[House Hearing, 111 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 111-104]
CAN DOD IMPROVE INNOVATION AND
COMPETITION IN ACQUISITION BY
BETTER UTILIZING SMALL BUSINESS?
__________
HEARING
BEFORE THE
PANEL ON DEFENSE ACQUISITION REFORM
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
OCTOBER 29, 2009
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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PANEL ON DEFENSE ACQUISITION REFORM
ROBERT ANDREWS, New Jersey, Chairman
JIM COOPER, Tennessee K. MICHAEL CONAWAY, Texas
BRAD ELLSWORTH, Indiana DUNCAN HUNTER, California
JOE SESTAK, Pennsylvania MIKE COFFMAN, Colorado
Andrew Hunter, Professional Staff Member
Jennes Simler, Professional Staff Member
Zach Steacy, Staff Assistant
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2009
Page
Hearing:
Thursday, October 29, 2009, Can DOD Improve Innovation and
Competition in Acquisition by Better Utilizing Small Business?. 1
Appendix:
Thursday, October 29, 2009....................................... 21
----------
THURSDAY, OCTOBER 29, 2009
CAN DOD IMPROVE INNOVATION AND COMPETITION IN ACQUISITION BY BETTER
UTILIZING SMALL BUSINESS?
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Andrews, Hon. Robert, a Representative from New Jersey, Chairman,
Panel on Defense Acquisition Reform............................ 1
Conaway, Hon. K. Michael, a Representative from Texas, Ranking
Member, Panel on Defense Acquisition Reform.................... 2
WITNESSES
Jenkins, Calvin, Deputy Associate Administrator, Government
Contracting and Business Development, U.S. Small Business
Administration................................................. 5
Oliver, Linda, Acting Director, Office of Small Business
Programs, U.S. Department of Defense........................... 4
APPENDIX
Prepared Statements:
Andrews, Hon. Robert......................................... 25
Conaway, Hon. K. Michael..................................... 27
Jenkins, Calvin.............................................. 37
Oliver, Linda................................................ 29
Documents Submitted for the Record:
Letter from Calvin Jenkins to Hon. Robert Andrews Regarding
Online Courses Related to Government Contracting Offered by
the Small Business Administration.......................... 45
Witness Responses to Questions Asked During the Hearing:
Mr. Andrews.................................................. 49
Mr. Cooper................................................... 49
Questions Submitted by Members Post Hearing:
Mr. Conaway.................................................. 53
CAN DOD IMPROVE INNOVATION AND COMPETITION IN ACQUISITION BY BETTER
UTILIZING SMALL BUSINESS?
----------
House of Representatives,
Committee on Armed Services,
Defense Acquisition Reform Panel,
Washington, DC, Thursday, October 29, 2009.
The panel met, pursuant to call, at 8:00 a.m., in room
1310, Longworth House Office Building, Hon. Robert Andrews
(chairman of the panel) presiding.
OPENING STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE FROM
NEW JERSEY, CHAIRMAN, PANEL ON DEFENSE ACQUISITION REFORM
Mr. Andrews. Good morning ladies and gentlemen. Thank you
very much for your attendance. We thank our colleagues on the
panel for their attendance, and especially the witnesses for
giving us their time this morning.
Yesterday, the President signed the fiscal 2010 defense
authorization bill. Let me say for the record we express our
appreciation to the professional staff and all the support
staff on both the minority and majority side for the excellent
work that these ladies and gentlemen did on that bill.
And the President highlighted in his remarks before he
signed the bill the need to achieve more efficiency in defense
procurement. As you know, he signed some provisions in that
bill which we believe will lead us to that result and enjoy
broad bipartisan support.
And of course earlier this year, the President signed a
major weapons system acquisition reform bill that the members
of this panel, both sides of the aisle, worked very hard on and
were pleased to be a part of.
One of the points the President made in arguing for the
need for efficiency was the principle that enhanced competition
enhances taxpayer value and warfighter value. One of the ways
that we have attempted to enhance competition is to engender
more small business participation in the procurement process.
And as this panel has continued our work, we have looked at
a series of hypotheses as to why the warfighters and taxpayers
do not get full value for the dollars that are provided, and we
have examined a number of hypotheses along that path.
The one we are looking at this morning would be the
implicit hypothesis that one of the reasons that we don't get
full value is we don't have robust competition.
And one of the reasons that we don't have robust
competition is we have, in some instances, inadequate small
business opportunities for small businesses to join the
competition, which not only enhances their commercial position,
but we believe would also enhance the value-added for the
taxpayer.
So this morning we are going to examine a number of
questions that revolve around the role of small businesses in
defense procurement competition. The data show that in fiscal
2007, of the $269.3 billion in prime contract awards for
procurement, small business awards totaled $55 billion of that
or 20.44 percent of the total.
By our standards that are in the law, that is a success.
The agencies responsible for enhancing small business
opportunities have targets to shoot at, and that 20 percent
total is very much in the range of the target that they are
supposed to shoot at.
This would on its face appear to be good news. There are,
however, questions that we want to explore in relation to these
data. The first is, to what extent do the data truly reflect
small business participation in the competition, and to what
extent are the data flawed by situations where the small
businesses are mislabeled and are not, in fact, operating as
small businesses? To what extent are the data accurate?
The second question is, to what extent is our premise
correct? Does small business competition in fact enhance
taxpayer value in quality or not? Superficially, it would
appear the answer is yes, but the panel has a responsibility
and an interest in going beyond superficiality to examine the
actual record.
And then finally, as a corollary to the second point,
indisputably there are administrative costs associated with
compliance with these kinds of small business goals and
targets. And I do think it is a fair question to ask, whether
the benefits of enhanced competition, in fact, substantially
outweigh the costs of administrative compliance.
I happen to believe that there is a happy middle ground
where we can expand and enhance competition, but we can do so
in a way that is efficient, that does not involve an overly
cumbersome process, and can serve the twin goals of enhancing
competition while minimizing additional administrative burden
and responsibility.
The way we will proceed this morning is that I am going to
ask my friend, the senior Republican on the panel, Mr. Conaway,
to make an opening statement, and when he has finished, without
objection, we will take opening statements from our other
members on the record.
We will then introduce the two witnesses. We have had a
chance to review your written testimony, so we would ask you to
orally summarize in about five minutes your written testimony
so we can maximize the opportunity for interchange with the
members of the panel.
So at this time, I am pleased to recognize Mr. Conaway for
his opening statement.
[The prepared statement of Mr. Andrews can be found in the
Appendix on page 25.]
STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE FROM
TEXAS, RANKING MEMBER, PANEL ON DEFENSE ACQUISITION REFORM
Mr. Conaway. Well, thank you, Mr. Chairman. I appreciate
you calling this hearing, and Mr. Oliver--excuse me, Mr.
Jenkins and Ms. Oliver, thank you for both being here. Our
panel has held hearings on everything from the Department of
Defense's (DOD) role in tackling the challenges facing the
industrial base to information technology contracting, to last
week's hearing where we looked at auditing.
