[House Hearing, 111 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 111-183]
SMALL BUSINESS' ROLE AND OPPORTUNITIES IN RESTORING AFFORDABILITY TO
THE DEPARTMENT OF DEFENSE
__________
HEARING
BEFORE THE
SUBCOMMITTEE ON TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
SEPTEMBER 29, 2010
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
U.S. GOVERNMENT PRINTING OFFICE
62-677 WASHINGTON : 2011
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SUBCOMMITTEE ON TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES
LORETTA SANCHEZ, California, Chairwoman
ADAM SMITH, Washington JEFF MILLER, Florida
MIKE McINTYRE, North Carolina FRANK A. LoBIONDO, New Jersey
ROBERT ANDREWS, New Jersey JOHN KLINE, Minnesota
JAMES R. LANGEVIN, Rhode Island K. MICHAEL CONAWAY, Texas
JIM COOPER, Tennessee THOMAS J. ROONEY, Florida
JIM MARSHALL, Georgia MAC THORNBERRY, Texas
BRAD ELLSWORTH, Indiana CHARLES K. DJOU, Hawaii
BOBBY BRIGHT, Alabama
SCOTT MURPHY, New York
Tim McClees, Professional Staff Member
Alex Kugajevsky, Professional Staff Member
Jeff Cullen, Staff Assistant
C O N T E N T S
----------
CHRONOLOGICAL LIST OF HEARINGS
2010
Page
Hearing:
Wednesday, September 29, 2010, Small Business' Role and
Opportunities in Restoring Affordability to the Department of
Defense........................................................ 1
Appendix:
Wednesday, September 29, 2010.................................... 15
----------
WEDNESDAY, SEPTEMBER 29, 2010
SMALL BUSINESS' ROLE AND OPPORTUNITIES IN RESTORING AFFORDABILITY TO
THE DEPARTMENT OF DEFENSE
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Miller, Hon. Jeff, a Representative from Florida, Ranking Member,
Subcommittee on Terrorism, Unconventional Threats and
Capabilities................................................... 3
Sanchez, Hon. Loretta, a Representative from California,
Chairwoman, Subcommittee on Terrorism, Unconventional Threats
and Capabilities............................................... 1
WITNESSES
Lemnios, Hon. Zachary J., Director, Defense Research and
Engineering, U.S. Department of Defense........................ 4
Oliver, Linda B., Acting Director, Office of Small Business
Programs, U.S. Department of Defense........................... 6
APPENDIX
Prepared Statements:
Lemnios, Hon. Zachary J...................................... 24
Miller, Hon. Jeff............................................ 22
Oliver, Linda B.............................................. 34
Sanchez, Hon. Loretta........................................ 19
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
Mr. Miller................................................... 51
Questions Submitted by Members Post Hearing:
Mr. Johnson.................................................. 59
Ms. Sanchez.................................................. 55
SMALL BUSINESS' ROLE AND OPPORTUNITIES IN RESTORING AFFORDABILITY TO
THE DEPARTMENT OF DEFENSE
----------
House of Representatives,
Committee on Armed Services,
Subcommittee on Terrorism, Unconventional Threats and
Capabilities,
Washington, DC, Wednesday, September 29, 2010.
The subcommittee met, pursuant to call, at 2:06 p.m., in
room 2212, Rayburn House Office Building, Hon. Loretta Sanchez
(chairwoman of the subcommittee) presiding.
OPENING STATEMENT OF HON. LORETTA SANCHEZ, A REPRESENTATIVE
FROM CALIFORNIA, CHAIRWOMAN, SUBCOMMITTEE ON TERRORISM,
UNCONVENTIONAL THREATS AND CAPABILITIES
Ms. Sanchez. The subcommittee will now come to order.
Good afternoon. I would like to welcome all of you, and
thank you for joining us this afternoon. Today, we are here to
further examine the opportunities and the challenges for small
technology firms to compete in defense acquisition.
The purpose of today's hearing is to answer some of the
questions that I know I am asked, and my colleagues must be
asked all the time, by small business owners in our districts.
Many small businesses do not know how to navigate or approach
the Department of Defense [DOD] bureaucracy. And so, this
subcommittee has held a number of hearings on small businesses
this past year because, as I have stated before, small
businesses are the key driver of innovation for the Department
of Defense.
And that is where the jobs are located and that is what we
are trying to do in our nation, so this is one of the areas
where I hope we can have some effect. And I cannot stress
enough how pertinent the success of small businesses are to the
U.S. economy and, of course, to our daily responsibilities in
the Department of Defense.
Small businesses have different perspectives on key
national security issues particularly compared to their large
counterparts. One of the goals for this hearing is to
understand how our national security requirements and goals are
interpreted by small business and how better the Department of
Defense can guide small businesses to the current technological
needs of the department.
Currently, this nation's small businesses encounter a lot
of challenges. I have known so many businesses have come out
here and have tried for years and years and have come up with
nothing. And so, it is important for them to know how to
navigate because that is where some of our critical technology
and innovation can come from.
I hope, today's hearing, our witnesses will address these
challenges, and also to highlight effective tools and resources
that we can take back to our communities to help these small
businesses access these contracts. For example, I am sure that
my colleagues are constantly approached about more information
about who they call.
Everybody thinks there is always some person, that they are
just missing the right person's name or their phone number, and
that they would get a contract if they could just get to that
person. So maybe you can shed some light on who that person is
and what their phone number might be, or maybe what the real
process is for our small businesses.
And I know these sound like small requests, but when you
are a small business, you think you have a great idea, and you
just can't seem to break through, it can become very
frustrating. And that is a frustration that many of the members
hear.
Another issue that could be discussed during this hearing
is the ongoing challenge of reauthorizing the Small Business
Innovation Research [SBIR] program. The underlying law
authorizing that program expired in 2008, and we have been
having many fits and starts trying to get that underway to
reauthorize it. However, it hasn't been successful, and I find
it very disturbing, and I am extremely concerned, and it is
very time-consuming. So we are trying to figure out how to get
that on track.
So I think it would be particularly helpful for our
witnesses to explain the consequences of not passing a
comprehensive reauthorization bill and the effect that it will
have on our overall strategic effectiveness of the SBIR
program.
And finally, I would like to point out that the Department
of Defense has invested nearly $5 billion in SBIR over the last
5 years across thousands of projects but doesn't get full value
for this investment because proper funding isn't available to
field and transition these technologies to the warfighter or to
the commercial marketplace. And that is why this committee
established a new program in the pending fiscal year 2011
defense bill called the Rapid Innovation program.
The Rapid Innovation Program authorizes $500 million for
the purposes of developing innovative solutions to defense
needs and to accelerate insertion of those technologies into
weapons programs or into the marketplace. This program is
intended to primarily support small, high-tech private firms.
So I would welcome your comments on how the department would
execute this new authority if it becomes law.
So today, we have two distinguished witnesses before us.
The first, we have brought back the Honorable Zachary Lemnios,
the director of defense research and engineering at the U.S.
Department of Defense--welcome again, Doctor--and Ms. Linda
Oliver, the acting director of the Office of Small Business
programs in the U.S. Department of Defense. Welcome.
And once again, I would like to thank the witnesses for
being here today. I am looking forward to your testimony.
