
vendors to the government, the ripple effect limits the ability 
of small businesses to grow through Federal contracting. In our 
view, category management will make reaching governmentwide 
small business goals even more difficult. The utilization of 
HUBZone companies already poses a problem for the government. 
It has never reached the 3 percent goal. Further limiting 
contract competition to utilize only multiple award contracts 
through category management will have a devastating effect on 
small business participation in Federal contracting.
    The Council urges this Committee to exercise its authority 
to ensure the government's procurement policies and 
implementation of such policies, specifically category 
management, utilizes small business to the maximum extent 
practicable rather than limiting it. Thank you.
    Chairman CHABOT. Thank you very much.
    Mr. Chvotkin, you are recognized for 5 minutes.

                   STATEMENT OF ALAN CHVOTKIN

    Mr. CHVOTKIN. Thank you, Mr. Chairman, and thank you for 
the invitation to the Professional Services Council to testify 
today.
    Category management has evolved through four major phases. 
It began as a Federal initiative intended to develop and 
provide the Federal acquisition community with more efficient 
acquisition strategies, based on major categories of Federal 
procurement. It has transitioned into a combination of both 
management information analysis and Federal purchasing 
strategies.
    Last November, Mr. Chairman, you and the Ranking Member 
wrote to the Office of Management and Budget, challenging the 
implementation of category management and raising concerns 
about the ability of small business to fully and fairly compete 
for Federal contracts. Those concerns remain valid.
    The first phase, as I see it, of category management was 
the establishment of the program. It was intended to provide 
acquisition executives with better visibility into agencies' 
spend, and, thereby, enable the Federal Government to approach 
the purchase of goods and services as if the Federal Government 
were a single enterprise. PSC has supported and continues to 
support these goals, even though the metrics for success are 
hard to articulate, and even harder to validate.
    The second phase was the determination by OMB that certain 
contract vehicles satisfy key criteria defined by OMB to earn 
the designation of best in class. As of April 23rd, 32 
contracts have been designated as best-in-class awards. But it 
is also important to recognize that many of these best-in-class 
contracts have very specific scopes of work or have limited 
application in the Federal procurement world.
    The third phase was the imposition of agency quotas for 
spending through category management principles, referred to as 
spend under management. Agency contract spend through any of 
the three tiers of OMB-designated contracts counts as spend 
under management. Where agency contract dollars are obligated 
through contracts that do not fit into any of these categories, 
awards are designated as unmanaged, and the agencies are urged 
to do more to bring those opportunities under that spend under 
management concept.
    OMB, as you know, has established governmentwide targets of 
awarding 35 percent of available spend through best-in-class 
contracts, and decreasing the available spend categorized as 
unmanaged by 20 percent. But nothing, just to remind the 
Committee, nothing in the category management evolution alters 
the agencies' responsibility to achieve their individually 
negotiated small business contracting and subcontracting goals, 
pursuant to the Small Business Act.
    The fourth phase, and for us, the most troubling, is the 
requirement for the mandatory use of specifically designated 
best-in-class contracts. These vehicles are the exclusive 
method by which agencies must purchase goods and services. As 
of February, only six contracts across four of the 10 
categories in the category management ecosystem have been 
designated for mandatory use. Mandatory use of certain 
contracts is certainly not new, but it remains controversial.
    With CM's focus on lower prices, PSC is concerned that the 
government may begin to purchase complex services in the same 
manner as common office supplies, which will limit the value 
and reduce the innovation available to the agencies. In 
addition, as this Committee has previously addressed, these 
techniques may have the effect of limiting the number of firms, 
small or other than small, able to compete for the specific 
goods or services provided for under these mandatory use and 
spend under management contracts.
    Five years ago today, PSC testified before this Committee 
on the use of strategic sourcing. We stated that the 
government's goal should be to foster an environment of robust 
competition, higher performance, agility, innovation, balanced 
opportunity for companies of all sizes, and accountability.
    We cautioned then, and we do so again today, that more 
needs to be done to prevent the unintended consequences on the 
small and other than smaller companies that are, or are capable 
of meeting the government's needs. Particularly, as category 
management has transitioned into a procurement policy, there 
have been negative consequences for the supplier base and for 
the marketplace.
    Additionally, many of these competitions and awards for 
what are now designated as best-in-class contracts occurred 
before the best-in-class designation was even made, and 
certainly, in many cases, before any mandatory use designation 
was established.
    This raises two additional important questions: Are the 
contracts structured in a way to provide on-ramps for companies 
who are not currently a holder of that vehicle? And secondly, 
when a best-in-class contract is recompeted, will noncontract 
holders be able to successfully compete for any of the future 
opportunities?
    On behalf of the Professional Services Council and our 
members, I thank you for your attention in holding this hearing 
on this important issue. I would be happy to try to answer any 
questions you may have.
    Chairman CHABOT. Thank you very much.
    Ms. Strum, you are recognized for 5 minutes.

                 STATEMENT OF BETH LAURIE STRUM

    Ms. STRUM. Chairman Chabot, Ranking Member Velazquez, 
members of the House Small Business Committee, thank you for 
the opportunity to speak here today.
    To begin, I must convey to you a fervent message of concern 
from the U.S. Women's Chamber of Commerce. We have never 
encountered a threat to small business' full and fair access to 
Federal contracts like what is confronting us now. The 
anticompetitive contracting practice, known as category 
management through best-in-class acquisition vehicles, has been 
quickly, summarily, and without consideration and regulatory 
authority, inserted in front of the Federal acquisition 
practice, seemingly as a predicate to the existing FAR and 
requirements of the Small Business Act.
    In its current form, the best-in-class acquisition process 
picks winners and losers without assuring full and fair 
competition, thereby locking out thousands of small businesses 
from the very contract opportunities that were guaranteed us 
through the Small Business Act. The abrupt transformation of 
the Federal acquisition process to best-in-class vehicles will 
have a crippling effect on small business' competitive 
opportunities. For example, roughly 25,000 small businesses 
provide IT services to the Federal Government, but only 
approximately 200 have the IT vehicles currently deemed best in 
class.
    Locking out 99 percent of small businesses from prime 
contractor competitive opportunities will have a devastating 
effect on the small business industrial base. How can the 
Federal Government possibly claim to be providing the maximum 
practicable opportunity for small business concerns? This new 
process has been rushed so quickly into the acquisition system, 
without clarity, regulations, or training, that contracting 
officers have not received the information or training they 
need. Many contracting officers think they must exclusively use 
vehicles designated as best in class.