I find it very appropriate that with today's subject we are
going from Wall Street to Main Street. Very few members of
Congress have multinational corporate companies in their
districts but every one of us have some form of small business
in our district.
I realize that today's hearing will focus on the Department
of Defense utilization of small business to improve innovation
and competition in defense acquisition. It is no secret that it
can be very challenging for small businesses to participate in
the defense acquisition process.
We are very fortunate to have a couple of expert witnesses
in front of us today to help us understand how we can continue
to help small businesses to successfully participate in the
system.
One question that I get asked from small business is in
regards to the small business set-asides, and I hope to learn
more about that today. But are there specific metrics, which
lead to the inclusion or exclusion of small business set-asides
in a request for proposal, and are set-asides more prevalent in
product development type contracts or maintenance and repair
contracts?
I also think that the news report this week of a scam, at
least the alleged scamming of the system, by a group of small
businesses in California speaks clearly to the chairman's
comments about the need to make sure that it is being policed
properly and that the right folks are in the competition. So I
look forward to our witnesses' testimony. Thank you for both
being here.
[The prepared statement of Mr. Conaway can be found in the
Appendix on page 27.]
Mr. Andrews. Thank you. Without objection, opening
statements from all panel members will be included in the
record. I am now going to proceed to introduce this morning's
witnesses. Ms. Linda B. Oliver is the Acting Director of the
Office of Small Business Programs for the United States
Department of Defense.
She assumed that position on January 21, 2009, the second
time that she has served in this capacity. She began her tenure
at the office as Deputy Director in December 2001. Her office
is responsible for establishing and enforcing DOD policies so
as to provide maximum practicable opportunities for small
businesses to successfully compete for DOD contracts.
Linda previously served in the Office of Management and
Budget (OMB) where she was Associate Administrator for
Procurement Law, Legislation and Innovation in the Office of
Federal Procurement Policy. I love these names that we have
created for these agencies.
Ms. Oliver began her federal government career as an
attorney with the U.S. Department of the Navy. During most of
her Navy service she specialized in federal procurement law.
While at the Pentagon, she was assistant general counsel at the
Office of the General Counsel, advising on contract claims
resolutions and has a tour at the Naval Air Systems Command
where she provided contracting advice to program managers.
Prior to joining the United States Government, she was in
private practice in Honolulu, Hawaii and Bremerton, Washington.
She has been a member of the Senior Executive Service since
1998. Her honors include Presidential Rank Award of Meritorious
Executive and U.S. Department of Navy Superior Civil Service
Medal.
Ms. Oliver, thank you for your service, and welcome to the
panel.
Mr. Calvin Jenkins is the Deputy Associate Administrator
for Government Contracting and Business Development. He was
appointed to that position by the Administrator of the U.S.
Small Business Administration (SBA) in October 2005.
Mr. Jenkins is the SBA's top career senior executive for
government contracting and business development programs. He is
responsible for overseeing the administration of the umbrella
office with jurisdiction over the agency's offices of
technology, size standards, government contracting, business
development Section 8(a), and small disadvantaged businesses
certification.
Other management positions held by Mr. Jenkins include the
Deputy Associate Deputy Administrator for Capital Access at the
SBA, Associate Administrator for Field Operations, District
Director of the agency's Washington district office and a
number of other positions.
He has been the recipient of several government service
awards including the SBA's Distinguished Service Award and the
1998 and 2004 Presidential Rank Award of Meritorious Executive.
He is a native of New York and holds a bachelor's degree in
economics and urban geography from the City College of New
York.
Mr. Jenkins, welcome.
Ms. Oliver, you are up. We ask you to, as I said earlier,
your written testimony without objection is included in the
record, and we would ask if you could synopsize it so we can
get to questions. Good morning.
STATEMENT OF LINDA OLIVER, ACTING DIRECTOR, OFFICE OF SMALL
BUSINESS PROGRAMS, U.S. DEPARTMENT OF DEFENSE
Ms. Oliver. Good morning, thank you. Good morning, Chairman
Andrews, Ranking Member Conaway, members of the panel. I thank
you truly for the work you have done on this panel. I have
spent most of my professional career concerned about
procurement and most of that procurement was in the Department
of Defense.
So I am grateful to have a distinguished group of people
focused with such good staff also focusing on procurement in
the Department of Defense. It is really important. And of
course, I am always pleased to be able to talk about small
business and how small business fits in to helping us provide
the best possible products and services for our warfighters at
the best possible cost to the taxpayers.
Last night when I was reviewing my written statement, and
particularly since Chairman Andrews has just said you have all
read what I had to say, it occurred to me that probably
although you know a lot about procurement, you are like a lot
of other people who know a lot about the big picture but not
about really very much about the small business specialist role
with the Department of Defense, and what small business
specialists do.
Well, it seems to me like you might want to know that
because as a response to Chairman Andrew's question, does small
business enhance competition? Yes of course. It seems like a
given to me, and I have addressed that in my remarks, my
written comments.
So I want to go on to talking briefly about what small
business specialists do, how they fit in to the whole process.
Most small business specialists in the Department of Defense
are contracting officers who have, I always think, sort of
gotten a master's in small business, although, of course, it is
not a formal thing, but they are specialists, specialists
beyond being contracting officers.
They work in the organization with contracting officers but
they actually report to the head of the organization, whatever
the head of the organization is, and their function is actually
to provide, to make sure that the Department of Defense
provides maximum practicable opportunity to the small
businesses.
But they do it by focusing within the Department of Defense
on the acquisition team, and so a small business specialist in
a well-run situation will be one of the early members on a
product integration team for example.
A small business specialist will help as the team does a
sort of a final refinement of the requirements. The small
business specialist works with the team to think about, all
right, now we have the requirement. What do we do to fill this
requirement?
It is important that small business specialists be involved
at that very early stage so that the small business specialist
can use their particular skills to devise the procurement which
provides the maximum practicable opportunity in that direction
you have given us.
The small business specialist will work with the team
throughout the entire procurement, and of course there is a
role for the small business specialist. There is an enforcement
role at the end of the contract.
I delve briefly into this so that you have a fuller
understanding that a small business specialist, it is not their
function, it is one of the things they do, but it is not their
primary function to do outreach and give speeches, to shake
hands. It is to understand and fit small business into the
Department of Defense procurement system.
Thank you very much. I will be happy to answer any
questions for you.
[The prepared statement of Ms. Oliver can be found in the
Appendix on page 29.]
Mr. Andrews. Ms. Oliver, thank you very much for your
preparation and your testimony this morning.
Mr. Jenkins, welcome to the committee. We are happy to have
you with us.
STATEMENT OF CALVIN JENKINS, DEPUTY ASSOCIATE ADMINISTRATOR,
GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, U.S. SMALL
BUSINESS ADMINISTRATION
Mr. Jenkins. Thank you, Chairman. Chairman Andrews and
other distinguished members of the committee, I want to thank
you for inviting me today to testify about the Small Business
Administration and its small business procurement-related
programs.