Without objection, we will accept the written testimony into
the record. I would like to tell you that each of you will have
5 minutes to summarize your testimony, or tell us something
that is not in there that you think we need to know, and then
we will ask some questions, and we will be observing the 5-
minute rule.
So I will now yield to my very capable ranking member from
Florida, Mr. Miller, for his opening statement.
[The prepared statement of Ms. Sanchez can be found in the
Appendix on page 19.]
STATEMENT OF HON. JEFF MILLER, A REPRESENTATIVE FROM FLORIDA,
RANKING MEMBER, SUBCOMMITTEE ON TERRORISM, UNCONVENTIONAL
THREATS AND CAPABILITIES
Mr. Miller. I thank the chairwoman for yielding for an
opening statement.
This morning, the full committee heard testimony on
Secretary Gates' Department of Defense initiative on
efficiency, targeted to finding cost savings and to improving
general business operations within DOD. Now, many of us, I am
sure, have questions and concerns regarding the secretary's
initiative, as we have got to ensure that critical capabilities
are not sacrificed in the name of blind cost-cutting.
The threats to our great nation are varied, so really a
fine balance must be struck between identifying effective
savings and protecting needed capabilities. And at the end of
the day, we must be fiscally responsible while not failing in
our responsibility to ensure that our country has the ability
to defend its interests.
I believe DOD can find many solutions by turning to the
small business community. Small business men and women are
constantly developing innovative solutions to the myriad of
challenges that exist in today's world, and they do so
precisely while operating efficiently and effectively. They are
truly an invaluable source of talent and technology creation
increasingly important to the department's operations.
With this in mind, we as a Congress must work with DOD to
improve small business availability to access the department.
We must improve the information flow and engagement between the
department and the small business community and eliminate
remaining contracting obstacles that deter small business from
working with the department.
By leveraging the expertise, creativity and passion that
exists among small business owners and their companies, the
department will find improved efficiencies often without
significant disruption or impact to current DOD functions.
Madam Chairman, I have additional information that I would
like entered into the record in regards to my opening
statement, but because we do have votes coming, I would like to
yield back the balance of my time.
[The prepared statement of Mr. Miller can be found in the
Appendix on page 22.]
Ms. Sanchez. Okay. So first, we will hear from the
Honorable Lemnios, please, for five minutes.
STATEMENT OF HON. ZACHARY J. LEMNIOS, DIRECTOR, DEFENSE
RESEARCH AND ENGINEERING, U.S. DEPARTMENT OF DEFENSE
Mr. Lemnios. Well, thank you very much, and good afternoon,
Chairman Sanchez, Ranking Member Miller, and subcommittee
members. It is a pleasure to be back before you again today.
And I know we have talked about a number of technology issues
in the past, and we will continue that dialogue as we move
forward. I am pleased to be here today on behalf of the
dedicated men and women working across the Department of
Defense who discover, develop, engineer and field critical
technologies in defense of our nation.
As a chief technology officer for the Department of
Defense, I am also honored to be joined today by Ms. Linda
Oliver, the acting director of the Office of Small Business
Programs in the office of the under secretary of defense for
acquisition, technology and logistics. Ms. Oliver will speak
specifically to the Small Business Innovation Research program.
My comments this afternoon are a summary of my written
testimony, and they will center on the importance of the small
business community in driving invention and innovation to
quickly launch new capabilities that support our warfighters. I
will keep this opening statement brief so we will have plenty
of time for questions during our session this afternoon.
The department of science and technology, our S&T
enterprise, encompasses a remarkable pool of talent and
capabilities. Our footprint includes 67 DOD laboratories in 22
states with a total workforce of 61,400 employees. We operate
10 federally funded research and development centers, 13
university-affiliated research centers, and 10 information-
analysis centers across critical disciplines for the
department.
Coupled to this enterprise, the department enjoys a strong
relationship with the small business community through a
variety of programs designed to foster invention and
innovation. It is these programs that I would like to discuss
today, which include the Defense Acquisition Challenge, the
Rapid Reaction Fund, the Quick Reaction Fund, and the Open
Business Cell, as well.
The Defense Venture Catalyst Initiative is our way to
couple with the small business communities, specifically with
companies that aren't the traditional contracting vehicles for
the department and offer us new opportunities to see new ideas.
Each of these represent an avenue of innovation and a path to
bring ideas into the department and transition concepts
developed in our laboratories in these small business
environments to commercial use.
The small business community is an engine of innovation. It
attracts entrepreneurial talent and the agility to rapidly form
new teams with the speed of the commercial marketplace. It has
been my goal to move the department's innovation cycle to that
of the commercial sector, and Chairman Sanchez, when we met
last time, we spoke exactly on those terms.
In many cases, simply providing access to a field unit, our
operators, our testing facilities provide small businesses with
insight and fundamental technical and operational challenges
that we face. To that end, we have provided these companies
with access to our S&T advisors across the combatant commands,
and we have strengthened our S&T engagement to support the
department's joint urgent operational needs environment. And
because small businesses typically have fewer resources to test
and operationalize their techniques, we have provided access to
the department's training facilities and test results.
One example of this type of access is the Joint
Experimental Range Complex at the U.S. Army Yuma proving
ground. This facility allows a number of small companies to
test a wide range of technologies in a realistic environment
and has open channels of innovation to provide us with new
capabilities.
The department provides other paths for small businesses to
respond to time-critical challenges. These include our Rapid
Reaction fund, our Quick Reaction fund, and our Defense
Acquisition Challenge. Each of these programs addresses a
different opportunity for the small business community to
connect with the department, and it is precisely that
connection that I think many of you have asked about.
As an example, the Open Business Cell uses a Web interface
to solicit solicitations to a defined set of problems. Over the
past several months, we have received over 7,000 inquiries on
our Web site. We are evaluating those concepts now, many of
which wouldn't come through a normal acquisition process, a
normal solicitation process.
This nontraditional approach allows companies that are not
familiar with the DOD acquisition process to understand our
needs and our future in terms that they can relate to in a
very, very simple fashion. Our Defense Venture Catalyst
Initiative, or DVCI, targets small companies with emerging
technologies that meet our warfighter needs and are ready to go
directly from the commercial marketplace.
In addition to the activities already in place, the
department continues to drive the participation of small
business across all of our programs. My office, DDR&E
[Director, Defense Research and Engineering], is investigating
and developing and implementing new small business initiatives.
We are looking into ways that we can exploit our existing
authorities under the SBIR program to couple to those
identified needs from our combatant commanders and either
augment ongoing projects or accelerate projects that are
underway to tie them directly to our combatant commanders'
needs.
As part of our defense industrial base, small businesses
represent a cadre of entrepreneurial innovation who bring new
technology solutions and the agility to take on technical
challenges that we face today and will face for years to come.
The efforts that I have highlighted in my written testimony
discuss in detail how we are connecting broadly across this
community and how we are providing our department's needs to
the small business community.
Madam Chairwoman, thank you for the opportunity to present
these brief remarks, and I look forward to your questions.
[The prepared statement of Mr. Lemnios can be found in the
Appendix on page 24.]
Ms. Sanchez. Thank you, Director.
And now, I would like to have Ms. Linda Oliver, acting
director for the Office of Small Programs, please.