    Some agency-level contract vehicles have not been named 
best in class while others have received this designation. 
Winners and losers are being selected without competition, 
adherence to the FAR and Small Business Act, or consideration 
of the nuanced needs of individual agencies, offices, and 
regions.
    If a small business is not already on one of the anointed 
best-in-class vehicles, they are left out, literally, of the 
competitive pool. Consequently, while large dollar amounts may 
end up flowing to a very few small businesses who are on these 
selected best-in-class vehicles, hundreds of good, viable small 
companies will be totally shut out for competing.
    For example, OASIS, one of the GSA best-in-class vehicles, 
has pools with only 40 businesses per pool. Alliant 2, which 
was just awarded, has only 80 small businesses. Some best-in-
class vehicles are 10-year contracts. So these companies are 
left out from competing for 10 years. If you are not on a 
vehicle today, you must wait 5 years for the small business on-
ramp to secure the right to compete. And some of these best-in-
class vehicles don't have an on-ramp.
    There are existing acquisition vehicles and methods that 
could have been used to achieve government acquisition savings 
while assuring maximum practicable competitive opportunities 
for small businesses. However, the rush into category 
management without assuring that Small Business Act 
requirements are met, without assuring strong and open 
competitive field of firms remain engaged with real incentives 
to lower prices, and without assuring that the needs and 
nuances of agencies are met through the acquisition process.
    Examples of good competitive methods include the GSA 
multiple schedules, but the use of these schedules has 
decreased by agencies over the last few years. An IDIQ created 
for an entire department with more frequent on-ramps could also 
satisfy category management requirements.
    Small businesses need your help now to assure we secure 
maximum opportunities as Federal suppliers. We ask you to 
compel increased training from the top of acquisition 
leadership down to the front-line contracting officers, to 
assure they understand that category management and best-in-
class vehicles do not supersede our existing laws and 
regulations. We need an easily accessible database of available 
vehicles so that small businesses and contracting officers know 
the full array of vehicles available to them rather than just 
best in class.
    Thank you for your support of the American small business 
industrial base.
    Chairman CHABOT. Thank you very much.
    Ms. Mackey, you are recognized for 5 minutes.

                     STATEMENT OF ML MACKEY

    Ms. MACKEY. Chairman Chabot, Ranking Member Velazquez, and 
other members of the Committee, thank you for giving me the 
opportunity today to testify before you. And I also want to 
thank you for your consistent efforts in supporting America's 
small business community.
    My name is ML Mackey. I am the CEO and cofounder of Beacon 
Interactive Systems, a small business with offices in Waltham, 
Massachusetts, and Norfolk, Virginia. Beacon delivers 
innovative, efficiency improving, and cost savings technology 
for the Department of Defense. Today, I am representing the 
national small business--the national small business--the Small 
Business Division of the National Defense Industrial 
Association. Have you ever been so vain you don't wear your 
reading glasses, but you really should? Is there any way to cut 
that----
    The Small Business Division of the National Defense 
Industrial Association, with a membership of nearly 1,600 
corporate and over 80,000 individual members.
    While category management greatly impacts the full spectrum 
of the U.S. industrial supply chain, my testimony this 
afternoon will focus on the constraints that it places on small 
businesses trying to deliver innovative solutions to support 
the U.S. warfighter at home and abroad.
    The intent of making government procurement efficient, 
streamlined, and cost-effective is a goal with which I and my 
small business colleagues are aligned. Getting best-in-breed 
products and services as rapidly as possible to the men and 
women who protect us is of paramount importance.
    Unfortunately, the contract approach prescribed by category 
management will have an opposite and deleterious effect on this 
goal. It drastically reduces competition within the existing 
supply chain and creates a tremendous barrier for new 
contractors to participate and deliver the valuable innovations 
necessary.
    As battle space needs evolve even more rapidly, so, too, 
must acquisition processes evolve on both cost and capability 
vectors. Category management, by only addressing cost through 
contracting requirements, ignores the overwhelming need and 
value of innovation. Without thoughtful implementation, the 
acquisition of innovation is unplanned, disruptive, fluid, and, 
in the past, has been costly. A cost-only approach to 
contracting does not incentivize industry to explore innovation 
or longer term solutions, because contract requirements 
sacrifice taking new approaches in order to cut costs.
    As the owner of a small business that provides cutting-edge 
Internet of Things (IoT) technology to solve many of the DOD's 
mission critical operational needs, the myopic approach of 
limiting access to contract vehicles simply is an attempt to 
limit cost while making it even more difficult for the 
innovation economy to participate.
    Category management, through the practice of strategic 
sourcing, would consolidate the number of contracts the Federal 
Government awards to small businesses. As an approach to cost 
savings, it is well-intentioned, but it, unfortunately, drives 
high-technology small businesses out of the Federal 
marketplace, resulting in reduced competition within the 
procurement process and the loss of small businesses who choose 
creating innovation over building a business based on cutting 
corners and costs.
    An additional impact of category management is that small 
businesses must align themselves with current contractors on a 
cost basis, as opposed to value or capability, to even be able 
to engage with the government. Small businesses must be 
recognized as more than just a reliable supply chain for larger 
companies to utilize in their own cost savings approaches. The 
small business community represents the valuable marketplace of 
ideas and innovation.
    Category management, like Lowest Price Technically 
Acceptable (LPTA) methods, when applied to broad acquisition, 
does not consider that innovation is an aberration to standard 
government contracting requirements, yet provides incredible 
value.
    One of the stated laudable intents of category management 
is to accomplish a streamlined best-of-breed acquisition 
practice. The Small Business Innovation Research (SBIR) and the 
Small Business Technology Transfer Programs are examples of 
where the small business community delivers directly on this 
intent. Technology acquired from the SBIR program is an example 
of accessing best-of-breed solutions in a streamlined manner. 
During the development phases of the SBIR investment--SBIR 
investment, I shouldn't speak slang--SBIR investment, Phases I 
and II, the needs of the warfighter are explicitly addressed 
with new and innovative approaches. Furthermore, acquisition of 
the resulting SBIR Phase III goods and services is streamlined, 
as the competitive threshold has already been met in the highly 
competitive Phase I and Phase II processes. Instead of helping, 
category management will impinge on the ability of the U.S. 
Government to acquire these results by limiting access to 
contract vehicles.
    Across the board, my small business colleagues are 
overwhelmingly opposed to the category management approach. 