A key part of SBA's mission is to ensure that small
businesses receive a fair share of federal procurements. We
also include in that small businesses that are women-owned,
small businesses that are owned by individuals who are socially
and economically disadvantaged, small businesses that are owned
by service-disabled veterans and small business located in
Historically Underutilized Business Zones (HUBZone).
This mission is important because federal procurement is a
significant market for small businesses to sell their products
and services, and they contribute as a driver to the economy.
Earlier you mentioned some of the statistics regarding small
business share within the Department of Defense, but overall in
2008, federal procurement accounted for about $434 billion.
Of that, small businesses in general received about $93
billion. Small disadvantaged businesses received about $29
billion, women-owned small businesses $14 billion and HUBZone-
certified firms $10.1 billion, and also firms owned by service-
disabled veterans $6.4 billion.
Clearly, these are significant numbers. However, when we
look back at the procurement goals, consistently the federal
government has only met one goal, and that is the goal for
small disadvantaged businesses. We have yet to achieve the goal
for women-owned small businesses, service-disabled veterans as
well as HUBZones, and have not on a consistent basis even met
the goal for small businesses.
SBA's role in the procurement process, SBA helps agencies
try to meet these goals by working with them through our
network of procurement center representatives. These are
individuals assigned to major procurement buying activities
throughout the country. Their job is to, one, review
procurements in which the contracting activity feels that they
wish not to set-aside for small business.
We review those contracts and review the effort that the
contracting official put forth to try to identify small
businesses. Our first aim is to set those contracts aside for
small business, and then we look at whether or not those
contracts can then flow down to some of the socioeconomic
groups that I mentioned earlier.
SBA is also responsible for establishing size standards.
And one of the initiatives that we are currently embarking on
now is to re-evaluate all of the size standards. This is a
process which we just recently issued three of the next sectors
for public comment in which we are going to adjust those. A
number of agencies, including the Department of Defense, has
indicated that our size standards are at a level that are too
low, in order for them to continue to use small businesses in
federal procurements.
Based on the types of procurements that they are procuring,
the size of procurements that they are procuring, they need
more small business with more capacity and capability to
perform. So we are currently looking at that process.
We also just yesterday released regulations to streamline
and improve the 8(a) Business Development Program. Out of the
$29 billion in 2008, that program accounted for $16 billion.
However, the program is a Business Development Program not a
contracts program.
Contracts is just one of the tools we use over a nine year
period to assist those businesses, and so we are looking to
ensure that the program is streamlined and that the benefits of
the program truly goes to those that are eligible.
We are also looking to reduce risk and streamline the
HUBZone Program. We believe that program, unlike the 8(a)
Program, is more of a place-based program where the leveraging
of the federal contracts are used to improve distressed
communities.
Our concerns there is to ensure that that program has the
integrity built into it, and so we have undertaken a business
process re-engineering effort to ensure that it works
consistent with congressional intent.
Two other programs that help to contribute innovation are
the Small Business Innovative Research Program, SBIR and the
Small Business Technology Transfer, STTR. We are currently
waiting for reauthorization for both of those programs.
Certainly the Administration supports reauthorization, as well
as the business community there.
Thank you for the opportunity to speak with you this
morning. I would be happy to answer any questions you have.
[The prepared statement of Mr. Jenkins can be found in the
Appendix on page 37.]
Mr. Andrews. Well, thank you to each of you. We appreciate
your time and efforts.
Ms. Oliver, I would like to begin with you. When small
businesses win Department of Defense procurement contracts, is
the typical situation that they are competing against only
other small businesses or are they competing on a larger
playing field?
Ms. Oliver. I asked somebody to look up the numbers on
this, on the possibility that you would want to know that. As I
mention in my testimony, the amount that small business--the
amount of competition--when you look at the contracts that are
awarded to small business, and you say how much of this
business is competed----
Mr. Andrews. Right.
Ms. Oliver [continuing]. And you compare that to
competition in general in the Department of Defense, there is
much more competition where small businesses are awarded
contracts than the number overall. Those numbers are about--
competition rate for the Department of Defense is about 64
percent.
Mr. Andrews. Meaning that 64 percent of the contracts have
more than one bidder?
Ms. Oliver. The dollars, yes. For small business, it is
about 77 percent.
Mr. Andrews. So I think--that was my second question, which
I am glad you anticipated. My first one, though, is when a
small business is in a competitive situation, is its
competition other small businesses exclusively or is it the
entire range of competitors?
Ms. Oliver. That 77 percent is composed of full and open
competition. Let us see, I have a summary of this. I broke it
down. I had them break it down by the special categories.
Mr. Andrews. Right.
Ms. Oliver. That 77 percent is full and open competition
and full and open competition after exclusion of sources. Full
and open competition after exclusion of sources means a set-
aside, most frequently----
Mr. Andrews. Right.
Ms. Oliver [continuing]. A set-aside for small businesses.
Mr. Andrews. Right. So what share of that 77 percent is the
set-aside environment--I don't mean as the pejorative either. I
mean, in a, you know, limited market----
Ms. Oliver. No.
Mr. Andrews [continuing]. And what portion of it is not a
set-aside environment? You know, you don't have to be--just
roughly.
Ms. Oliver. It is----
Mr. Andrews. You can submit for the record.
Ms. Oliver. Let me submit it for the record because I----
[The information referred to can be found in the Appendix
on page 49.]
Mr. Andrews. Yes. But is it half and half, is it two-
thirds, one-third, about what is it?
Ms. Oliver. I would rather that--let us see--40, about 40
percent is full and open competition and about 37 percent is
full and open competition after exclusion of sources.
Mr. Andrews. Okay, that is good.
Ms. Oliver. So it went a little bit more----
Mr. Andrews. Yes.
Ms. Oliver [continuing]. Full and open, one on full and
open and one on----
Mr. Andrews. So when a small business gets a contract, 40
percent of the time that is after they have competed in full
and open competition.
Ms. Oliver. Yes. That is right.
Mr. Andrews. Thirty-seven percent of the time, it is when
they have competed only against other small businesses, and the
remaining, which would be 16 percent, if my math is right, is
where it is sole source? Would that be right?
Ms. Oliver. Yes, yes.
Mr. Andrews. Or 23--no 23 percent, I am sorry. At any rate
that is about the distribution.
Ms. Oliver. Well, there is one other category.
Mr. Andrews. Yes, what is that?
Ms. Oliver. Earmarks, earmarks do not count as competed.
Mr. Andrews. Nor should they. Nor should they. I agree with
you. And I assume earmarks bear a very small portion to the
overall universe.
Ms. Oliver. I don't have it broken out into subcategories,
but it looks to me, among my figures, that it is a little bit
over 12 percent.
Mr. Andrews. That is interesting. That is interesting. Now,
are there any--now, given these four categories, right, once
your small business wins a contract sole source, small business
gets an earmark, small business competes against all comers,
and small business competes against other small businesses.
Are there any data that compare the price that the
taxpayers pay for that product or service versus a competition
where there is no small business involved? Do you understand
what I mean?