STATEMENT OF LINDA B. OLIVER, ACTING DIRECTOR, OFFICE OF SMALL
BUSINESS PROGRAMS, U.S. DEPARTMENT OF DEFENSE
Ms. Oliver. Thank you, Chairwoman Sanchez, Ranking Member
Miller. It is a pleasure to be here, and how nice for me to be
the fourth person to say something, and every single one of you
have just said nice things about small business. This is my
very favorite kind of hearing.
My testimony is a description, in quite excruciating
detail, of what the Department of Defense does to sort of seed
innovation in the Department of Defense through the SBIR
program. You are entitled, and we are happy to provide this
detail, what we spent, where it went, broken down in a hundred
ways.
However, I would like today to present a different way of
looking at how it works, how we seed innovation in the
Department of Defense and perhaps, Chairwoman Sanchez, to
answer for at least one of the programs how people get in.
I have an SBIR product here. Somebody--yes, thank you.
Good. Thanks. The black ones are prototypes. The khaki colored
ones are the most recent developments.
A little company in Seattle--now, see, I brought these
because this is one that could get through the security and was
concrete and all that kind of thing. This is actually a very
high-tech set of gloves. These gloves are used in Afghanistan,
are allowing our service people to be able to function in those
high elevations.
These were made by a little company called Outdoor
Research, Inc. This company is in Seattle, had been in business
for 19 years before it thought about an SBIR project. It came
in with a discussion of what--we had a topic, a concern about--
--
Ms. Sanchez. But it came in.
Ms. Oliver. Yes.
Ms. Sanchez. Here is the question. It came in. What does
that mean, it came in? How did it get to you?
Ms. Oliver. That is a----
Ms. Sanchez. That is the question the small businesses back
at home want to know. Hey, I got this great idea. I am making
gloves. I think I can make them for people in Afghanistan. They
came in. Don't gloss over that. They came in. What does that
mean?
Ms. Oliver. Okay. The SBIR program consists of what are
sort of like broad agency announcements. There are general
topics we need to know more about. The companies respond to the
proposal, and the SBIR program is in two parts.
The first part is here is kind of what we propose to do.
This is sort of the concept, and then there is a proof of
concept. And then, the second part, the phase two part, would
be the prototype, in this case the gloves.
Everybody understands gloves, I guess, but these are new
materials, a new way to process. And the ones that you have on,
Chairwoman Sanchez, are in fact ten years old. Representative
Miller has the more developed ones, the ones that are now under
contract. We got the prototype so that you could see there--we
have, and I would be happy to send this to your staff, Tim,
particularly----
Ms. Sanchez. Well, Tim wants to know if he can keep them to
go skiing.
Ms. Oliver. No. Sorry, Tim. These don't belong to us.
Ms. Sanchez. So you put out a thing saying, ``Hey, we are
looking at this. We are looking for some ideas about this.''
You put it on the Web. These people answer back.
Ms. Oliver. Yes.
Ms. Sanchez. You like their answer.
Ms. Oliver. Well, because SBIR is a particularly small-
business friendly process, Dr. Lemnios's people look at the
questions before they even go out to make sure that all of it
is clear. The process is set up so that, during one period of
time before the competition itself starts, there are experts
available for each of those topics. The small business can
actually--and this is very unusual in a procurement--can
actually talk to the person who is responsible for the topic
and who will determine--who answered best for the topic.
Let's see. I am not sure. That is about half of the small
businesses that are selected for phase one go on to phase two.
At that point, our SBIR funds are finished, and the scramble is
to find what we call phase three, but which really means
finding----
Ms. Sanchez. Somewhere that it fits in the----
Ms. Oliver. Exactly.
Ms. Sanchez [continuing]. In the defense or somewhere that
they can get funds to actually do the things that you can buy.
Ms. Oliver. Right. And in the case of this company, for
example, there are 146 people working, making gloves in Seattle
that the company representative told me yesterday would not be
there making those gloves but for the SBIR program, that it was
there at the right time. They have a couple of large--see, the
contracts with very large ceilings, meaning the Department of
Defense can order from them. They went from a little, I don't
know, $1.5 million company 20 years ago, 25 years ago, to a $50
million company now.
And most importantly, according to this company, they are
actually helping our service members. They keep their hands
from freezing. These gloves keep their hands from freezing, and
one of the sets makes it possible for them to operate machine
guns, for example, and not burn their hands.
Ms. Sanchez. Great.
Ms. Oliver. Those are just the kinds of things that we
want, and we have a very well developed Web site. And I will
send Tim the site.
[The prepared statement of Ms. Oliver can be found in the
Appendix on page 34.]
Ms. Sanchez. Right. I am going to stop you here only
because we have got some votes that are going to be called on
the floor, so I want to make sure that we get at least a round
of questions in, and then we will decide whether you guys want
to stick around while we spend our time over on the floor.
I am going to ask my ranking member, Mr. Miller, if he
would like to ask his 5 minutes' worth of questions first.
Mr. Miller. Thank you.
Ms. Oliver, I know you have got to be aware that insourcing
has been a contentious issue for many private contractors in
this country. Thousands of individuals have either lost their
job or really have been forced into accepting government
positions, many times at less pay.
So could you expand a little bit on what your office is
doing to assist the hundreds of small businesses around the
country who are being directly impacted by insourcing efforts?
Ms. Oliver. I would be happy to take the question back to
the Department of Defense. The piece of the Department of
Defense that is doing all the policy and the process for
insourcing is called Personnel and Readiness. I will ask them
to specifically ask what we are doing with--to try and make
this impact not as great on small businesses. I will take that
back for you.
[The information referred to can be found in the Appendix
on page 51.]
Mr. Miller. Mr. Lemnios, the importance of small business
in America is obvious to each of us up here on the dais, and I
understand your role, that you want to get the best and most
cost-effective product to the warfighter and to their enabler.
Please explain which programs you think best bring our highly
innovative and successful small businesses into DOD's
marketplace of ideas.
Mr. Lemnios. Congressman, let me give you one example. I
was at Fort Bliss yesterday and the White Sands Missile Range
yesterday with Army units that were training with a variety of
components.
One of the components that I saw there was built by a
company called iRobot. You may have seen it. These are robotic
platforms. This has given our warfighters tremendous
capability. It has kept young kids out of the fight where they
can operate this tele-operated vehicle to clear a room, to
clear a building, to provide initial insight into very
dangerous areas. And quite simply, it saved lives.
That was a capability that came out of a small company
initially developed maybe 5, 6 years ago. It was at the very
forefront of cutting-edge technology at the time. That company
has since driven that equipment set with additional sensors,
additional tele-operated, and in some cases autonomous
capability.
I have talked to these 19-, 20-, 25-year-old kids that are
using it, and it is intuitive because it is in their framework.
They understand how to use video games, and they understand how
to use this piece of equipment very much in the same way.
There are many examples like that. And five years ago,
eight years ago when I was at DARPA [Defense Advanced Research
and Projects Agency], there were very few companies that had
that capability in their mainstream technology base, that had
that capability in their current product offerings. And the
department made an investment in this small company, and that
investment has paid off that it is now a core capability in our
department. Just one example of many.
Ms. Oliver. And that is an SBIR company, was an SBIR
company.
Ms. Sanchez. Thank you. Okay.
As I mentioned in my opening statement, delays in passing a
comprehensive reauthorization act must impact the department's
ability to run a $1.2 billion effort. Could either of you
comment on some of the challenges the department faces in
planning and executing the SBIR program as a result of the
reauthorization delays or the 30 and 60 temporary extensions
that the agencies have had to live with over the past 2 years?
