TYPE: COMMITTEE HEARING

LENGTH: 23800 words

COMMITTEE: HOUSE SMALL BUSINESS COMMITTEE

HEADLINE: U.S. REPRESENTATIVE DONALD MANZULLO (R-IL) HOLDS HEARING ON "PENTAGON'S PROCUREMENT POLICIES AND PROGRAMS WITH RESPECT TO SMALL BUSINESSES"

SPEAKER:
U.S. REPRESENTATIVE DONALD MANZULLO (R-IL), CHAIRMAN

LOCATION: WASHINGTON, D.C.

BODY:

 
XXX pay the interest.
 
CABRERA (ph): Our award fees that were to be processed every six
months are taking well over a year to process. Mr. Chairman, small
companies like mine don't have the financial cushion that major
corporations do that allow them to sit back and wait for federal
checks. Nor do we have the legal budget to challenge agencies on
issues as they come up. These practices will continue to discourage
and even bankrupt small businesses that do a good job and often
cheaper than our large competition. I hope my testimony will give you
a better idea of some of the serious problems that can face small
businesses. And frankly, we have no place to go to. Legal action or
elevating problems to this level cannot be the only way for a small
company to be heard. We need to craft solutions so that small
businesses are not sidelined or ruined by federal government. Thank
you, Mr. Chairman.
 
MANZULLO: Mr. Cabrera (ph), I want to work with you on this. I
also want to know the name of the person that told you to submit new
invoices so they didn't have to pay interest. I think that's
fraudulent. That could be a criminal referral to the Department of
Justice. I also want to let you know that in your continued dealings
with the federal government, that should you notice anything unusual,
that you are being punished for testifying here today, bring that to
my attention immediately.

CABRERA (ph): Thank you, Mr. Chairman.
 
MANZULLO: I'll contact the Department of Justice on it. That
has happened in the past to people who have testified before this
committee, that they've been punished. They have not been given
contracts that should have happened. And I'm just, I'm just shocked
at how far this has gotten out of control. Nydia, would you, would
you go first? Give me an opportunity to have some more, please (ph).

VELAZQUEZ: Sure. Mr. Tucker, Ms. Brandon testified in her
remarks that there's no reason for new laws regarding contract
bundling. She states in her testimony that the problem is simply a
lack of training and understanding by government acquisition
personnel. Do you agree with this assessment?

TUCKER: Not in our industry. That's not the case at all. Thank
you. Before FASA (ph) was passed five, six years ago, small
businesses like ours competed very successfully in the federal
government market along side with the big competitors, Office Depot,
Staples, and so on. After FASA (ph) was passed, it created a couple,
legislatively, a couple situations, one in particular, the micro
purchase procedures which required no competition or you didn't have
to do any type of procurement procedures when you bought from a --
whether it was a small business, large business. And in particular in
our industry, that is probably 95 percent of the purchases. So it
hurt us dramatically. And now instead of those procedures and things,
we have goals. And those goals, as we hear from DOD can be arbitrary,
may not be enforced. They change from agency to agency, year to year.
And without some kind of consequence or accountability on these
issues, I don't see how it's going to change. I think there needs to
be some type of a legislative solution.

VELAZQUEZ: Thank you, Mr. Tucker. Mr. Degiancomo, in your
testimony, you state that there has been a sharp decrease in contract
opportunities appropriate for small businesses as the department
relies increasingly on consolidated, mega contracts. Yet, Mr.
Aldridge testified that bundling only accounts for .2 percent of
Defense contracts. How do you explain the differences in what you are
seeing and what Mr. Aldridge has testified to?

DEGIANCOMO: Well, in the '90's, the government, federal
government wrote approximately 15 to 18 million contracts per year.
Last year, our government wrote about 10 and a half million. That is
a significant decrease to me. I don't know if all of those are being
bundled. We have no figures on that to be able to verify it. We know
that some of these are being bundled. But there has been a decrease
and we're seeing it. Our small businesses are not able to compete.
 
VELAZQUEZ: Thank you. Mr. Tucker, I would like to highlight a
point you make in your testimony. Your government sales have gone
down from 80 percent three years ago to 60 percent. That isn't
because your prices weren't competitive, is it?
 