Let us say that in the full and open competition segment,
the product that is being purchased is a sheet metal produced
product for a refrigeration unit, okay? And we have a similar
product where there is no small business competition, and then
we have the marketplace where there is small business
competition.
Are there any data on, comparing apples to apples, are
there any data on the price differential results from that
competition difference?
Ms. Oliver. There are none that I have. However, I will be
happy to go back. I do have some people who are just astounding
at being able to figure out what it might be, and I will
surely----
[The information referred to can be found in the Appendix
on page 49.]
Mr. Andrews. Yes, we would be very interested, and I will
tell you why, because as I said, at the outset of the hearing,
to me it is intuitively true that broader competition produces
a better result, but I don't want to rest on my intuition.
I would actually like to see the data which leads to the
second point that I made. To play devil's advocate for a
minute, there are people who would argue that the incremental
gain that we get from the increased competition is more than
offset by the administrative cost of qualifying people and
figuring that all out. I don't think that is true, but again I
would like empirical evidence that would demonstrate that.
Let me just move on to Mr. Jenkins, if I may, because I
want to make sure our colleagues get time. Mr. Jenkins, I want
to describe to you a concern that I think the members would say
is heard throughout the country in all districts and see if I
can get an answer as to how I would help my constituents.
I had a constituent who came in, runs a business with very
small, like 45 employees, and they make a floor coating product
that helps in industrial situations to keep the floor clean and
protected. And they are near an Air Force base in New Jersey.
No, they actually came in and they said, ``Look, like
everybody else, we are hurting in this economy, we are looking
for some contracting opportunities. How do we get involved in
the defense field? We are near an Air Force base, airplane
hangars use the kind of product that we make. We would like to
compete for the right to sell this product to the Air Force
base.''
And we went about trying to help them, but what is the best
answer I could give them is to say here is how you do it. Here
is how you can get yourself on the list to compete for the
right to sell this floor sealant to the Air Force base, and
maybe pick them up with as a customer. How do they do that?
Mr. Jenkins. Sure. There is a number of ways and various
strategies that we present to small businesses and try to help
them.
How do you get into the federal procurement arena? One, you
have to do your homework. For example, the federal procurement
data system, which is all of the federal procurement data, is
just packed with information as----
Mr. Andrews. It has too much----
Mr. Jenkins. Well----
Mr. Andrews [continuing]. As far as they are concerned.
Mr. Jenkins. Well, I think if, you know, there is help that
can kind of help them weed through that.
Mr. Andrews. I don't want to cut you short, but I want to
focus the question this way----
Mr. Jenkins. Yes.
Mr. Andrews [continuing]. And you understand this, because
you work with these businesses all the time. You know, they may
have 3 or 4 administrative people out of those 45. And if they
guess wrong and go after the wrong contract because it is just
way out of their league to get, they have just wasted an
enormous amount of time and money and taken a big step
backward.
So how do they deal with this information flow? How do they
figure out more surgically which is the right contract for them
to go after and how to do it?
Mr. Jenkins. Well, once again, I really have to point you
to the federal procurement data system. And the only reason why
I do that is it is the eyes for all of federal procurement as
to what happens.
Let us say that company sells about less than $1 million of
product. They can go into the system, and see what agency
actually purchased the item and what volumes had previously
been purchased.
Mr. Andrews. Right, that would be important.
Mr. Jenkins. If they look and all of a sudden see that that
Air Force buys in huge quantities that they can't actually
supply, then they need to shift their strategy a little bit.
Mr. Andrews. Got it.
Mr. Jenkins. They also have access to our procurement
center representatives. SBA has cognizance over all federal
procuring and buying activities. We have individuals stationed
at the major ones, but we can go in and sort of introduce that
individual to the small business office at that buying
activity. One of the strategies we talk about is don't
necessarily spend a lot of time with the contracting officer.
Spend time with the actual user.
Mr. Andrews. Right. Is there an online tutorial as to how
to use that data system you referenced a few minutes ago?
Mr. Jenkins. There are a few online. SBA recently
introduced How to Win Federal Contracts, an online course,
offered toward small businesses, women-owned small businesses
and----
Mr. Andrews. Because I think you gave a great example, that
if I were running that floor coating business, and I saw that
the Air Force never bought in quantities of less than two
million gallons and that is my entire output for the year, I am
crossing that one off the list.
But knowing where to look for that, and how to slice the
data to find it is something I wouldn't know how to do. So I
would think--I would like to take a look at those online
courses, if I could----
[The information referred to can be found in the Appendix
on page 45.]
Mr. Jenkins. Sure.
Mr. Andrews [continuing]. And thank you. That is very
helpful.
Mr. Jenkins. Yes.
Mr. Andrews. Mr. Coffman.
Mr. Coffman. Thank you, Mr. Chairman. I think your point is
very interesting about simply the volume of some of these
contracts and has there been a thought to, I mean, for those
that produce products probably more than services, such as the
one that the chairman mentioned, has there been a thought to
breaking it down a little bit more for small business, in terms
of quantities?
I know that is probably inefficient in terms of costs, in
terms of economies of scale, but has there been consideration
for that?
Mr. Jenkins. From SBA's standpoint, it is certainly one of
our key strategies. When we send our procurement center
representative into a buying agency and we look at a
procurement, one of the things we try to go through with the
buying activity is different strategies to increase small
business participation.
So if we do see a procurement where it is structured in a
certain way that precludes small business participation, we try
to work with that agency to structure it in such a way that we
could increase small business participation.
Mr. Coffman. Okay.
To Ms. Oliver, you mentioned the earmark issue, and is that
when--I mean, I am new to Congress--and so it is when you would
just, I mean, trying--where it would impact a specific small
business.
Where you would earmark and say I have got a small business
in my district that produces a very specific product that--let
us say it is ceramic plates for the bulletproof vests, for the
protective body armor.
And so what I want to do is put an earmark in for that
small business to produce that particular product, and that is
generally how it is done. Is that correct?
Ms. Oliver. That is correct. I believe, currently, the
requirement is that they--don't rely on this--ask somebody on
the legal staff. I believe the current requirement is that the
congressperson have passed into law legislation that says this
amount of money for this purpose to this organization. I think
that is the format it takes.
Mr. Coffman. Yes, I see. And in your view, in terms of the
cost effectiveness of that, could you respond to that?
Ms. Oliver. Of earmarks?
Mr. Coffman. Related to a specific firm to produce a
specific product or service. Am I----
Ms. Oliver. That is sort of slightly outside my area of
competence, but----
Mr. Coffman. Okay.
Ms. Oliver [continuing]. But you know it depends on who
knows what. In terms of is it actually it efficient, it depends
on who knows about it. And I mean by that I am not too quick to
say that a Congressman sometimes doesn't have special insights
about the capabilities of people in their district.
Now, I understand all the problems with earmarks, and I
definitely am in favor of competition and I speak only for
Linda Oliver, not for the Department of Defense--but I don't
discount that the--I don't just automatically discount, in my
mind, about whether the Congressman is--whether this is an
uneconomic thing to do. I think sometimes it is.