Anything that winnows down the ability to compete on a fair and 
level playing field across the industrial base makes it 
especially difficult for small businesses.
    We have a couple recommendations that we think might 
actually address some of the intent of the category management 
approach. We have three, in fact. One is, support the 
contracting community with increased funding in order to 
provide the resources necessary to enable innovation and 
widespread small business participation within the contracting 
process.
    Two, reevaluate LPTA with an eye towards focusing on how to 
best procure what will meet the evolving needs of the 
warfighter. Focus on what is the best value, not what is the 
least expensive acquisition.
    Third, develop and deliver best-of-breed innovative goods 
and services in a streamlined acquisition process by 
implementing a pilot program at the DOD for SBIR Phase III 
transitions, as described in Section 1710 of the 2018 NDAA.
    Chairman Chabot, Ranking Member Velazquez, and members of 
the Committee, thank you for the opportunity to appear before 
you this morning, and thank you for your continued efforts in 
supporting the small business community. I look forward to 
answering any questions you may have.
    Chairman CHABOT. Thank you very much.
    And I will now recognize myself for 5 minutes. And, Ms. 
Bailey, I will start with you. Could you describe the impact 
that these category management 20 percent and 35 percent goals 
might have on emerging small businesses?
    Ms. BAILEY. Yes, thank you. I think that with the idea that 
you are going to be transitioning to these more sophisticated 
contracts, where they have more increased requirements and 
performance, past performance requirements, emerging small 
businesses won't tend to have that type of experience, and you 
are going to leave out those innovative solutions into those 
contract vehicles and their opportunity to compete.
    Chairman CHABOT. Thank you very much.
    Mr. Chvotkin, I will go to you next. It seems that the 
spend under management and mandatory best-in-class approach may 
require more nuance than is currently being applied. For 
example, as you mentioned, it makes little sense to procure 
complex weapon systems the same way one would buy office 
supplies. What can Congress and this Committee specifically do 
to help bring about a more tailored approach to best-in-class 
use?
    Mr. CHVOTKIN. Mr. Chairman, thank you. There is a number of 
techniques and approaches you can have. Some of them are 
through the oversight such as you are doing.
    You have also initiated a number of pilot programs. We 
talked earlier about some of the burdens in past performance, 
and this Committee was a lead in enacting a provision for a 
pilot program on small business past performance reporting and 
capabilities through the SBA. They just issued some preliminary 
information on that.
    So I think addressing these symptoms is not enough. I think 
the core here is whether the mandatory use makes sense as a 
Federal Government, even across the limited number of 
companies, and will the contracts provide continuing 
opportunities for new and emerging firms to join in. I think 
those on-ramps are very, very important, and many of the 
emerging contracts do not have that capability today.
    Chairman CHABOT. Thank you very much.
    Ms. Strum, I will go to you next. You mentioned that there 
are alternative contracting vehicles and methods that can be 
used to achieve cost savings while protecting opportunities for 
small businesses. Can you provide some examples and describe 
how they are more advantageous than the current policy?
    Ms. STRUM. So, for example, GSA has schedules. So you have 
got IT 70, which is an IT schedule. When you are on the 
schedule, you are supposed to have provided your best price to 
GSA. Also, GSA has 874, which is a professional services 
schedule. What is the conflict between OASIS, which is a 
professional services best-in-class vehicle, and 874, which is 
a professional services schedule? Why buy through OASIS versus 
buy through the GSA schedule?
    Chairman CHABOT. Thank you very much.
    Ms. STRUM. Sure.
    Chairman CHABOT. Ms. Mackey, given your experience with 
past Federal initiatives such as strategic sourcing, how does 
this current category management strategy compare with past 
initiatives?
    Ms. MACKEY. Unfortunately, it is very familiar. So I have 
been running and working in the legislative affairs policy area 
for NDIA Small Business Division for the last 9 or 10 years, 
and it has come through once or twice. And I can't convey to 
you enough the people that worked through the FSSI challenges 
before who either sent me emails or came and talked to me with 
the slumped shoulders of here we go again kind of thing. It has 
really got a dramatic effect on small business.
    And one of the things that we need to keep in mind when we 
think about small business is, you know, that joke about deep 
pockets are short pockets. It is important to think that small 
businesses have short pockets. It is really hard for us to 
weather protracted delays. It is really hard to build up again 
and be able to move it forward. And just with a little bit of 
compassion for the owners of small businesses, often we manage 
those dips and valleys on our own personal expense. And if we 
are Federal contractors, they are not things that are allowable 
expenses then when we get back on track.
    So there is just this large attenuation at the end of the 
whip that is really, really hard for the small business part of 
the industrial base to recover from.
    Chairman CHABOT. Thank you very much.
    I will yield back my time.
    And the Ranking Member, the gentlelady from New York, is 
recognized for 5 minutes.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Ms. Mackey, the contribution of small businesses to R&D and 
innovation as a whole has long been recognized as critical to 
our economy and national security. Yet, it has been noted that 
contracting in the sphere of the DOD is on the decline, along 
with a general underutilization of the SBIR/STTR programs. Can 
you explain what this trend means for the industrial base, and 
what implementing category management means for innovative 
companies like your own?
    Ms. MACKEY. So the strain on the industrial base, the 
defense industrial base, the Federal marketplace, is that my 
colleagues in Boston, my friends in San Francisco that work in 
well-known innovation areas, they don't participate, because it 
is too hard, it is too difficult.
    It is not too difficult sometimes to get started, you know, 
with some of the on-ramps for small business and R&D, some of 
the initial, maybe, SBIR Phase I awards that you get. It is 
really hard to move beyond that to market launch, either within 
the Federal space, or many of them will take investment from 
SBIR and move back into the private sector.
    So I personally would like to see SBIR and small business 
R&D used for what it was intended for, to funnel innovation to 
our Federal customers as well as leverage into the economy. So 
that is the impact on the industrial base of category 
management is difficult in that it keeps people from wanting to 
play. That is the first question I think you asked me.
    Ms. VELAZQUEZ. Yes. And how can we reverse this trend? What 
can we do here? What type of recommendations could you offer?
    Ms. MACKEY. So, from our personal experience, we have been 
able to take SBIR investments and translate them through to 
Navy defense business systems. So it is a market launch in the 
Department of Defense. We are working with private sector and 
taking it there.
    I can tell you from our experience, the most difficult 
thing, the thing that you could do to mitigate for others is 
make contracting easier. It is the exact opposite of category 
management. So I can share from our personal experience, if you 
are interested, I could give you just a quick couple of 
examples.