TUCKER: No, not at all. As I mentioned, we belong to buying
cooperatives that have enormous buying power, more than any of the
large companies that I mentioned individually. And the contracts that
we are not given the opportunity to quote on or the agencies we're not
allowed to sell, it has nothing to do with the price. They are for
convenience, awarding these blanket purchase agreements, which, you
know, I realize they have smaller procurement staffs and things like
that. But they're using that as the excuse to, you know, bundle or
consolidate the procurement process. And you get into a situation
where the pricing where, you know, the management levels of these
agencies are being shown some very long discounts in pricing, very
much like grocery store pricing, if you will. So they show them some
long discounts. And then when the contract is awarded, and most of
these are five year contracts with one year renewals, these contracts
go on for a long, long time. And believe me, some of those
preliminary low prices are made up long before those contracts are
over. But it's not the pricing issue that's keeping us out at all.
 
VELAZQUEZ: Thank you. Miss Ritter, how do you believe that the
pressing small business agenda will help small businesses?
 
RITTER: Well, I think the words that he spoke and the directives
that he gave to the federal agencies were that they needed to pay more
attention to small businesses. I think that gives us an opportunity
to come and speak. You know, there have been years in the past when
we couldn't even get the opportunity to come in and speak. So I think
at least attention has been focused on small businesses. And I think
small businesses across the United States, small business owners feel
-- Oh, gosh, I hate to use this word -- empowered a little more to
speak up and feel like that they can and that they will finally make a
difference.
 
VELAZQUEZ: Miss Brandon, how many members of the Professional
Services Council have less than 500 employees?
 
BRANDON: Thirty-five, I think.
 
VELAZQUEZ: Thirty-five.
 
BRANDON: Yes.
 
VELAZQUEZ: How many of those companies have contracts with the
Department of Defense as prime contractors?
 
BRANDON: A large number.
 
VELAZQUEZ: Does the Professional Service Council support
Representative Tom Davis' Service Acquisition reformat? Do you have a
position on that? You do.
 
BRANDON: Yes.
 
VELAZQUEZ: Thank you.

BRANDON: We have been supportive.
 
VELAZQUEZ: No more questions, Mr. Chairman. Thank you.
 
(UNKNOWN): Thank you very much. From the testimony of at least
two of our witnesses, I gather that we have a problem with justifying
bundling or consolidation. I agree that those two words might be
interchanged and what somebody's -- one person's consolidation may be
another person's bundling. The example I referred to, I don't think
you can criticize when our agencies cannot procure up to date
equipment because the government procurement cycle is so long that by
the time we get the equipment, it's already obsolete. That they are
then forced to go to a performance contract. If you're going to do a
performance contract, it's (ph) necessarily a big contract. But the
Marine Corps, Navy did reissue the RFP giving 35 percent of all of
those contract dollars to small business and 10 percent of it direct
pay. We also had a similar discussion with NSA with reasonably the
same outcome and expectations. NSA, exactly the same problem. They
just couldn't keep current with their equipment because our
procurement cycle is too long. You know, but other industries don't
have that kind of a problem.

For instance, Mike, your sales of office equipment remind me very
much of the problem that movers had when our DOD decided to issue a
single contract removing household goods. Now all -- obviously,
there's nobody in the whole world who can move all of the military's
household goods in the world. What we used to do is have an RFP and
companies competed. And somebody won. And the person who won could
deliver as many, you know -- could do as much as he could do. Which
obviously, was a tiny percentage of the total work to be done. Than
any other contractor could come in and deliver household goods at the
same rate. I would think that that would be a reasonable analogy for
the problem that you all have. Why do you think they have to go to
these big, single source, blanket contracts rather than doing what our
moving people used to do, simply issue an RFP, have a lot of people
like you compete? Somebody's going to win. They're going to, you
know, bid to deliver it better and a lower cost. And then anybody
else who wants to can compete at those same levels. Why wouldn't that
be a reasonable way to let small businesses participate here?
 