Mr. Coffman. Thank you.
Mr. Jenkins, on the notion of set-asides, I mean, all
categories, can you define to me the different categories that
there are? I know it is women-owned and minority-owned small
businesses, but what are the other set-aside areas that we use
right now?
Ms. Oliver. Sure, the first one and probably most noticed
is the small business set-aside. Then you have the set-aside
for service-disabled veterans. The women-owned set-aside
program has not been put in place yet. SBA has regulations over
to the Office of Management and Budget to establish that set-
aside program. You also have a set-asides within the HUBZone
Program itself.
And in terms of how we have set-aside procurements or how
SBA requests set-asides from the agencies, we look for at least
two or more small businesses that can provide the product or
services to the agency to meet their needs.
The companies have to also be competitive, meaning their
price has to be competitive because every procurement that is
issued, the contracting officer has to attest that the price is
fair and reasonable.
And so we look at that area first and that becomes the
basis for the market research, are there two or more small
businesses out there? Can they provide a competitive price to
meet the needs of the agency?
Mr. Coffman. Mr. Jenkins, I have seen so many different
definitions of small business. Is there, for purposes of DOD
procurement, is there one definition for a small business and
is that by the number of employees?
Mr. Jenkins. Unfortunately, there are not. There are
probably common standards but there are various industries and
because of the number of industries, there are different size
standards that go with each of those industries.
Commonly, you would see maybe 500 or less in terms of
number of employees would define a small business where it is a
manufactured item. So, on the manufacturing side it is number
of employees. On the service-based side, it is the end of the
revenues of the business over a three-year period of time.
Mr. Coffman. Thank you, Mr. Chairman. I yield back.
Mr. Andrews. Thank you very much.
The chair recognizes Mr. Ellsworth.
Mr. Ellsworth. Thank you, Mr. Chair, for calling this
timely meeting. I just had some gentlemen in my office this
week. They were talking about the system, I guess I will call
it a system, where a small--or a large business would
subcontract, create a small business in order to bring even
more in.
And I was curious--I know that there is occurrences in the
HUBZones where large businesses rent a storefront somewhere in
a downtrodden area to get those benefits. But I was curious how
large of a problem both of you see this is where--how pervasive
it is?
And then how many people do you all have dedicated to that,
to weed that out? You know, let us say, we used to call them in
Indiana ``hogs at the trough.''
So how much effort, how pervasive is the problem where
large companies are creating these small companies, and I know
that, you know, I know back at home I hear this where you would
see someone where the requirement is for minority-owned and
female-owned and all of a sudden you see somebody start a
business whether it was laundry cleaning or linen service,
somebody who never had a business in that, no storefront, and
all of a sudden they got the contract whether--you know.
Can you explore that a little bit and how big of a problem
that is and how far you go and how many resources do you have
dedicated to weeding that out and stopping that?
Ms. Oliver. That is fine. We will do a tag team here.
Mr. Jenkins. There you go.
Ms. Oliver. I think that the extent of the problem is
exaggerated. And this is in part because it is very hard for a
small business--it is very hard for any business to--when they
don't win to contract to attribute the problem to themselves,
and this is just hard.
So people are quick to look for other reasons; reasons
external. And that is the reason that fairly frequently, when
we pull a string on one of these, it turns out not to be quite
what the small business owner thought was happening.
There are two--well, at least two sources of--the most, let
me say, put it this way--the most frequent sources of small
business credit being taken when it is a large business
performing the contract, there are two primary sources, in my
opinion, and we spend a lot of time trying to get the record
right.
One is when a big business buys a small business, but the
small business had a contract. That contract continues to be
performed even though it is now no longer--the Department of
Defense no longer gets credit for it being a small business for
example. So that is one legitimate way.
Another way, to be honest with you, is data input is a huge
problem, and it is especially a huge problem if the system is
set up and it is the sensible way of having lower-level people
do the data input. Now, we are working hard on that at the
Department of Defense.
But the biggest reason--every time I try and track one of
these things down, what has really happened is somebody has a
stack of papers they want to get through. They have no idea
that the numbers are even used by anybody. They just know they
need to get through it. So they put in whatever will make the
program move forward to the next thing, and they kind of learn
how to do that.
If they don't think the data is valuable, I can surely
understand why they are putting in inaccurate data, and that
happens really frequently. This doesn't happen hugely
frequently, but when there are problems, that is very
frequently the source of it, as opposed to some sort of
conspiracy to have the data show something which it isn't
showing. We are not clever enough to be good conspiracists to
be honest with you. Anyway, that is the way that I say the
problem is exaggerated.
Mr. Jenkins. Yes, I have to tend to agree with Linda. We
have looked at the data, for example, in the 2005 small
business procurement data, and when we went back to the various
federal agencies we had to reduce the amount of achievements by
about $5 billion. The large amount of that was due to, as Linda
said, data entry errors.
We have found just minimum amount of cases where someone
deliberately said, ``I am a large business, and I am going to
certify myself as small.'' We also had to change the entire
process. In years past, prior to 2007, if you were a large
business, and you purchased a small business, that contract was
hardwired forever to still show up as a small business
contract.
We changed that rule in 2007 to say within 30 days of a
large business purchasing a small business, that entity has to
recertify to the contract and also that they are still small or
that they are other than small. Then the contracting officer
can no longer get credit as small business.
We also have some mechanisms in place, if a small business
believed that someone won a contract on a small business set-
aside and they are not small, they can protest that to SBA, and
we have staff throughout the country that process those
protests.
We also do ongoing certification reviews of firms within
the 8(a) Program. We are required to do annual reviews to
ensure that they are continuing to be eligible. As I mentioned
earlier, we are revitalizing or changing the entire HUBZone
Program to put more integrity in that program and minimize the
risk of someone setting up a storefront in an underutilized
area and really don't qualify for the program.
Also in the service disabled veterans program, there is a
protest mechanism as well. So we have staff in place that are
reviewing those and certainly, if any small businesses have
some concerns or we can identify a firm they have concerns, we
will certainly look at those.
Mr. Andrews. Thank you, Mr. Ellsworth.
Chair recognizes Mr. Cooper.
Mr. Cooper. Thank you, Mr. Chairman. I would like to
explore with Ms. Oliver the earmark situation.
Ms. Oliver. Okay.
Mr. Cooper. You mentioned a figure of 12 percent, what is
that 12 percent of?
Ms. Oliver. I need to get you, probably, a better figure.
[The information referred to can be found in the Appendix
on page 49.]
Ms. Oliver. The number is probably accurate, but the
composition of the number may be not completely accurate. Under
not available for competition, we look at not available for
competition, the number--and these are the 2008 numbers--the
number is 12.69 percent.
I don't know if I can break it out where you can go back to
the folks who gave me the numbers and break that specifically,
you know, which subcategories that falls into. I know earmarks
is----
Mr. Cooper. So this would be a total Pentagon small
business procurement?
Ms. Oliver. Yes.
Mr. Cooper. Or total Pentagon procurement or----
Ms. Oliver. But small business.
Mr. Cooper. Small business.