And I know that last year, House was able to give DOD-SBIR
a 1-year extension, which ends tomorrow. What can you tell me?
What would you prefer to see, and how is it affecting your
work?
Mr. Lemnios. Chairman Sanchez, let me just start by maybe
clarifying and exemplifying--amplifying an answer to your
previous question and then how this reauthorization applies.
And I think it is actually helpful to step back a little bit
and give you some insight into how the SBIR topics come
forward, how the selection is done, and how we couple with the
small business community.
The SBIR program has been remarkably successful in holding
grassroots conferences--in fact, I have spoken at many of
these--that engage the small business community to understand
what the needs of the department are. The topics that are then
solicited actually come through my office for technical review.
But we work with the service community to really make sure
that the topics that these companies respond to reflect the
current needs of the department. And that is a very broad
process.
When I go to the service laboratories, they are all
involved, again, at the grassroots level with the local small
companies, constituents, to really get the best and the
brightest ideas. I really want to make sure that you folks
understand that this just isn't a vertical program. It is one
that has enormous breadth, enormous context across many, many
states.
Now, with regard to the reauthorization, Ms. Oliver will
speak to that. But I wanted to make sure you understood that
the connection, the critical front-end connection is really a
one-to-one connection with these small companies that have
innovative ideas. It is critically important.
Ms. Oliver. It is very disruptive to have a stop-and-start,
stop-and-start kind of program. We have now, I am sorry to say,
standard plans for what we would do if it were not
reauthorized.
But a much more optimum way--and thank you so much. I know
it was this committee, this subcommittee specifically that gave
us a year of a sort of freedom to think about our programs
instead of thinking about reauthorization.
It would be so much better to have the authorization of the
SBIR program match with practically anything, our budget
planning, which is about 5 years, the amount of time it takes
to--since with each reauthorization, usually there are changes.
The time it takes to implement the changes and then see how the
changes go, measure whether they are good changes or bad
changes, again for 5 years, or even with the cycle of the SBIR
program itself from the time that somebody thinks up an idea
and it gets into this sort of broad agency announcement status.
After Dr. Lemnios's people have done their work, from the time
that phase one is awarded and carried out, phase two is awarded
and we start to find a home for it at phase three, that is at
least 4 years.
The reauthorizations would be so much more--they would make
so much better use of our time, of our resources, if we could
stay focused on the results of the program. So I thank you for
the question. Every 30-day reauthorizations are a huge waste of
resources.
Ms. Sanchez. Thank you.
In your turn on page six of your written testimony, Ms.
Oliver, I see that the services have available, and on average,
$300 million for SBIR collected via a statutory tax. I also
understand that the current law does not allow the agencies to
spend the tax dollars to administer the SBIR program. Is that
correct?
Ms. Oliver. That is correct.
Ms. Sanchez. And if so, how do you fund this effort?
Ms. Oliver. We beg, borrow and steal the resources insofar
as we can. And we would have a better program if we were able
to use program resources to run the program.
Ms. Sanchez. What should that percentage be?
Ms. Oliver. The National Academy of Science has estimated 6
percent in its study to look at that very problem it looked at,
from 15 to 3 percent. Six percent is an average for overhead
that needs to be spent on a program in order to have it be
effective.
Ms. Sanchez. And Ms. Oliver, on the last page of your
written testimony, you mentioned that a policy memorandum was
issued clarifying SBIR phase two responsibilities. Could I get
a copy of that memorandum? I don't think that I have seen it.
And who was it addressed to, and can you give us examples of
what you meant by SBIR two responsibilities?
Ms. Oliver. Yes, ma'am. Dr. Findley was the official who
signed that out. He was in the prior administration. He was--
and we will surely provide you with a copy of it--signed out in
2008.
The responsibilities he was talking--that he was
reiterating are that prime contractors have responsibilities to
be--in the way they treat the intellectual property of the
small businesses, as do program managers, and there is a
responsibility on the part of the program managers, and
actually the prime contractors, to help find the most cost-
effective way to carry out programs, and that very frequently
is through SBIR projects. So that is what that letter was
about.
Ms. Sanchez. Okay.
The gentleman from--Mr. Conaway. I was trying to think of
what state you were from.
Mr. Conaway. Exactly, the state of confusion, Madam
Chairman. I have only been around a short period of time, so
don't worry about it.
You mentioned your prime contractors, and their supply
train contractors many times are not small businesses. What
kind of incentives and/or requirements do they have for
providing--I mean, I can figure out how small business can be
the glove manufacturer, because that is, start to finish, their
deal. But how do they plug into the bigger programs where we
spend more money? And how does the--we hold the prime
contractor responsible, and their supply chains responsible for
any of that? And if so, how do you go about doing that?
Mr. Lemnios. Congressman, let me--so each of those is on a
case-by-case basis. In fact, that issue is one that has been
the subject--or one of the elements of the directive that
Secretary Carter signed out on September 24 to actually look at
how we can do that more effectively, more efficiently to
protect the innovation of the small business community in the
context of a lead system integrator.
But let me give you one example that I saw just, again,
last week. I don't travel every week, but last two weeks it has
been pretty heavy. I was up at Fort Drum, New York. And in that
case, we had a capability that we are putting on our H-60 Black
Hawk helicopters to detect small arms fire.
This is a capability that doesn't exist today. And the Army
has a similar capability. It is called Boomerang, and you may
have seen this. It is a system that acoustically detects a
gunshot, and again, it has protected many lives in theater.
This system will triangulate on a gunshot, will allow the
operator to know he is being shot at. It is a very effective
system.
Through a DARPA program, we funded--DARPA funded an effort
to take the same contractor--this is a small company, BBN is
the company. They are in the Boston area--to apply that same
acoustic signature, acoustic detection system, to our H-60
Black Hawks. And we are now testing that. In fact, we will be
deploying four of these special helicopters to theater shortly.
But the innovation there was coupling the small company,
BBM, with the lead system integrator, Sikorsky. Sikorsky----
Mr. Conaway. Yes, but Sikorsky didn't do that. You guys did
that.
Mr. Lemnios. Well, we worked with Sikorsky as the lead
system integrator, and we directed that they use this small
company because this small company had the capabilities that
were needed. They had the technology that Sikorsky did have.
Mr. Conaway. But you directed Sikorsky to do that. I guess
my question was--and that fly that you brought with you, by the
way, is your friend, not ours.
Mr. Lemnios. We have noticed.
Mr. Conaway. Exactly, so he will be hanging around you a
lot.
How does Sikorsky--I understand how you could direct them
to say we want this capability. We have got a company over
here. You guys figure out how to--but how does the system--or
should the system work in such that Sikorsky, as it is building
its base model of the UH-60, is plugging in small businesses
where that makes sense, or should they?
Mr. Lemnios. Well, there are many examples where large
companies don't have an innovative technical concept that they
need to complete a full system build. We see this all the time.
I have seen this in propulsion. I have seen it, in this case,
with this acoustic sensor. Even the robotics system that I
mentioned earlier is part of a larger system that is being
integrated by a much larger set of companies.
So the glue that brings all that together are discussions
that we have in the department with this full set of companies.