TUCKER: I think it's a very reasonable way. I can't answer a
question why they wouldn't pursue that path. But there seems to be a
thing here where once a contract like this has been negotiated, there
seems to be a need or a desire on the part of the people who negotiate
it to defend their position, what they've done. They've done this to
save the agency money and time, and so on, and so forth. And I've
said this before, if you ask people in some of these agencies at the
headquarters level what they think of these new negotiated sole source
contracts, the people at the management level go, oh, this is great.
It's saving us lots of time and money and man hours and all the rest
of it. And then you go down and you talk to the people with the
credit cards that are, you know, placing the small purchase orders and
they're just, you know, they hate it. It's dreadful. They have
service problems. They can't get their bills straightened out. They
get substitutions. So, to address your point, I would love to see
something along those lines offered. You know, that would certainly
be a way to do it and to, you know, possibly break this up or have it
renegotiated.
 
(UNKNOWN): Mr. Degiancomo, do you think that there is a
possibility of requiring a justification for these consolidated -- I
know that you now have to justify a bundling. But, you know,
consolidation could be bundling. If we had to justify that, I don't
think that in the case of moving or the case of office furniture that
it's easy to justify a single contract for the whole world. I would
think doing what we used to do for moving is the reasonable thing to
do. Because to make it more convenient for the government purchasers
to just let a single contract -- you know, that really now is denying
access to many small businesses. If everybody that had that kind of
an attitude, Bill Gates working out of his garage or was it his
basement, would never have become Microsoft. You know, we just have
to give an opportunity to these small businesses. We have to find a
way to meet the government's needs while still not excluding our small
businesses from competing. Do you think that by regulatory reform
that we could reach this objective? Or do we need some legislative
reform from committees like this?
 
DEGIANCOMO: I firmly believe that there has to be some kind of
justification for bundling contracts of any type. It hurts my small
businesses. They're not able to compete. We have situations where
small businesses, they don't even bother to try any more. We in
Rockford are trying to set up a coalition of small businesses that can
bid on some of the larger contracts. But it's very difficult to get
these small businesses to work together because they're all very
entrepreneurial and independent minded. So, I hope that answered your
question.
 
(UNKNOWN): Thank you, Mr. Chairman. Everybody is for
efficiency. But when that efficiency eliminates competition that
brings the skills and entrepreneurship to the, to the government, you
know, that's moving in the wrong direction. And maybe we can be a
factor in changing these regulations so that small business can
continue to contribute as they have in the past.
 
MANZULLO: What I think would make an impact, I think somebody at
Walter Reed is not going to be very happy with me today. But that's
tough. Life's (inaudible). Congresswoman Millender-McDonald.
 
MILLENDER-MCDONALD: That's all right, Mr. Chairman. We are
happy with you and you have my vote of confidence on your actions
today. I agree with you that something needs to be done to get to the
bottom of the inability for small businesses to have contracts by the
federal government. And I am appalled at the inconsistency of the
Department of Defense and their inability to meet the goals that are
set forth through legislation. Mr. Tucker, I read parts of your
statement with some interest and the others, you're all talking about
the same thing that our Congressional that was held in my district
just a couple of weeks ago spoke about. That's e-commerce. And it is
so important for small businesses to get up and going and get to be a
part of this technology that's going to really drive the economy, so
to speak. But you stated that the federal government is simply
failing to meet its small business contracting goals.
 
That is hurting to me sitting here representing the federal
government. That particular statement goes through the veins of all
of your statements that you've said today in essence. And you have
tried several times to try to seek these contracts. Some of you have
gotten them. I've read where others have been met with sub
contracting from an Army Corps of Engineer, which, in fact, that sub
contractor did not pay. And so, consequently, you sued. Now (ph)
small businesses shouldn't have to go through with that. Now maybe
that is not some of the statements that I've read here, but I've read
it someplace else. Mr. Chairman, first of all, I would like to
suggest to us, the small business committee and I as the ranking
member that we call into play every department head, secretary,
whatever to this committee to see just how well they are faring on
meeting the goals for small business contracts with them.