Ms. Oliver. Yes.
Mr. Cooper. Okay. So 12 percent of that universe is not
available for competition because it is a congressional
earmark?
Ms. Oliver. It is not available for competition. A good
portion of that will be an earmark, but I don't know what the
proportion is. I don't know what is in that whole category. I
mentioned earmarks to Chairman Andrews because we were going
through a list of reasons they might not be competed, and one
of the ones that he had not thought about was earmarks.
Mr. Cooper. So this category is not only not available for
competition it is also not subject to regular small business
rules, right? They can bypass all those rules?
Ms. Oliver. With an earmark you mean?
Mr. Cooper. Yes.
Ms. Oliver. Yes, we do whatever you tell us to. I mean, you
make the law.
Mr. Cooper. And so it doesn't have to be a small business
or a minority business----
Ms. Oliver. No.
Mr. Cooper [continuing]. Or a disadvantaged business----
Ms. Oliver. No.
Mr. Cooper [continuing]. Or a woman-owned business or
anything like that?
Ms. Oliver. No.
Mr. Cooper. It doesn't even have to be a small business?
Ms. Oliver. No.
Mr. Cooper. It can be a large business?
Ms. Oliver. Absolutely.
Mr. Cooper. And the Pentagon doesn't even necessarily need
what they are producing?
Ms. Oliver. All that is true.
Mr. Cooper. So this is very curious category here. Has that
category been growing or shrinking in recent years?
Ms. Oliver. I don't know but I definitely can----
Mr. Cooper. Find that out for me?
Ms. Oliver [continuing]. Find that out for you, and I would
be happy to.
[The information referred to can be found in the Appendix
on page 49.]
Mr. Cooper. Is there any record of the usefulness or the
viability of these earmarks and the services they produce? You
said you didn't want to assume that Congressmen didn't know
what they were doing, but some of us might assume that.
[Laughter.]
Ms. Oliver. It is very hard to--I don't--that is one that I
wouldn't know how to help people get at because usefulness is
sort of in the eyes of the beholder. If we could think of a
way, an indication of what might mean not useful and, you know,
some way to tag it to the data system, I can get people to look
at those tags.
Mr. Cooper. But these are specific businesses that are
mentioned by name in the legislation or in the report language?
Ms. Oliver. Yes, there is a----
Mr. Cooper. They get the money.
Ms. Oliver. Yes. There is a--and it isn't even a report. At
least last year there was a list that was specific. I mean, it
was so that we could clearly understand what Congress wanted us
to do and----
Mr. Cooper. And we are talking here----
Ms. Oliver [continuing]. A version of greater than----
Mr. Cooper [continuing]. Just in the DOD area because
earmarks exist in many other areas as well, but now we are just
talking about national defense?
Ms. Oliver. That is, last year, the appropriation I paid
attention to. I can't--I don't know for sure about the other
areas, the other appropriation acts.
Mr. Cooper. So essentially we have a small business program
here in DOD, and then we have this earmark program which may or
may not be small business?
Ms. Oliver. Well, let me tell you how we arrived at those
numbers because I have misled you I am afraid. We looked at
contracts awarded to small business, and then we put those into
pockets, into categories.
Mr. Cooper. Okay.
Ms. Oliver. And of contracts awarded to small business,
about 77 percent of them were competed. If we look at the
other--whatever the number is--17--27--whatever the rest of it
is, if we break that number down, two of the categories are not
available for competition and another category--the two biggest
other categories are not available for competition and not
competed.
Mr. Cooper. So you were just referring to the earmarks that
went to small businesses?
Ms. Oliver. Yes.
Mr. Cooper. And there is another larger universe of
earmarks probably that went to other businesses.
Ms. Oliver. That is right. I was only focused on small
business numbers.
Mr. Cooper. Do you think----
Ms. Oliver. I don't know whether--from a percentage
standpoint, I don't know whether small businesses or other than
small businesses get the higher percentage of earmarks. My very
partisan in favor of small business guess is that the ``bigs''
aren't as competitive and get more earmarks, but, I mean, that
is maybe just wishful thinking.
Mr. Cooper. I see my time is expiring. If I could have one
more question to Mr. Jenkins. He had mentioned that SBA is
thinking of raising the size standards for small business so
that more capacity could be in that category? Was that----
Mr. Jenkins. Well, I don't want to necessarily say raise
it. We were doing a comprehensive review of all of the size
standards and some--and in a number of industries we will
certainly see that they will go up.
Mr. Cooper. Yes. Is this kind of like the super-size me
approach, so no longer we are talking about small business, but
you are going to go for medium-sized businesses, too, and we
will have a medium-sized business program?
Mr. Jenkins. Well, no. Hopefully--that is not our aim and
that has been our challenge is to strike that balance. A lot of
our data and a lot of our analysis is dependent on federal
procurement. Our size standards also apply to our lending
program as well, and so it is a very extensive analysis.
We spent a lot of time developing the methodology, and we
have listed the methodology out there for the public to review
that as they submit their comments. And certainly we expect
some comments to come in and say, hey, your methodology might
be flawed or that you raised these standards too high and here
is the reasons why. And certainly we are open to look at those.
Mr. Cooper. I thank the Chair.
Mr. Andrews. Thank you, Mr. Cooper. I do have a couple of
follow-up questions. Do any other members have, and Mr.
Coffman, would you have any follow ups?
Mr. Coffman. Well, Mr. Chairman, one of my military
legislative assistants raised the prospect, Ms. Oliver, that
the DOD does have some discretion on earmarks up or down in
evaluating their efficacy. Could you respond to that now or get
back to the committee later on with that?
Ms. Oliver. Yes. The Department of Defense has some
discretion about following or doing what is an earmark. It is
the discretion you have given us because we have to do exactly
what you tell us to do, but particularly on spending money.
There is less flexibility with spending money. I mean,
there may be--I am not quite sure--I probably am not completely
sure what--your staffer is thinking of something, and I am not
meeting--I am not thinking of what it is.
Whoever is wondering didn't just make it up out of this.
There is something there, but I don't know what it is. I don't
know what to address.
Mr. Coffman. Maybe that is something----
Mr. Andrews. Would the gentleman yield? I wonder if Ms.
Oliver would--my understanding is there is a distinction
between statutory language----
Ms. Oliver. Yes.
Mr. Andrews [continuing]. ``The DOD shall spend the billion
dollars on X.''
Ms. Oliver. Right.
Mr. Andrews. And report language which is directive with
respect to an existing program element (PE) number, where if
there is a PE number that has a billion dollars in it, and the
committee in its report says the committee directs, urges--
there is various permutations of this--the committee directs
that money be spent to buy widgets. My opinion is you would
have a lot more discretion over that because it is not a
statutory direction. I think that may be what we are getting at
here.
Ms. Oliver. That makes sense, yes. I think that is probably
true.
Mr. Andrews. Although I think the custom has been to treat
that report language as directive, it has not been a universal
or exhaustive practice, something we ought to think about in
how we conduct our business.
Mr. Ellsworth, did you have any follow up?