We do that through conferences. We do that through
solicitations. And when these companies come together, they in
fact see the value in taking that small idea and integrating it
into a larger system.
Mr. Conaway. Okay. Give us about a half a minute on
contract bundling, as that phrase is used, and the restrictions
in last year's NDAA [National Defense Authorization Act] that
said you are supposed to notify Congress when that happens.
Have you actually notified Congress that there was an intent to
bundle, as that phrase is used?
Ms. Oliver. Yes. I am sure we have. I should say that
bundling is sort of a misused word, has been a misused word. We
keep track of every--in the Department of Defense, we keep
track of every bundled contract that must be identified, and my
office actually looks at every single one to see, rather,
whether there has been a full justification.
However, when people use the term ``bundling,'' usually
they are thinking of consolidating, thinking of contract
consolidation as opposed to bundling, which is a much more
narrow aspect of consolidation. There is--I think this has been
signed--there is new legislation, which I think was signed
yesterday, which redefines consolidation--which treats
consolidation as we have in the past treated bundling, which
will go a long way.
Mr. Conaway. Right. Would you mind checking and, for the
record, getting back to us----
Ms. Oliver. I would be happy to.
Mr. Conaway [continuing]. On compliance with the director--
--
Ms. Oliver. Notification.
Mr. Conaway [continuing]. Notification that you notify us?
Ms. Oliver. Yes, certainly.
Mr. Conaway. Thank you, Madam Chairman. I yield back.
Ms. Sanchez. Great.
Do you have any other questions?
I have one more before we--actually we will break for
votes, and I think, since we have no other members who came, I
am sure that they will have questions to submit for the record
and would appreciate your answers.
Mr. Lemnios, you mentioned that you have increased your
outreach to the industrial base. Can you give us some examples
of how that is, or what you mean by that?
Ms. Sanchez. Well, as I mentioned earlier, the critical
part of the engagement with the small business community is
right up front. It is providing insight into the department's
challenges, the areas where we need new technical ideas and new
capabilities.
We have a Web site, defensesolutions.com, one-stop
shopping. Companies can come on board, take a look at what we
have--defensesolutions.com. They can take a look at what is
there. We regularly post challenges that the department has,
areas where we need new innovation, areas where we need new
ideas. This is on the DTIC, Defense Technology Information
Center portal, so it is government-wide. It provides access to
a wide range of challenges.
So the Web-based portals have been very helpful. There are
many small companies that simply can't afford to go to
conferences, and they can't afford to travel to Washington, and
this is a simple way for them to get some insight into areas
that we need new ideas.
The other way that we have reached out, my full staff and
the staffs that I see across the service laboratories, we have
conferences. We speak and meet with small business community
regularly. In fact, many, many times for me, that is an
enlightening moment, because you see new ideas that you
wouldn't see otherwise.
I will give you an example. I was at Aeros Aviation in
Tustin, and in fact this small company is building an airship
that we are funding. It is called Pelican, and it was
originally funded as a DARPA project, and we are now
transitioning it to first flight the end of next year.
And this small company has an idea for building an airship
that can transition from lighter than air to heavier than air
so you don't have to carry ballast. It is a tremendous
operational capability.
Our value in that is connecting that company with technical
resources at NASA [National Aeronautics and Space
Administration] Ames for additional simulation and connecting
them to the end user. So they are not just developing the
concept. They are thinking about how that concept will be used.
So this outreach is more than just publishing a set of
needs. It is connecting this community with technical resources
and operational insight so that the products that they develop,
whether it is gloves or whether it is 100-yard airship, has a
transition path that is in the framework of what the end-use
case will look like.
The last thing I will say that has tremendous value to this
community is coupling these small companies with our test
ranges and with our test resources so they can get the same
insight that I saw the last two days at Fort Bliss and White
Sands, giving that insight to companies that wouldn't normally
have that ability to see what an operational environment
actually looks like.
It changes their way of thinking, and it changes the
ability and the speed and the context of how they develop a
product. Critically important, and we have done that through a
number of avenues--companies all the time that we try to make
those connections.
Ms. Sanchez. Okay, great.
Well, I thank you for your testimony before our committee
and for your written testimony. We will be submitting some more
questions for the record, and thank you both for at least
enlightening me about some of the things going on with the
program. Thank you.
And the committee is now adjourned, I think in time for
some votes that are about to be called. Thank you.
[Whereupon, at 2:49 p.m., the subcommittee was adjourned.]
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A P P E N D I X
September 29, 2010
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September 29, 2010
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=======================================================================
WITNESS RESPONSES TO QUESTIONS ASKED DURING
THE HEARING
September 29, 2010
=======================================================================
RESPONSE TO QUESTION SUBMITTED BY MR. MILLER
Ms. Oliver. It is important to note that the Department's
insourcing efforts are focused on services and not individual firms or
contractor positions. To that end, the Department's insourcing efforts
(under the purview of the Under Secretary of Defense for Personnel &
Readiness) are intended to:
reduce inappropriate reliance on contracted services;
help shape the workforce by ensuring that work that is
inherently governmental, closely associated with inherently
governmental, or otherwise exempt from private sector performance (to
mitigate risk, ensure continuity of operations, build internal
capacity, meet readiness needs, etc) is performed by government
employees;
ensure the Department has the necessary capabilities and
skills to meet its missions; and
generate efficiencies and savings.
The Department greatly values the contributions made by private
sector firms, particularly small businesses, to the Department's
missions. The private sector is, and will continue to be, a vital
source of expertise, innovation, and support to the Department's Total
Force. In fact, we have seen continued growth of contracted services in
our budget requests. Insourcing impacts less than 1% of currently
contracted services, and the net growth in contracted services this
past year was still more than $5 billion.
At the same time, we are conscious of the impact our insourcing
decisions may have on private sector firms and their employees. The DOD
Office of Small Business Programs is committed to assisting small
businesses and maximizing their participation in DOD acquisitions. [See
page 8.]
?
=======================================================================
QUESTIONS SUBMITTED BY MEMBERS POST HEARING
September 29, 2010
=======================================================================
QUESTIONS SUBMITTED BY MS. SANCHEZ
Ms. Sanchez. I understand you helped develop Secretary Gates'
recently announced ``Efficiencies Initiative.'' It is my understanding
that the premise of the initiative offers specific guidelines to
Pentagon acquisition folks for how to make smarter contracting
decisions that don't waste taxpayer dollars. I believe the Secretary
stated something to the effect that if successfully executed, the plan
would save around $100 billion over the next five years.
Mr. Lemnios. In August, the Under Secretary of Defense for
Acquisition, Technology and Logistics announced the fact that the
acquisition community would be intimately involved in supporting
Secretary Gates' Efficiencies Initiative. Throughout August,
culminating in a formal announcement on September 14 by Under Secretary
Carter, I served on a senior integration group led by Secretary Carter.
This group includes the senior acquisition leadership from OSD, the
Services, and select Defense Agencies. One of my specific tasks was to
represent the DOD small business enterprise and suggest options to
support the Secretary's initiative.
Ms. Sanchez. What was your specific task in the development of the
Efficiencies Initiative?