 
VELAZQUEZ: Based on the fact that unnecessary and unjustified
bundling violates the statute and will be prohibited anyway, would you
please give us some insight into your understanding of the president's
small business agenda?
 
ALDRIDGE: I think the president's agenda was very clear. He
would like to avoid bundling of contracts. We support that. That's
exactly what the January memo was intended to do. We needed to make
sure we establish guidelines if the department -- any of the
departments were wanting to bundle a contract for purposes of saving
taxpayers dollars, they had to justify it. And we gave them the
guidelines by which they could do that analysis that would imply a
justification of bundling.
 
We do not intend that that would be a very common practice. In
fact, it should be a very rare practice that we would bundle
contracts.
 
I was noticing that in the total of the number of contracts
within the Department of Defense, we have only defined 26, of
thousands of contracts, as being bundled, which only represents less
than two-tenths of 1 percent of the total DOD acquisition.
 
I think bundling is a rare occurrence. We're going to make it
rarer. And we're going to give the guidelines that when it can be
done for the purposes of saving taxpayers dollars -- we've given the
guidelines by which that would be accomplished.

We have to be very clear on this to justify each one of those.
And that was the purpose of my memorandum is to make sure that we have
the proper rationalization and justification for doing so when it is
proposed to make it happen.
 
VELAZQUEZ: Mr. Aldridge, Democratic members of this Committee
released their report a couple of weeks ago that highlighted the
rampant consolidations occurring within the department --
consolidations for the convenience of the government, without regard
to small businesses. Aren't these consolidations, in large part, the
reason that the department cannot achieve its 20 percent small
business goal?
 
ALDRIDGE: I don't believe so. First of all, we've got to define
the difference between consolidation and bundling. Consolidation
clearly implies that we can consolidate small businesses. And that
consolidation can also be competed by small business.
Bundling, I think, is when you bundle contracts to exclude small
business. That's what we need to avoid. But when we have
consolidation that permits small businesses to happen, I think that's
OK.
 
Now, I forgot your question. I was getting into the definition
rather...
 
VELAZQUEZ: I asked you -- first, are you telling me that the
consolidation of contracts that displace small businesses, because it
isn't bundling according to the statute, is perfectly OK?
 
ALDRIDGE: No. I'm saying that we want to avoid bundling. But
in some cases it may be justified. But in the case where it can be
justified, there has to be analysis to prove it. And we have given
them guidelines on how to prove if bundling is OK. I expect that to
be a rare occasion, not a popular one.
 
VELAZQUEZ: My previous question was: aren't these
consolidations, in large part, the reason that explain why your
department didn't achieve the 23 percent...
 
ALDRIDGE: No.
 
VELAZQUEZ: ... statutory goal?
 
ALDRIDGE: I do not believe bundling is the reason we're not
achieving the percentages for our total goal versus the independent
ones. I believe the reason is that we, in the proper process of
finding qualified small businesses, we have a problem that the pool
size to allow us to achieve those goals is not large enough. So the
combination of taxpayer cost effectiveness and the quality is the
reason we're not achieving goals in many of those cases.
 
VELAZQUEZ: So let's talk about consolidation. We're not talking
here about bundling.
 
ALDRIDGE: Consolidation...
 
VELAZQUEZ: So are you telling me that when you consolidate these
mega-contracts that you cannot find qualified small businesses that
can provide the products and services...
 
ALDRIDGE: No.
 
VELAZQUEZ: ... that you require?
 
ALDRIDGE: No. I did not say that. You asked about bundling.
Consolidation will permit small businesses to participate. If you
consolidate contracts, small businesses can bid. But it's not
consolidation, nor bundling, that I believe that causes the issue of
not being able to achieve the goals...
 
VELAZQUEZ: OK.
 
ALDRIDGE: ... precisely -- it's quality...
VELAZQUEZ: Mister...

ALDRIDGE: ... of the control.
 
VELAZQUEZ: ... Aldridge, would you please submit for the record
within the next 10 days a listing of all consolidated contracts by the
department and the cost savings that has accrued to the government as
a result?
 
ALDRIDGE: I will try to find that data, yes.

VELAZQUEZ: I guess that if you cannot find it, then I will
provide it to you.
 