Ms. Oliver, I did have a question on SBIR----
Ms. Oliver. Yes.
Mr. Andrews [continuing]. Which we think is a very valuable
tool, not only in expanding small business opportunities, but
putting us on a much sharper cutting edge for the kinds of
products that we buy.
I am particularly interested in the Pre-Milestone A
material acquisition area, where we have a material solution
process going on within the Department. We are Pre-Milestone A.
The reason I ask this question is that I think evidence,
anecdotal evidence has shown some really terrific ideas to come
out of small businesses in that phase.
But once we get beyond A and certainly when we get beyond
B, almost by definition, the small businesses are in very deep
water and don't have a chance to contribute as much. What
mechanism do we have in place Pre-Milestone A in these material
solutions contexts, to make sure that there is an active
outreach effort to the small business that may have a great
idea but not a whole lot of capital to develop it? How do we do
that?
Ms. Oliver. Well, that is one of the things we are working
on. To be honest with you, we need to do a better--we in the
Department of Defense have to do a better job than we are doing
in making program managers understand that if there is an SBIR
product or almost product, they need to consider it.
It is so hard to put a program together, and there are so
many----
Mr. Andrews. Yes.
Ms. Oliver [continuing]. Things to think of. I do
understand why a program manager might say, ``I don't want to
hear anything more about anything. I am overwhelmed here. I am
overloaded.'' Well, we have to do a better job in helping them
understand----
Mr. Andrews. How does the program manager educate himself
or herself about those possibilities? Let me use an amateur
example, but----
Ms. Oliver. Okay.
Mr. Andrews [continuing]. If I am in charge of a material
solutions process, I know there are certain vendors to whom I
can go, the biggies, as you call them, that probably have a dog
in the hunt.
Ms. Oliver. Yes.
Mr. Andrews. But I am just not going to be aware of a five-
person company spun off of Stanford University or Massachusetts
Institute of Technology (MIT) or Cornell----
Ms. Oliver. Yes, yes.
Mr. Andrews [continuing]. Regulars. How--and I don't expect
these program managers to spend their whole day looking for
those. That would be pretty inefficient. How do we set up--this
is not a rhetorical question--how do we set up a system where
he or she can be aware of the creative, entrepreneurial,
dynamic, small decisionmakers out there? How do you do that?
Ms. Oliver. It is function of resources.
Mr. Andrews. Yes.
Ms. Oliver. Not to get off on a hobby horse, but the SBIR
program is almost unique, not completely, but almost unique in
that you may not use program funds to administer the program.
Mr. Andrews. Yes.
Ms. Oliver. That makes things like helping program managers
understand what is out there, that makes it sort of a luxury in
a way for the program managers. The Department of Navy has done
a good job on it.
Mr. Andrews. Yes.
Ms. Oliver. And there are----
Mr. Andrews. So if our rules say that all of the SBIR money
must go for contracts and grants to the recipients----
Ms. Oliver. That is correct.
Mr. Andrews [continuing]. But you have got to eat the
overhead through some other aspect of your budget basically?
Ms. Oliver. I didn't hear the last.
Mr. Andrews. How--the overhead to----
Ms. Oliver. Yes.
Mr. Andrews [continuing]. To give the money out----
Ms. Oliver. Yes.
Mr. Andrews [continuing]. Has to come from some other pool
of money?
Ms. Oliver. Yes.
Mr. Andrews. Would you favor and, you know, not speaking
for the Department, just your professional opinion as someone
who knows this area, would you favor a small administrative
set-aside in SBIR that would give the program managers some
support for that?
Ms. Oliver. Yes. I think you have to have money to run a
program well.
Mr. Andrews. I mean, my instinct would be that the savings
would be multiples of the set-aside. If you had some program
support for the small business--for the program manger in the
material solution context, to find the five people at Stanford
that have a great idea about this, that even if they don't wind
up awarding the contract to that enterprise, the competition
that would be stimulated would probably bring the price down of
the contract they would eventually award and maybe sharpen the
competition in a qualitative way as well.
Ms. Oliver. Absolutely.
Mr. Andrews. You would agree with that idea?
Ms. Oliver. Absolutely I do.
Mr. Andrews. Well, ladies and gentlemen, we have really
benefited from your hard work and preparation for today. And as
I say, I start with the presumption that competition enhances
value and that broader small business participation enhances
competition.
I think it would behoove us, wherever we can, to put
empirical data behind those suppositions because it would then
give the committee the intellectual heft, as it were, to make
the argument that there should be some changes in the law that
would benefit small businesses and benefit the country.
So we are interested in whatever you can do to supplement
the record. A number of members asked questions that would help
us do that. And as we proceed in this process, the panel during
the end of this calendar year and early of next year, is going
to be meeting to consider a series of recommendations, which
will take the form of a report which will hopefully then take
the form of legislative language in the fiscal year 2011
authorization bill.
We would welcome your input into that process, that we
would hope that your participation would not end with today's
hearing but, in fact, would begin with it.
Again, we thank you for your involvement. I thank my
colleagues, and the hearing stands adjourned.
[Whereupon, at 8:58 a.m., the panel was adjourned.]
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A P P E N D I X
October 29, 2009
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
October 29, 2009
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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DOCUMENTS SUBMITTED FOR THE RECORD
October 29, 2009
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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WITNESS RESPONSES TO QUESTIONS ASKED DURING
THE HEARING
October 29, 2009
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RESPONSES TO QUESTIONS SUBMITTED BY MR. ANDREWS
Ms. Oliver. The following is provided to identify the competitive
break-down of dollars awarded to small businesses in FY 2008, based on
information generated from the Federal Procurement Data System - Next
Generation (FPDS-NG) as of September 22, 2009. Of the $62.027B awarded
to small businesses, $24.9B or 40 percent of the dollars were awarded
using full and open competition where competition was not restricted to
small businesses. Another $23.2B, or 37 percent of the dollars were
awarded using full and open competition after exclusion of sources
which means competition is restricted in some manner, such as for small
business set-asides. The remainder of the dollars awarded to small
business were either not available for competition 12.69 percent or not
competed 9.7 percent. A contract action is categorized as not available
for competition in limited cases such as when a law specifies a
particular source, sole source awards to 8(a), HUBZone or Service-
Disabled Veteran-Owned Small Business concerns, international
agreements, items bought for resale in the commissary, or utilities.
Other non-competitive awards are reported as not competed. [See page
8.]
Ms. Oliver. The following is provided in response to the question
of whether there is a price differential realized when there is small
business competition in the market place. The DOD Office of Small
Business Programs relies on the data and reports that can be generated
from the Federal Procurement Data System - Next Generation (FPDS-NG).