    We go and talk to contracting officers when program 
officers want our technology, when fleet wants our technology. 
We work a lot with the U.S. Navy. When directives come out that 
say, If only we had this capability, and the SBIR pipeline 
says, Great, we have developed this for you, and they can't get 
us under contract. And when I go and say, It should be easy, it 
is follow-on work for SBIR, they have no idea how to act on 
that.
    So I think one of the things--I have two concrete 
suggestions, if I could. One is, let's make Centers of 
Excellence around SBIR follow-on contracting, so that we don't 
put the contracting officers at risk to do something new and 
different when they are the people that are supposed to be 
careful of not new and different so that bad things don't 
happen.
    The second is, I think it might be really interesting to 
understand that SBIR technology, goods and services can be 
offered as government-furnished equipment, GFE, on the larger 
proposals, so they don't necessarily--you can put the 
acquisition program out, but you say this piece will be GFE, 
and understand that is an SBIR follow-on.
    I am hoping those two suggestions might be helpful.
    Ms. VELAZQUEZ. Thank you. Thank you.
    Ms. Strum, despite the numerous safeguards in place, we 
continue to see bundling and consolidation of contracts. In 
your opinion, is the consolidation or bundling of contracts 
under category management being used to ease administrative 
burdens in the procurement process?
    Ms. STRUM. I think that that is okay, though. I think 
having these large IDIQ, or indefinite delivery/indefinite 
quantity contracts and then having task orders under them is 
okay. I think having them agency-wide or department-wide is 
okay, and I think you can achieve the efficiencies and the cost 
savings through them that the government is looking for. And as 
a taxpayer, I am all about, you know, cost savings, right?
    But I think when you have them as these best-in-class with 
10-year contracts with no on-ramps, and you are really keeping 
the small businesses out of it, I think that is when you start 
having the issues.
    Ms. VELAZQUEZ. Ms. Bailey, enforcement actions are rare, 
and there is a need for defining realistic enforcement 
triggers. I would like to hear if you have any recommendation 
to be a sufficient trigger. What would you recommend?
    Ms. BAILEY. As a sufficient trigger for the enforcement of 
this, I think that, you know, you are putting a lot of those 
processes in place right now with the reporting of subcontract 
type of activities. I think we need more enforcement on the 
large businesses to encourage the small business participation.
    But also, I think that from the agency perspectives on 
these contracts, we really need to start looking below the 
layers of just the small business goaling, and to look to make 
sure that we are hitting all of the socioeconomic, you know, 
goals, you know.
    And also, from the aspect of us using these multiple 
certifications to obtain these goals, I think we are skewing 
that even further, because you are seeing that, you know, fewer 
companies are able to participate. So you may see that all of 
the goals are met, but if they are met by one company achieving 
all three certifications or four certifications, it is doing a 
disservice as well. So I think we need to start layering back 
and looking at that detail as well.
    Ms. VELAZQUEZ. Any short brief comment on that same 
question?
    Mr. CHVOTKIN. On the enforcement question?
    Ms. VELAZQUEZ. Yes.
    Mr. CHVOTKIN. Yes, ma'am. I think it is important that we 
look at holding the agencies accountable. The challenge here is 
that the agencies are losing the flexibility on their own when 
the best-in-class contracts and objectives, top-down objectives 
are set.
    So I think the key is, as you suggest, and I don't have a 
ready answer for what the enforcement actions are to be, but I 
believe that the agencies do not have enough responsibility for 
meeting the small business objectives that they have.
    Chairman CHABOT. The gentlelady's time has expired.
    Mr. CHVOTKIN. I would work on that with you.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Chairman CHABOT. The gentleman from Missouri, Mr. 
Luetkemeyer, who is Vice Chairman of this Committee, is 
recognized for 5 minutes.
    Mr. LUETKEMEYER. Thank you, Mr. Chairman, and thank you all 
of you for being here today.
    I am kind of curious. Is there an ability by small 
businesses to partner with a larger entity to be sort of a 
subcontractor on the main contract? Ms. Strum?
    Ms. STRUM. If I may. There is always an ability to do that. 
What that does is it decreases our revenue. It decreases the 
ability to go after prime contracts and be a prime contractor. 
And on the best-in-class contracts, the only way to get on them 
is to have prime contract past performance.
    Mr. LUETKEMEYER. Okay. Is there an ability of a number of 
small businesses to sort of work together, to partner together 
to be able to get a bigger contract?
    Mr. CHVOTKIN. There is. Congress has given the authority to 
the agencies for companies that are, quote/unquote, ``similarly 
situated.'' If four women-owned small businesses were to come 
together, the statutory authority gives them the ability to bid 
as one, bringing the capabilities together.
    Mr. LUETKEMEYER. Do they do that?
    Mr. CHVOTKIN. I am sorry?
    Mr. LUETKEMEYER. Do they do it? Do they take advantage of 
that provision?
    Mr. CHVOTKIN. Well, the Small Business Administration has 
issued the regulations for that. The Federal Acquisition 
Regulation, which is what the contracting community reads, has 
not yet been issued. So we are waiting 3 years, 3-1/2 years, I 
think, since the law has been passed to see the Federal 
Acquisition Regulation issued. So some agencies are testing 
that on their own, most are not.
    And there is also, this Committee was very actively 
involved in creating the Mentor-Protege Program, the all agency 
Mentor-Protege Program. That is another way that large 
businesses and small businesses can come together and 
essentially share in that prime contract responsibility.
    Mr. LUETKEMEYER. Each of you is not too happy with the 
process. I understand and I agree with you. Is there a way for 
contract management to coexist with small business access to 
government contracts? Is there a way to get that done? Ms. 
Bailey?
    Ms. BAILEY. Yes. I think that if we look at increasing the 
number of set-aside vehicles within these vehicles, so that you 
have the small business set-aside programs being represented 
adequately through separate vehicles within each one of these 
best-in-class contract vehicles; and also, to reduce the 
restrictions for initial entry into these, so that you can get 
the emerging contractors in there and have more on-ramping and 
more frequent on-ramping, to enable the newer companies to get 
in there in a timely manner.