Mr. Lemnios. In August, the Under Secretary of Defense for
Acquisition, Technology and Logistics announced the fact that the
acquisition community would be intimately involved in supporting
Secretary Gates' Efficiencies Initiative. Throughout August,
culminating in a formal announcement on September 14 by Under Secretary
Carter, I was involved in a senior integration group led by Secretary
Carter. This group included the senior acquisition leadership from OSD,
the Services, and select Defense Agencies. My specific task was to
represent the science, technology, systems engineering and
developmental test communities, and suggest options to support the
Secretary's initiative.
Ms. Sanchez. What will your role or roles of your office be, if
any, with implementing the initiative?
Mr. Lemnios. My responsibilities include leading how we are looking
at ways to strengthen the Industrial Research and Development linkages
to the DOD, ways to strengthen technology maturity assessments, and
ways to strengthen test and evaluation.
Ms. Sanchez. What roles can/should small high-tech businesses play
toward reaching the goals of this new initiative?
Mr. Lemnios. It is still too early to make specific comments as the
initiatives are being developed. I will say that we are also looking at
ways to strengthen the small business interactions with the Department
and warfighter. Small business has long been the innovation engine of
the Department and the nation. We recognize this and wish to continue
to strengthen the relationship. We are also outlining a range of
options that would allow us to use the current structure and
authorities of the small business innovative research program to
address time-critical warfighter needs; if successful, this will
strengthen both the small business community and the Department.
Ms. Sanchez. What do you view as the biggest hurdles, particularly
for small high-tech firms, with supporting this initiative?
Mr. Lemnios. It is still premature to discuss specific hurdles in
depth, but over the years, the Department has recognized there are
special needs for small business. These include ensuring access to
information, competitive equity and getting funds contracted. In part
to address this, my office initiated a pilot program, called the Open
Business Cell, to specifically reach out to small business. This office
serves to marry small business solution providers with program offices
and requirements generators to streamline the process. Information on
this program can be found at www.defensesolutions.mil.
Ms. Sanchez. Are there or will there be metrics developed and put
into place to measure the progress of this initiative?
Mr. Lemnios. We are still developing implementation plans and are
looking at how to put metrics in place. These will be highlighted in
the implementation roll-out.
Ms. Sanchez. Does the new initiative leverage existing cost-savings
efforts or is it dependent on the development of new methodologies,
procedures, program, personnel adjustments, etc?
Mr. Lemnios. Since we are developing implementation strategies, I
can't give specifics. I can say, however, that we are looking very
broadly at methodologies, procedures, program and personnel
adjustments, and so forth.
Ms. Sanchez. How can DOD leverage capabilities of small high-tech
firms to drive better outcomes for the department on major weapon
system acquisition?
Mr. Lemnios. Achieving better outcomes on major weapon system
acquisitions is a top priority for the Department. Though small
business prime contracting opportunities in support of major systems
programs are pursued, most of the opportunities for these programs will
continue to be in subcontracting. A total of $49.5 billion dollars in
subcontracts went to small businesses in FY2009. The subcontracting
goal, established by the Small Business Administration, is 31.7% for
FY2011. We anticipate small, high-tech firms will continue to develop
new technologies to feed major systems. The Small Business Innovation
Research and Small Business Technology Transfer programs alone involved
awards totaling over $1.4 billion in FY2009. The Department's SBIR
Commercialization Pilot Program exists to identify SBIR technologies
that have the greatest potential for transition to production.
Ms. Sanchez. Can you summarize the role SBIR plays in defense
acquisitions? How does the Milestone Decision Authority ensure and
monitor SBIR participation in all Milestone activities? Is it through
the Milestone A Review and/or other governance processes? Are there
incentives to drive inclusion of SBIR solution or penalties for failure
to consider SBIR solutions?
Mr. Lemnios. It is critical that promising technologies be
identified from all sources domestic and foreign, including government
laboratories and centers, academia, and the commercial sector. This
includes consideration of the use of technologies developed under the
Small Business Innovation Research (SBIR) program. The risk of
introducing these technologies into the acquisition process must be
reduced through coordination, cooperation, and mutual understanding of
technology issues. DOD Acquisition Programs are required to provide
maximum practicable opportunities to small business, including small
disadvantaged business, women-owned small business, veteran-owned small
business, service-disabled small business and Historically
Underutilized Business Zones. Acquisition Program Managers document
their utilization of small businesses in their Technology Development
Strategy and their Acquisition Strategy. At Milestone A, the Milestone
Decision Authority (MDA) reviews the proposed materiel solution and the
draft Technology Development Strategy (TDS). The Technology Development
Phase begins when the MDA has approved a materiel solution and the TDS,
and has documented the decision in an Acquisition Decision Memorandum.
SBIR technologies are pursued based on merit relative to all
alternatives available to the program manager. There are no penalties
for failure to use SBIR solutions. However, DOD encourages use of SBIR
technologies and small businesses in order to meet subcontracting goals
established by the Small Business Administration, which is 31.7% for
FY2011.
Ms. Sanchez. Are there documented guidance or procedures that
define how Program Managers should evaluate and, more importantly, plan
for insertion of SBIR technologies into Major Defense Acquisition
programs?
Mr. Lemnios. The Department of Defense Acquisition Instruction,
DOD5000.01 requires that Major Defense Acquisition Programs develop
acquisition strategies to facilitate small business participation
throughout a program's life cycle through direct participation or,
where such participation is not available, through fostering teaming
with small business concerns. In addition, DOD5000.02 requires Major
Defense Acquisition Programs to identify promising technologies from
all sources domestic and foreign, including government laboratories and
centers, academia, and the commercial sector. DOD5000.01 also requires
the program manager to give small business the maximum practical
opportunity to participate during the technology development phase and
succeeding acquisition phases. Further guidance for inserting SBIR
technologies into Defense Acquisition programs is defined in the Dec
2008 AT&L policy memorandum ``SBIR program Phase III guidance.''
Ms. Sanchez. How can SBIR participation in later-stage acquisition
program activities, as occurred with the Virginia-class submarine, be
ensured and what is the proper balance of responsibility between the
prime contractor and the government program manager?
Mr. Lemnios. The Department of Defense Acquisition Instruction,
DOD5000.01 requires that Major Defense Acquisition Programs develop
acquisition strategies to facilitate small business participation
throughout a program's life cycle through direct participation or,
where such participation is not available, through fostering teaming
with small business concerns. The Acquisition Strategy guides program
execution across the entire program life cycle, focusing primarily on
the upcoming phase. The strategy evolves over the phases and
continuously reflects the current status and desired end point of the
phase and the overall program. An MDA-approved update to the
Acquisition Strategy is required prior to Milestone C and Full Rate
Production. This Acquisition Strategy developed by the government
program manager translates into the provisions of their contract with
the prime contractor. Integration and use of SBIR technologies on major
programs can best be achieved when the program manager and prime
contractor(s) proactively seek SBIR solutions. However, the program
manager has overall responsibility for the outcome of the program,
balancing requirements against affordability and time.
Ms. Sanchez. You mentioned areas where you are seeking to improve
either the government acquisition process or the SBIR program. Could
you provide the committee more detail on your key initiative? Does it
involve adding dollars to seed the initiative? Do you need additional
authorities? Will you change or cancel failing redundant initiatives?
Mr. Lemnios. It is still too early to provide specific details.
However, at this time, I do not foresee the need for additional funds
or new authorities. The Department will continue to look to the small
business community in driving invention and innovation to quickly
launch new capabilities that support our warfighters and protect our
nation.