For awarded contracts, FPDS-NG contains data elements that allow for
reporting the dollar value of contracts awarded by DOD and other
federal agencies. However, information in this database does not
include the prices that the government may have received in the
competition process from unsuccessful offerors. In addition, reports
generated from FPDS-NG do not offer the opportunity to assess
competition and pricing differences between full and open competition
and those competitions that have been set aside for small business
concerns (full and open competition after exclusion of sources). It
should be noted however, that when a small business concern is awarded
a contract under full and open competition, it is competing against all
offerors, regardless of their size. FPDS-NG reporting for FY 2008,
indicates that $24.9B or 40% of dollars awarded to small business
concerns resulted from full and open competition and another $23.2B or
37% of dollars awarded to small business concerns resulted from full
and open competition after exclusion of sources. These statistics
support the premise that small businesses are price competitive in open
market competitions. [See page 9.]
______
RESPONSES TO QUESTIONS SUBMITTED BY MR. COOPER
Ms. Oliver. The following is provided to clarify what type of
actions compose the 12 percent of dollars awarded to small business
that are reported as Not Available for Competition. The DOD Office of
Small Business Programs relies on the data and reports that can be
generated from the Federal Procurement Data System - Next Generation
(FPDS-NG). DOD contract awards that were made to small businesses in
Fiscal Year (FY) 2008, total $62.027B. The 12 percent mentioned is
actually 12.69 percent and represents the total amount of DOD contract
awards that were made to small businesses that were reported as Not
Available for Competition. This amount is $7.84B of the total.
Contracts reported in this category include those where statute
expressly authorizes or requires that the acquisition be made from a
specified source or through another agency. For example, awards to
Ability One, sole source awards to 8(a), HUBZone, or Service-Disabled
Veteran Owned small business concerns. Awards authorized by statute
comprised $7.7B of the dollars awarded to small business that were
reported as Not Available for Competition, with the remainder reported
as being authorized by international agreement. Contracts for earmarks
do not automatically fall into this category. Unless law specifically
requires procurement from a specified source, the buying office must
compete a new contract for an earmark or justify a non-competitive
award consistent with the exceptions authorized by the Competition in
Contracting Act. [See page 14.]
Ms. Oliver. We obtained data from the earmark database managed by
Office of Management and Budget to answer the question whether earmarks
have been growing or shrinking in recent years. The database reflects
that in Fiscal Year (FY) 2008 there were 2,275 earmarks for DOD
totaling $7.8B, down from 2,636 earmarks for DOD in FY 2005 totaling
$9.3B. [See page 15.]
?
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING
October 29, 2009
=======================================================================
QUESTIONS SUBMITTED BY MR. CONAWAY
Mr. Conaway. I want to focus on small business set-asides in DOD
contracting for a moment. In your experience, are there certain types
of procurements--be it product development, maintenance and repair,
etc.--that achieve stronger results with small business set-asides in
them?
Ms. Oliver. There is no specific area; small businesses are capable
of providing and performing a wide range of products and services for
DOD. Based on contract award data from the Federal Procurement Data
System - Next Generation for Fiscal Year 2008, areas where small
businesses achieve strong results include information technology,
professional scientific, technical services and wholesale and retail
trade.
Mr. Conaway. We have all seen and understand that resources are
tight these days, and we all share a responsibility as stewards of
taxpayer funds. In your experience, what level of savings do small
business bids on DOD contracts achieve for the government and the
taxpayer? Can you detail it in any specific way for us?
Ms. Oliver. The Department maintains no data that would show the
level of savings that small business bids achieve on DOD contracts.
However, it is instructive to look at DOD contract awards that were
made to small businesses in Fiscal Year (FY) 2008. These awards total
$62.027B. Of this amount, forty percent, or $24.9B, are contracts that
were awarded to small businesses under full and open competitions. This
strongly suggests that small businesses are competitive and bring the
best value to the taxpayer. It is also instructive to note that another
$23.2B, or 37.4 percent of DOD contracts that were awarded to small
businesses were competed under full and open competition after the
exclusion of sources (i.e., set aside for small business). The total
percentage of competed contracts for small businesses (both full and
open and full and open after the exclusion of sources) is more than 77
percent. Competition among small business is valid competition that
brings best value and savings to the taxpayer.
Mr. Conaway. Can you give us an idea what leads to the inclusion or
exclusion of a small business set-aside in an RFP? As an example, the
P-3 Orion, an airplane which is seeing extensive use in a vital role in
Iraq, is currently the subject of a draft RFP for Programmed Depot
Maintenance (PDM). The current draft RFP does not have a small business
set-aside in it, yet the service is considering it for the final RFP. I
am aware of small businesses that can perform this work for the Navy
but would be shut out of the competition if there is not a small
business set-aside included in the final RFP. Given the demand for
these airplanes around the world, shouldn't we include a small business
set-aside in the RFP that can serve as an additional source of repair
for the Navy?
Ms. Oliver. To clarify a potential misunderstanding derived from
the question posed--the P-3 Orion RFP referenced is not for PDM (Phased
Depot Maintenance), but for the maintenance, repair, and modifications
of the Navy's P-3 aircraft. The Navy Program Office, PMA-290, recently
completed a comprehensive review of six potential small businesses who
expressed interest in the contract being designated a full or partial
small business set-aside during the pre-solicitation Industry Day. The
review was conducted using NAVAIRSYSCOM Sources Sought Process
Guidebook to ensure a consistent methodology was used to evaluate the
company's ability to meet minimum capability and capacity requirements
necessary to meet the Navy's requirements. It is the assessment of
PMA290 and the NAVAIR Procurement Contracting Officer that this
contract is not suitable for set-aside to small business. However the
evaluations and recommendation are still under review by the NAVAIR
Small Business office (OSBP) and the Small Business Administration's
Procurement Center Representative (PCR) as part of the Small Business
Coordination Record (DD2579) process. Once recommendations are received
from the OSBP and PCR, the contracting officer will make the final
determination of the acquisition strategy.
Mr. Conaway. The Small Business Acquisition and Sustainment Tool
(SbAST) is being conducted as a total small business set-aside by the
USAF and specifically Warner Robins ALC. The contract requirements
include maintenance, repair, modifications, upgrades, and enhancements
for reliability, serviceability, maintainability, and performance
improvements for Air Force operated systems at Warner Robins Air
Logistics Center. I recently spoke with the CEO of a small business DOD
contractor who will be submitting his proposal in early November for
SbAST. His enthusiasm for this type of RFP and the prospects it holds
for his business and employees was clear. I wonder if you would comment
on SbAST and whether this form of RFP, directed at Small Businesses,
will continue to be utilized in DOD contracts?
Ms. Oliver. The Small Business Acquisition and Sustainment Tool
(SbAST) is being conducted as a companion contract which is a strategy
developed by the Small Business Office at the Department of the Air
Force. Under this approach two separate request for proposals (RFPs)
are issued. One RFP is designated work set-aside exclusively for small
businesses. The proposal is similar but may not be identical to the
full and open RFP issued for the same general requirement using
multiple award contracts. Companion contracts allow small businesses to
compete against other small businesses for all task orders to be
awarded under the companion contract. The contracting officer decides
at the task order level whether a requirement is best suited to be
competed amongst small business contract holders or by those who won
contracts under the full and open request for proposal. The Department
of the Air Force is considering the use of this strategy on other large
service acquisitions.
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