    Mr. LUETKEMEYER. Have you seen, with implementation of 
this, that there has been a disruption of the supply pipeline 
for different businesses to the government, because of the 
inability of a contractor to do what you are trying to do, or 
it is all going to one or the small guys can't get there? Have 
you seen a disruption of the----
    Ms. STRUM. So there is definitely a disruption. So you will 
see a lot of the work that you are trying to go after, you will 
be talking to different agencies and they will say, Yeah, we 
are going to put this RFP on the street. And then it goes on, 
you know, one of the best-in-class vehicles that you are not 
on.
    So the disruption happens where you are not on a vehicle, 
and you are looking then for a partner that is on that vehicle 
so then you can sub to them, and sometimes that doesn't work 
out. And so you lose out on business that you know about, that 
you are talking to the client about, that you are trying to 
capture, and then it goes on these vehicles that you are not 
able to bid on.
    Mr. LUETKEMEYER. Have you seen where the government is 
trying to get these contracts issued and request for different 
supplies and product? Have you seen them not be able to get as 
much stuff as they want or to have a competitive bid? Yes, Ms. 
Mackey.
    Ms. MACKEY. So we deliver the operational energy management 
system for shipboard Navy use. And they are ready for it. We 
deliver the safety system for the Navy. And the contracting 
delays and the process that we have to get through holds our--I 
can give you our example--holds our technology up from getting 
to them. And the fleet has expressed frustration about not 
being able to get to it quickly.
    I can also share some of my colleagues' experience at NDIA, 
where they are not able to deliver on their products. We can 
get you more information if you would like on that, if that 
would be helpful.
    Mr. LUETKEMEYER. Fantastic.
    Mr. CHVOTKIN. If I could just add one item.
    Mr. LUETKEMEYER. Yes, sir.
    Mr. CHVOTKIN. The biggest challenge we have right now is in 
the transition, the designation of best-in-class contracts has 
come after the awards and the determination for mandatory use 
has been after the contracts have already been awarded. So we 
are in that interesting transition period of the evolution of 
category management.
    I think if the OMB, and they are well aware of the need, if 
they could designate those contracts in advance of the 
solicitation, then agencies--then companies would know where to 
bid or that this contract is a best in class. Today, those 
companies had no knowledge that the contract was going to be 
designated or the agencies would be using it in that manner.
    Mr. LUETKEMEYER. Thank you very much. My time is expired.
    Chairman CHABOT. Thank you. The gentleman's time has 
expired.
    The gentleman from Pennsylvania, Mr. Evans, who is the 
Ranking Member of the Subcommittee on Economic Growth, Tax and 
Capital Access, is recognized for 5 minutes.
    Mr. EVANS. Thank you, Mr. Chairman.
    I want this question probably to go to every person. I will 
start out with Ms. Strum. And this is what I have heard. If you 
wanted to secure the industrial base, what changes should be 
made when using category management? I have kind of heard that. 
Can you speak to that?
    Ms. STRUM. Do you mean what do I recommend as changes?
    Mr. EVANS. Yes, yes.
    Ms. STRUM. I think, for example, I have been working with 
NOAA, for example, on an IDIQ that they have been trying to put 
out for small business to replace an IDIQ that they currently 
have out. And rumor has it that GSA is pushing them to use 
OASIS for it. They feel compelled to use OASIS. It seems to 
them to be mandatory, and they may not end up putting out their 
own IDIQ.
    The changes that I believe need to be put in place is 
education to the contracting officers so that they understand 
that these best-in-class vehicles are not mandatory, that they 
can put out their own vehicles. Now, for category management 
purposes, that vehicle should be able to be used for all of 
NOAA, for maybe even all of commerce; and it is an IT vehicle, 
and why not let all of commerce use it, and that satisfies the 
category management requirement. Does that answer your 
question?
    Mr. EVANS. Yes. Others want to respond?
    Ms. MACKEY. So one way to think of changing category 
management is to maybe look at Section 1710 of the NDAA last 
year that said, let's pilot a contract vehicle, perhaps in one 
of these Centers of Excellence, that is already best of breed 
in a way that has a fluid on-ramp to it, that just by 
completing your Phase II, you can become part of that 
contracting opportunity.
    So I think combining some of the best of things that have 
gone before, CPORTI (ph) has the ability to on-ramp frequently 
and has wide openings to it, putting that with a best of breed 
contract. I also think that category management is just 
difficult. I think we are missing the point of we really need 
to be supporting the contracting offices with enough resources 
to be able to effectively meet the requirements levied on them 
for a diverse inclusion over the industrial base. Forgive me 
for editorializing.
    Mr. EVANS. Yes.
    Ms. BAILEY. I think, to follow on with them then as well 
is, if you look at the categories that we have in category 
management, maybe one of the things is to break those things 
down to the subcategories, and look at issuing vehicles at 
those subcategory levels, which would enable more small 
businesses to be able to participate, rather than looking at 
the whole entire category as a whole.
    Mr. EVANS. Yes. Thoughts?
    Mr. CHVOTKIN. Thank you, Mr. Evans. You know, the 
industrial base in quotes, and that includes both the services 
and the products, is changing so rapidly. One of the issues in 
category management is it freezes the contract and the scope of 
work. And so we ought to, instead of focusing in on achieving 
arbitrary goals, one of the burdens is that it freezes out--it 
locks the agencies into long-term solutions.
    So I just think there ought to be greater flexibility and 
certainly staying away from mandatory use, because the 
agencies' needs are going to rapidly change, and we are pushing 
them into unique and maybe inappropriate vehicles to achieve 
the solutions they are trying to accomplish.
    Mr. EVANS. Thank you, Mr. Chairman. I yield back the 
balance of my time.
    Chairman CHABOT. The gentleman yields back. Thank you very 
much.
    The gentleman from Kentucky, Mr. Comer, is recognized for 5 
minutes.
    Mr. COMER. Thank you, Mr. Chairman.
    My first question is for Ms. Strum. What options does a 
small business have if it does not hold a spot on a best-in-
class contract? Are subcontracting opportunities or teaming 
opportunities available for such companies?
    Ms. STRUM. Yes. I mean, you can find large businesses and 
small businesses that are on the contract that you can team 
with. You also can talk to the agencies and make friends with 
the customers and try to get the work on other vehicles, direct 
contracts, use the GSA schedules if you have a GSA schedule--if 
you are a GSA schedule holder. Sorry, that is the proper term. 
There are other avenues to contracting.
    Mr. COMER. How difficult is it for someone to get their 
foot in the door to have a subcontracting or a teaming 
opportunity?
    Ms. STRUM. It is a matter of networking. Difficulty is in 
the eye of the beholder.
    Mr. COMER. Right.