Ms. Sanchez. I understand you helped develop Secretary Gates'
recently announced ``Efficiencies Initiative.'' It is my understanding
that the premise of the initiative offers specific guidelines to
Pentagon acquisition folks for how to make smarter contracting
decisions that don't waste taxpayer dollars. I believe the Secretary
stated something to the effect that if successfully executed, the plan
would save around $100 billion over the next five years.
What was your specific task in the development of the Efficiencies
Initiative?
Ms. Oliver. In August, the Under Secretary of Defense for
Acquisition, Technology and Logistics announced the fact that the
acquisition community would be intimately involved in supporting
Secretary Gates' Efficiencies Initiative. Throughout August,
culminating in a formal announcement on September 14 by Under Secretary
Carter, I was involved in a senior integration group led by Secretary
Carter. This group included the senior acquisition leadership from OSD,
the Services, and select Defense Agencies. My specific task was to
represent the science, technology, systems engineering and
developmental test communities, and suggest options to support the
Secretary's initiative.
Ms. Sanchez. What will your role or roles of your office be, if
any, with implementing the initiative?
Ms. Oliver. My responsibilities include leading how we are looking
at ways to strengthen the Industrial Research and Development linkages
to the DOD, ways to strengthen technology maturity assessments, and
ways to strengthen test and evaluation.
Ms. Sanchez. What roles can/should small high-tech businesses play
toward reaching the goals of this new initiative?
Ms. Oliver. It is still too early to make specific comments as the
initiatives are being developed. I will say that we are also looking at
ways to strengthen the small business interactions with the Department
and warfighter. Small business has long been the innovation engine of
the Department and the nation. We recognize this and wish to continue
to strengthen the relationship. We are also outlining a range of
options that would allow us to use the current structure and
authorities of the small business innovative research program to
address time-critical warfighter needs; if successful, this will
strengthen both the small business community and the Department.
Ms. Sanchez. What do you view as the biggest hurdles, particularly
for small high-tech firms, with supporting this initiative?
Ms. Oliver. It is still premature to discuss specific hurdles in
depth, but over the years, the Department has recognized there are
special needs for small business. These include ensuring access to
information, competitive equity and getting funds contracted. In part
to address this, my office initiated a pilot program, called the Open
Business Cell, to specifically reach out to small business. This office
serves to marry small business solution providers with program offices
and requirements generators to streamline the process. Information on
this program can be found at www.defensesolutions.mil.
Ms. Sanchez. Are there or will there be metrics developed and put
into place to measure the progress of this initiative?
Ms. Oliver. We are still developing implementation plans and are
looking at how to put metrics in place. These will be highlighted in
the implementation roll-out.
Ms. Sanchez. Does the new initiative leverage existing cost-savings
efforts or is it dependent on the development of new methodologies,
procedures, program, personnel adjustments, etc?
Ms. Oliver. Since we are developing implementation strategies, I
can't give specifics. I can say, however, that we are looking very
broadly at methodologies, procedures, program and personnel
adjustments, and so forth.
Ms. Sanchez. Your testimony suggests that DOD should actively seek
out and support small business contractors. What are some of the
special or unique capabilities that small business brings to defense
acquisition?
Ms. Oliver. Small businesses generally have lower overhead than
large companies and are more cost-effective in delivering goods and
services to DOD. Small businesses are more agile and flexible than
large companies in meeting DOD requirements, including highly technical
solutions to complex problems. Consequently, DOD encourages small
businesses to participate in the Small Business Innovation Research
Program (SBIR).
The SBIR program was established to help promote innovation and
commercialization from small businesses through Federal research and
development budgets. These programs are intended to harness the
enthusiasm and innovation inherent in small, high-tech American firms
to develop and commercialize critical technologies in order to meet the
needs of our American and Allied Warfighters. This sector of our
industrial base is a key element of our nation's military and economic
strength, and it is also often found at the heart of regional economic
development or cluster initiatives.
The SBIR Program sets aside a significant amount of funds for
research and development for small businesses in a given year. For
example, during Fiscal Year 2008 a total of 12,280 Phase I and 1,672
Phase II proposals were received and evaluated, and 1,826 Phase I and
1,072 Phase II contracts were awarded at an aggregate value of $1.2B
dollars. Competition among small firms is used for all Phase I awards,
which provides funds to explore ideas that could move to the second
developmental phase.
Ms. Sanchez. How significant a problem for small business is
contract bundling at DOD and what can be done to address this?
Ms. Oliver. The table below summarizes contract bundling in DOD
acquisitions for Fiscal Years (FY) 2006 through 2009 and is indicative
of the significance of contract bundling for small businesses at DOD.
In 2009 for example, there were only18 out of a total of more than 3.5M
contract actions that were classified as bundling. In terms of dollars,
this represents less than 1% of the total DOD small business eligible
procurement dollars. The DOD Office of Small Business Programs
regularly reviews contract bundling in DOD acquisitions through the
standard bundling report from the Federal Procurement Data System
(FPDS) that is generated on a quarterly basis. The report tracks all
DOD bundled actions for the time period. Our goal is to eliminate all
unjustified bundling within DOD.
----------------------------------------------------------------------------------------------------------------
Total #
Department FY DoD Total # Bundled DoD SB- Eligible $ DoD $ Awarded Total Bundled
Actions Actions * to SB Dollars
----------------------------------------------------------------------------------------------------------------
DEPT OF DEFENSE 2006 3,350,312 5 $234,951,480,470 $51,316,934,021 $159,926,275
DEPT OF DEFENSE 2007 3,529,595 25 $269,312,039,976 $55,047,209,461 $1,622,530,680
DEPT OF DEFENSE 2008 3,653,199 16 $314,555,539,523 $62,471,471,402 $6,193,632,827
DEPT OF DEFENSE 2009 3,559,134 18 $302,376,720,694 $63,894,421,489 $2,730,226,674
----------------------------------------------------------------------------------------------------------------
* SB-eligible dollars are the dollars remaining after SB goaling criteria have been applied
Ms. Sanchez. Are primes and their supply chains specifically
incentivized to identify and include small business solutions in
acquisition planning, and how are SBIR solutions specifically reflected
in a prime contractor's Subcontracting Plan, which has traditionally
pointed generally towards ``small business'' but not SBIR?
Ms. Oliver. DOD source selection regulations and policy incentivize
prime contractors to identify and include small business as part of
meeting contract requirements. In accordance with DOD regulations and
policies, when a subcontracting plan is required, the contracting
officer must evaluate the extent to which small businesses will
participate in the performance of the contract. DOD policy and
regulations regarding acquisition plans also require a discussion of
market research and identification of small business opportunities for
subsystems, components, and services at the first tier subcontracting
level. Additionally, while the Federal Acquisition Regulations
regarding subcontracting plans does not require identification of SBIR
technologies to be used in the performance of the contract, DOD
policies require that the use of SBIR technologies be addressed in
acquisition planning.
If there is work that can be subcontracted, prime contractors
(unless they are small businesses) are required to have a portion of
their subcontracted work to small businesses. However, there is nothing
in the current policy that requires the small businesses to be Small
Business Innovation Research (SBIR) Firms.
Ms. Sanchez. You mentioned areas where you are seeking to improve
either the government acquisition process or the SBIR program, could
you provide the committee more detail on key initiatives? Does it
involve adding dollars to seed the initiative? Do you need additional
authorities? Will you change or cancel failing redundant initiatives?