    Ms. Bailey, let me ask you a question. Given the Federal 
Government has never met its 3 percent HUBZone goal, and I am a 
big proponent of HUBZone, do you think category management will 
make it even more difficult for agencies to achieve this goal?
    Ms. BAILEY. Yes, absolutely. One of the major 
recommendations I have is that if you are going to continue 
along this line is to have specific set-asides for HUBZone 
firms and to make sure that there are adequate competition and 
number of firms in those HUBZone set-asides.
    With the HUBZone, compliance is also an issue. And if you 
don't have a HUBZone prime contract, then you don't have the 
benefit of attempt to maintain in order to maintain compliance 
and allow you to get back up to compliance when you do have an 
award. So----
    Mr. COMER. While we have heard of the many dangers category 
management potentially imposes on small businesses, can you 
think of any benefits this strategy might have for small 
businesses? I am switching gears here.
    Ms. BAILEY. Well, I think that from the education, if the 
education gets out and all of the information of pricing of the 
goods and materials, and individuals have access to that 
information, it may help small businesses strategize on where 
to go and which vehicles and the cost patterns that they have 
got to get into.
    The problem with entering into the Federal marketplace is 
if you don't have past performance--and in most cases, as a 
prime, we are seeing more and more requirements as a prime 
requirement for past performance--it is very difficult to enter 
into the market.
    Mr. COMER. So one quick question--I have a little over 2 
minutes remaining--for all the witnesses. Briefly answer, if 
you can. What can this Committee do? What can we do to improve 
the situation?
    Ms. BAILEY. I think that the one thing is to really 
seriously look at making sure that we have adequate on-ramping, 
frequent on-ramping, that all the socioeconomic categories are 
represented, and that you have vehicles that are specific for 
those.
    Mr. CHVOTKIN. I would recommend that OMB look very 
carefully at its future awards. Restack whether the current 
list of best-in-class contracts has sufficient opportunity for 
small business participation, and then make sure that future 
awards both have broad enough scope of work to keep technology 
refreshed, as well as to bring on future companies through that 
on-ramp process. Not everyone does that today.
    Ms. STRUM. So my recommendation would be to have 
contracting officers trained in what vehicles are available to 
them besides the best-in-class vehicles, and possibly even have 
a database created so that they know what other contracts are 
out there that they can use to put RFPs on, so whether it is 
within their own agency or outside their agency, if it is using 
a GSA schedule, et cetera.
    But then I would also question how best in class is 
awarded, and look at whether or not it is really following the 
FAR, and if it is, you know, the on-ramping issues and some of 
the other issues just in how they are competed.
    Ms. MACKEY. So I have three quick suggestions, two 
technical, one strategic. The first is Centers of Excellence 
for contracting, so that people know that are trained, that are 
together and can reinforce their learning around different 
types of contracting.
    The second is contract vehicles, making sure they are 
available. Speaking as an innovator who, therefore, has not 
planned for necessarily, the ability to have the frequent on-
ramps, as mentioned, are really important on those contract 
vehicles.
    And the third piece that you asked in terms of what can 
Congress do, I think making sure that program officers and 
contracting officers raise the visibility of the successful 
small business contracts that have happened, how they have 
happened, and that you are happy that they happened. Help us 
mitigate the risk by raising visibility to the successful 
engagements.
    Mr. COMER. Well, thank you all very much. Appreciate your 
testimony.
    Mr. Chairman, I yield back.
    Chairman CHABOT. Thank you very much. The gentleman yields 
back.
    The gentleman from Florida, Mr. Lawson, who is the Ranking 
Member of the Subcommittee on Health and Technology, is 
recognized for 5 minutes.
    Mr. LAWSON. Thank you, Mr. Chairman.
    Welcome to the Committee. Several years ago, the Federal 
Government set aside a percentage of contracts that small 
business should receive, somewhere in the neighborhood, 
according to the text here, around 23 percent, as compared to 
the larger firms. Are we able to reach that 23-percent goal, 
based on all of the testimony that I have heard here this 
morning? Can you all elaborate on that? Are we capable, under 
the circumstances we have, to reach those goals or have we 
already reached them?
    Ms. BAILEY. No, we definitely already reached them. And 
under category management, and you look at total of dollars, we 
have exceeded it. The problem is, is when you start peeling 
back and looking at how many contractors are receiving that to 
achieve those goals is the issue.
    So, for instance, you know, DHS has a First Source 
contract, and they have hit all of their goals. You know, they 
have done really, really well. But when you look at the number 
of companies that they had involved in that, for instance, with 
HUBZone, it is six companies. They had $842 million spread 
across six companies.
    So that is what the real issue is is when you start looking 
at the socioeconomic classifications underneath the small 
business numbers.
    Mr. LAWSON. Does anyone else care to respond? Because that 
is very interesting. I mean, that is hard to believe, really.
    Ms. MACKEY. So I would respond with adding onto the 
socioeconomic classes that you look at, because it is important 
to understand whether you meet goals or not, are you meeting 
them in the diversified approach that set-asides intend for, so 
that there are launching points for us to do further into the 
marketplace.
    I would say you should look also at what types of work they 
are doing. Are we pulling across the industrial base? Are we 
giving them on-ramps, if you will, into the market from which 
they can build? And that is our goal, right, is to have a 
healthy industrial base across small and large geographically, 
socioeconomically. So I think looking at the spread of who is 
doing what and where is important.
    Mr. LAWSON. Anyone else care to respond?
    Mr. CHVOTKIN. I would suggest that this Committee really 
ought to take a look at the larger purpose of the small 
business programs. Today, the agencies look at those objectives 
or those goals as once they achieve it, they stop the awards. 
And if they achieve it in one area, they are happy as long as--
it is a numerics game only. And category management is getting 
in that same position.
    I think we need to look at how we grow small businesses and 
how we take advantage of the programs as a growth orientation 
and not as a limitation. And I think that is a larger 
conversation for another day, but I think I am concerned that 
the category management is going to fall into the same trap of 
numerical goals only, without regard to the who or the what.
    Mr. LAWSON. Okay. Ms. Strum.
    Ms. STRUM. If I may, just one quick comment. In 2017, we 
missed our women-owned small business goal by $1.28 billion.
    Mr. LAWSON. That is incredible. And one other thing you 
said earlier when you were talking about networking, does that 
contribute a great deal to a lack of participation when you 
have such a small group that are getting all of the resources?
    Ms. STRUM. Definitely. Right. So, I mean, a big part of our 
jobs every day is to go out and talk with companies and meet 
with companies and do business with other companies. And so, 
some of the gentlemen asked about, you know, can you work with 
other companies and, you know, sub to other companies as small 
businesses. Can you, you know, do subcontracting. And, of 
course, we can do subcontracting.
    But in order to bid on contracts, you need to have prime 
past performances. So a lot of what we do, again, is to make 
the connections and do the networking. But we also, you know, 
in order to make money for our companies, you know, we want to 
have that prime contracting goals.
    Mr. LAWSON. Right. And back in Florida, being in a 
government town like I am, oftentimes I hear from African 
American firms who say that they can't break in, you know, 
because of the way things are set up.
    And I know I don't have enough time to probably go into 
that today, but just listening to what you all are facing as 
women, the Chamber of Commerce and so forth, I can understand 
what obstacles they are faced with. And there shouldn't be any 
reason to have these obstacles placed for those firms who are 
trying to break in, are capable of doing good governmental 
work.
    But the way it is set up, Mr. Chairman, and eventually we 
might look at it again, that is what is happening to a lot of 
them, why a lot of them are complaining. It is simply the way 
the process is set up.
    And with that, Mr. Chairman, I yield back.
    Chairman CHABOT. Thank you very much. The gentleman yields 
back.
    And the gentleman from Kansas, Dr. Marshall, is recognized 
for 5 minutes.
    Mr. MARSHALL. Good afternoon, everybody. My first question 
is for Ms. Strum. I am not sure we will get past my first 
question.
    Ms. Strum, I have been an OB/GYN for 25 years. I have been 
a man in a women's world. I found myself advocating to make 
sure that mammograms and pap smears were covered by insurance 
companies, making sure that women had access to family 
planning. And now as a Congressman, it seems like I continue to 
focus on a lot of the women issues.
    Just to kind of briefly describe, what are two or three 
other, the major barriers, the challenges that female 
businesses have? And if you were in Congress, what would you do 
about it? If you were Queen, what would you do about it? Give 
me, you know, a specific solution. So I am just kind of teeing 
this up and go ahead and knock it out of the park.
    Ms. STRUM. Wow. If I was Queen. Fun.
    Mr. MARSHALL. We got to dream big and think outside the box 
sometimes.
    Ms. STRUM. So I think the challenges are probably similar 
to what a lot of other small businesses find, whether you are 
an SDVOSB, a small disabled veteran-owned business, or if you 
are a HUBZone business. I think we all face a lot of similar 
challenges. We look specifically for set-asides for women-owned 
small businesses.
    That being said, I don't think that the women-owned--the 
set-asides for women businesses--I am not saying this 
correctly--are not coming around as often as maybe they used to 
be. And some of the ones that are coming around, so my personal 
experience--my company is a software development company. We do 
data analytics, and we are not seeing those coming around as 
often.
    I am constantly checking different websites of the 
different contracts that we are on, and we are not seeing--I 
will tell you, we see like janitorial services. We do a lot of 
work with the FAA, and we will see things like building a 
tower, or replacing carpets, and that is just not the stuff 
that we do. We do software development. I want to see stuff 
for, you know, they need people that do Java or, you know, 
things like that.
    So we are just not seeing the requests for work for the 
things that we do, and so that has been our biggest struggle as 
of late.
    We are trying to break into new places in the market, into 
other agencies. And that in itself is the same struggle that 
anybody would have trying to break into new places in the 
market. You know, you have to meet new people, make new 
networks, that type of thing.
    I am not sure if I answered your question fully.
    Mr. MARSHALL. Is there anything else you wanted to add to 
just like plain and simple solutions to the problem before us 
today, this Federal procurement system, anything else that you 
think is very women-specific that you didn't get to share yet, 
or you want to really emphasize?
    Ms. STRUM. I mean, of course, I would like to see more 
women-owned set-asides, women-owned business set-asides. But I 
think when you do these large procurements, these large IDIQ 
procurements, it is always great to see the small business set-
asides. And when you have the small business set-asides to have 
specific ones for women-owned small business, for the HUBZones, 
for the SDVOSB, et cetera. I think that would really help push 
our numbers and make it to, you know, that 23 percent that we 
have been, you know, looking to achieve.
    But I think that also helps our numbers in terms of making 
sure it is not six companies getting, you know--I forget what 
number Ms. Bailey used before in terms of the dollar amounts. 
But I am not surprised to hear that, because it is not the 
first time I have heard that.
    Mr. MARSHALL. Thanks, Mr. Chairman. I yield back.
    Chairman CHABOT. Thank you very much. The gentleman yields 
back.
    The gentlelady from North Carolina, Ms. Adams, who is the 
Ranking Member of the Subcommittee on Investigations, Oversight 
and Regulations, is recognized for 5 minutes.
    Ms. ADAMS. Thank you, Mr. Chairman.
    And thank you all for your testimony. I want to follow up 
on that six companies. I am curious about were there African 
American companies involved there?
    Ms. BAILEY. Those were all HUBZones. I didn't get down to 
whether or not that they were. But even further on that DHS 
First Source is you have several of those companies. Although 
you may have several, they are accounting for several of the 
certifications. So they could very well have had several 
companies that were hitting the 8A, hitting the women-owned, 
hitting SDVOSB and HUBZone.
    So actually, the total number of companies that you look at 
for the diverse thing is a lot smaller than looking at the 
total number of contracts issued.
    Ms. ADAMS. Yeah, we got to do better.
    So, Ms. Strum, one of the policies that helps to ensure 
that small businesses receive their fair share was establishing 
the governmentwide 23 percent goal. And I think we have had 
some discussion about it, but it also includes the small 
disadvantaged women and veteran-owned businesses. So how are 
these businesses, business contractors impacted by this 
decrease in the contracts?
    Ms. STRUM. I am not sure I understand the question.
    Ms. ADAMS. Well, the contracts have been decreased. Is that 
correct?
    Ms. STRUM. That is correct.
    Ms. ADAMS. What is the impact, in your opinion?
    Ms. STRUM. So what I have seen happen is we have larger 
dollar amounts and smaller contracts. Is that what you are----
    Ms. ADAMS. Yes.
    Ms. STRUM. Okay. So how has that impacted us? In terms of 
dollars of revenue per company, it is harder to grow your 
company, right, because you have got fewer contracts to go 
after and bid on, and thereby win or lose, and, therefore, even 
though the contracts have more money.