Ms. Oliver. We are proud of our successful initiative to motivate
program managers (PMs) to consider SBIR technology. As a result of our
efforts, DOD Instruction 5000.02 Operation of the Defense Acquisition
System has been updated to include the following statement: ``PMs shall
consider the use of technologies developed under the Small Business
Innovation Research (SBIR) program, and give favorable consideration to
successful SBIR technologies.''
Another initiative to improve the program is our ongoing effort to
improve and update a Defense Acquisition University (DAU) course on
integrating SBIR projects through a specific training module. In
addition to this effort that is intended to increase understanding of
the program for DOD program managers, we host special training for DOD
acquisition personnel at the Annual DOD SBIR Training Workshop.
Additional training is provided to industry and the academic community
at the Annual DOD SBIR Beyond Phase II Conference.
My office also leads a DOD SBIR program managers working group. The
group identifies, evaluates, and shares best practices and
efficiencies. The DOD SBIR Program is evaluated for best practices and
efficiencies on a regular basis.
______
QUESTIONS SUBMITTED BY MR. JOHNSON
Mr. Johnson. Numerous studies that have been placed before Congress
have demonstrated that minority- and women-owned firms continue to face
numerous barriers in the marketplace that non-minority and male-owned
firms do not confront. These barriers include denial of the capital
that is essential to forming or expanding a business; higher interest
rates for loans that minority- and women-owned businesses are able to
obtain; exclusion from contracting opportunities by prime contractors;
inflated pricing by suppliers; and inability to obtain bonding.
Hearings held during this Congress and previous Congresses make clear
that there is substantial evidence that these barriers are the result
of discrimination against minorities and women and that they would be
exacerbated in the absence of government programs to level the playing
field. This is why programs like the 8(a) program are so critical: they
are the government's means to assure that it will not perpetuate prior
discrimination or allow the federal contracting process to be infected
by market discrimination. Do you agree that these are important goals
for the government to achieve?
Ms. Oliver. Yes. The Department of Defense (DOD) believes strongly
in the SBA's 8(a) program and continues to use it in our procurement
activities.
Mr. Johnson. The Department of Defense has the largest volume of
contracts of any agency of the government. Its actions therefore have
significant impact on the opportunities available for minority- and
women-owned firms to participate in federal contracting.
a. What percentage of contract dollars did the Department award to
minority and women-owned firms in FY 2009 and (if the data is
available) FY 2010? Please make clear whether the answer includes all
Defense Department contract dollars, including those spent on contracts
that were not let competitively. If this percentage does not include
all contract dollars, please explain which contracts are included in
your calculation.
b. What percentage of contract dollars awarded to minority-owned
contractors were awarded through the 8(a) program in FY 2009 and (if
the data is available) FY 2010? Please make clear whether the answer
includes all Defense Department contract dollars, including those spent
on contracts that were not let competitively and were not restricted to
small businesses. If the percentage does not include all contract
dollars, please explain which contracts are included in your
calculation.
Ms. Oliver. For the purposes of answering questions a and b, we
have equated ``small disadvantaged businesses'' with minority-owned
small businesses because the two terms are often used interchangeably.
However, it is possible for a small disadvantaged business to be owned
by someone who is not a minority and it is possible for a minority to
own a small business but not be disadvantaged. In FY 2009, the
Department of Defense obligated 7.2% ($21.7B) of its dollars on
contracts awarded to small disadvantaged businesses. It obligated 3.4%
($10.2B) on contracts awarded to small businesses owned and controlled
by women. That Fiscal year, the Department obligated on contracts
$302.4B dollars, including those spent on contracts that were not let
competitively and were not restricted to small businesses.
According to the dynamic Small Business Goaling Report, in FY 2010
the Department obligated 7.2% ($21.0B) of its dollars on contracts with
small disadvantaged businesses. It obligated 3.6% ($10.5B) on contracts
awarded to small businesses owned and controlled by women. That Fiscal
year, the Department obligated $290.1B dollars. The FY 2010 figures are
still preliminary, unofficial, and may change. The Small Business
Administration (SBA) determines small business achievements by removing
certain categories of contracts from a base of appropriated dollars.
Typical examples are: contracts awarded to sheltered workshops and
similar non-profit organizations, foreign military sales, utilities,
and leases.
A more exhaustive list of exclusions can be found in the Appendix
to the Small Business Goal Report at www.fpds.gov/Reports/manage/html/
preview_Small_Business_Goaling_Report.html. Except for the adjustments
made by SBA, the answers to question b include all DOD contract
dollars. In FY 2009, 60.39% of DOD dollars awarded by contract to small
disadvantaged businesses were awarded through the 8(a) program.
Preliminary figures for FY-2010 indicate that approximately 56.5% of
the dollars were awarded through the 8(a) program.
Mr. Johnson. What percentage of contract dollars goes to minority-
owned firms through subcontracting? Please make clear whether the
answer includes all Defense Department contract dollars, including
those spent on contracts that were not let competitively and were not
restricted to small businesses. If the percentage does not include all
contract dollars, please explain which contracts are included in your
calculation.
Ms. Oliver. In FY 2009, 4.1% ($6.0B) of the subcontracted dollars
under DOD prime contracts were awarded to small disadvantaged
businesses; the total dollars in FY 2009 was $144.5B. The FY 2010
numbers have not yet been compiled. The source of the Department's
subcontracting figures is the Electronic Subcontracting Reporting
System. The system collects total dollars that are subcontracted as
reported by prime contractors. The FY 2009 figure of $144.5B includes
subcontracts to small businesses as well as subcontracts to other-than-
small entities.
Mr. Johnson. Is the 8(a) program an important and necessary tool
for providing minority- and women-owned firms a fair opportunity to
compete for federal contracts?
Ms. Oliver. Yes. The DOD continues to use the Small Business
Administration's (SBA) 8(a) program as the primary means of providing
contracting opportunities to small, disadvantaged businesses. The
majority of contracts awarded to small and disadvantaged businesses in
2009 and 2010 were let through the 8(a) program. The program is a
critical means of helping small, disadvantaged businesses gain a
foothold into the federal contracting arena, through which they can
grow and become competitive firms in our economy. While the Section
8(a) program does not include a presumption of social disadvantage for
businesses owned and operated by non-minority female owners, non-
minority female business owners can, and do, participate in the program
by demonstrating social disadvantage. The SBA has recently issued final
regulations, implementing the Women-Owned Small Business Program that
will provide women-owned businesses contracting benefits similar to
those afforded by the SBA's 8(a) program.
Mr. Johnson. What else could Congress do to further explore the
barriers facing minority- and women-owned businesses in federal
contracting?
Ms. Oliver. The Department of Defense would prefer to have time to
evaluate the effectiveness of the implementation of the new SBA rule
pertaining to women-owned small businesses before making further
recommendations.
Mr. Johnson. Does the Department of Defense have in place the ideal
set of tools authorized by Congress to address potential inequities in
small business contracting?
Ms. Oliver. No, there can always be improvement. For example, the
authorization for the Department's SBIR program expired in 2008 and
since then has been reauthorized in multiple small increments of time.
A longer-term reauthorization of the SBIR program would ensure
continuity of operations enabling the department to streamline the
efficiency and effectiveness of the program.
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