    So you are seeing yourself making that 23--when I say 
seeing yourself, the Federal Government might be making the 23 
percent in total dollars, but there are fewer contracts for the 
small businesses to go after and, therefore, fewer companies 
are actually helping to achieve that 23 percent.
    Ms. ADAMS. Thank you, ma'am.
    Let's see. Ms. Mackey, small businesses are innovative and 
nimble, which is why it is vitally important that the Federal 
Government ensure that small businesses are able to compete 
fully in the category management contracting approach. So how 
can we work to ensure that the category management approach is 
ensuring the successful participation of these companies like 
your own?
    Ms. MACKEY. So first, the problem with that is that 
innovation is, by its nature, unplanned and disruptive. And 
category management is a planned approach and a structured 
approach to contracting that says, At this point we will need 
this much. But with innovation, you have a different cycle.
    So I think, to try to directly answer your question, the 
idea of what we can do with category management, if there was a 
way to broaden the best-of-breed definition to include maybe as 
a first pass just the SBIR technologies, goods and services, 
that we are allowed to do follow-on contracting, because the 
competition barrier has already been crossed, perhaps adding 
sort of a first pass on-ramp that is flexible in its timing 
nature to the best-of-breed concept of category management.
    I am making this up on the fly. I hope it makes sense. But 
that concept of bringing the nimble and the fluid to what is 
structured, you know.
    Ms. ADAMS. Okay. So insight from each of you or anyone that 
wants to answer. Low Federal funding for Small Businesses 
Administration has an impact on the amount of aid and technical 
assistance they can provide small business owners.
    So are you seeing an impact on the number of small 
businesses that are able to compete for contracts due to these 
effects and, if so, what type? So anybody can answer. We have 
got like 53 seconds.
    Ms. MACKEY. So I will tell you that at the SBA, I would 
love to see more funding going to the Office of Innovation. I 
can't give you the numbers on the impact, but I can give you 
the impact. I am not seeing as much outreach to the innovation 
economy from them, that I would just love to see more of that.
    Ms. ADAMS. Okay. Ms. Strum.
    Ms. STRUM. I yield.
    Ms. BAILEY. Especially from the HUBZone program office, I 
think that more funding from the HUBZone program office to 
really help companies understand and to educate the contracting 
groups on the HUBZone program and the benefits of the HUBZone 
program, and to encourage firms to be able to issue more 
HUBZone set-asides. If there are more HUBZone set-asides, there 
are more companies that are going to enter the market.
    Ms. ADAMS. Very good. Thanks very much.
    Mr. Chair, I yield back.
    Chairman CHABOT. Thank you very much. The gentlelady's time 
has expired.
    The gentleman from New York, Mr. Espaillat, is recognized 
for 5 minutes.
    Mr. ESPAILLAT. Thank you, Mr. Chairman.
    Thank you all for your testimony. My question is to Mr. 
Alan Chvotkin. Did I pronounce that right?
    Looking at some of the most recent data available from the 
past two fiscal years, there has been a significant decrease in 
small businesses' contracting actions. This means, on the 
whole, that small businesses are either being priced out beyond 
their capacity, right, on what they can meet, what they are 
able to meet as small businesses, or that the market in which 
they operate may no longer be viable for them.
    Is this a trend that you believe is due to a demand for 
goods and services beyond what small businesses can offer, or 
have larger companies started to dilute and take away avenues 
for small businesses in the industry space?
    Mr. CHVOTKIN. That is a great question. The answer is more 
complicated. Certainly, small businesses have the capabilities, 
and what we see in the aggregation of contracts into larger and 
larger dollar value means that it puts a greater burden on 
those companies. There are also some significant rules changes 
that have an impact on the companies, a shift in how much they 
can subcontract, a limitation on subcontracting.
    I don't think there are segments of the marketplace that 
have been excluded, but what we see in the evolution of the 
procurement process, whether it be strategic sourcing or 
mandatory use, is that larger and larger segments of Federal 
spending are being taken off the marketplace. And because it is 
an objective to achieve a dollar value only, without regard to 
how many companies participate, many of the agencies are using 
that as a way to simply achieve their numerical goals and 
declare victory.
    Mr. ESPAILLAT. I see. My next question is first a 
statement. We want to support new entrants and the 10-point 
criteria in category management in a spirit meant to be a tool 
for greater inclusion of industrial base entrants.
    My first question is, with the use of contracting and 
bundling to meet the minimum benchmark, is it worth revisiting 
the standard? Any of you.
    Ms. BAILEY. Yes. I really think that that is a huge 
concern, because the larger these contracts are, the smaller 
companies are not going to have the past performance 
requirements in order to enter into the market, because we have 
seen cases where a small business has to have two or three $100 
million contracts in order to be able to be qualified to 
participate in a bid. Not too many small businesses have those, 
especially in the NAICS codes that a lot of the small 
businesses have in professional services and those like.
    So, I mean, as you bundle and make these larger and make 
them more restrictive, it is going to only allow the larger 
small businesses or those who have, you know, significant other 
past performance to participate.
    Mr. ESPAILLAT. So what would be the best help for small 
businesses in this aspect to become more competitive? What 
should they be doing? What should we be doing for them to make 
them more competitive then?
    Ms. BAILEY. I think that one of the things as far as with 
the category management, like I said before, is look at 
breaking down these vehicles into smaller components, where 
they are more specific, where smaller businesses can have past 
performance to participate in those areas. And by looking at 
those subcategories, that might enable more of these set-aside 
vehicles to be used at those levels and be able to participate 
from all of the socioeconomic classifications.
    Mr. ESPAILLAT. Thank you, Mr. Chairman. I yield back the 
balance my time. Thank you.
    Chairman CHABOT. Thank you very much. The gentleman yields 
back.
    I think that is all the questioners we have this morning 
and now into this afternoon. And we want to thank our 
witnesses, our very distinguished panel for all their testimony 
today.
    As we have heard the testimony, category management may 
have vast implications for small businesses and the industrial 
base that must be monitored closely. We need to continue 
working together in a bipartisan manner, as this Committee 
virtually always does, to ensure that the Federal Government 
acts swiftly and diligently to make sure these outcomes do not 
occur.
    And I want to, again, thank the panel for really shedding a 
lot of light that will help folks on both sides of the aisle on 
this very important issue.
    And I would ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record. Without objection, so ordered.
    And if there is no further business to come before this 
Committee, we are adjourned. Thank you very much.
    [Whereupon, at 12:17 p.m., the Committee was adjourned.]
    
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