ALDRIDGE: Well, I...
 
VELAZQUEZ: We have a list -- where -- we can provide it here --
maybe you can see it.
 
RAMOS (ph): We have that information.
 
ALDRIDGE: These are the federal watch lists. Not all contracts
which had been -- which -- and the cost savings for each of them. You
had asked me for a much...
 
VELAZQUEZ: Sir...
 
ALDRIDGE: ... longer list...
 
VELAZQUEZ: ... out of those 10, seven come from DOD.
 
ALDRIDGE: I understand.
 
VELAZQUEZ: OK.
 
ALDRIDGE: But I believe you asked me for all consolidated
contracts and the cost savings across the Department of Defense. That
would be a lot...
 
VELAZQUEZ: OK.
 
ALDRIDGE: ... longer list than that.
 
VELAZQUEZ: You could start with the seven that we have there.
 
ALDRIDGE: OK. Thank you. I will.
 
MANZULLO: Mr. Hefley?

HEFLEY: Thank you.
 
Mr. Secretary, I am glad to hear you reiterate the policy again
about bundling. Bundling has disturbed me for a long, long time and
partially because I started out in the construction business for a
small contractor. And when I say I started out in the construction
business, I don't want it to be more grandized (ph) than it was. I
drove a truck. And I was a carpenter's apprentice for a small
contractor who was doing small projects at Tinker Air Force Base in
Oklahoma City.
 
And he was able to get those small contracts -- he was a new
company and he was able to get those because he could bond for those.
And we did the refurbishing of the officers' club there, I remember.
We did some shops in some of the hangers.
 
Had they put those contracts together, we probably couldn't have
qualified for it. By doing them separately, we were able to.
 
Is that the kind of thing that you're trying to get to so that
you can get it down to the size that a small business can bond for and
can compete for?
 
And then, we'd like for all small businesses to become big
businesses some time. So...
 
ALDRIDGE: We hope that all small businesses started -- or all
businesses started off being small. I'm sure many...
 
HEFLEY: Well, sure.
 
ALDRIDGE: Boeing started off to be in a backyard of a garage.
 
Yes, sir. That's the idea. As I said, a healthy industrial base
for this country for the Department of Defense is absolutely
essential. And we're finding with over $50 billion of our procurement
going to small businesses -- these are people that have a lot to offer
us in technology and agility to move and to do things quickly. We
need to encourage that.
 
And that's what I'm trying to do with the guidance that we have
both in terms of avoiding the bundling, as well as another memorandum
that I issued that would try to get a better process by which we can
follow -- set goals for ourselves and follow them and make progress
throughout the military departments.
 
So the answer to your question is yes, sir. Small businesses are
valuable. They are part of our industrial base. We need to make them
healthy. And hopefully get them to be big businesses someday in the
future.
 
HEFLEY: I'm glad to hear you say that and I hope we continue to
move in that direction.
 
Another question I get an awful lot...

VELAZQUEZ: Would the gentleman yield?
 
HEFLEY: Yes, ma'am.
 
VELAZQUEZ: You see, Mr. Aldridge, the contract -- number two
contract -- it calls for the construction of seven barracks. If you
break them down -- up -- you are building seven, so you could break
them down to have small businesses to compete and build at least one.
ALDRIDGE: Mrs. Velazquez, I am not familiar with that contract.
That contract level does not normally get to my attention.
 
But it's clear that I have an obligation to the taxpayer of the
United States. We have to provide those taxpayers with the most
efficient capabilities we can. And so there is a balancing act that
goes on in everything we do between trying to support small business,
which I clearly support, and I will continue to say that almost every
time I talk before this Committee. I support small business. But I
also have the equally important obligation of ensuring the taxpayer is
getting the maximum return for his dollar.
 
Now, I'm not familiar with that contract, so I don't know whether
the two have been balanced in the right way. But certainly we will
follow that to make sure that's going to occur. But I believe it's
important to understand that saving taxpayers dollars is also
important, as well as trying to protect small businesses.
 
HEFLEY: If I might -- one other question -- I get a question a
lot of times from small majority business owners, I guess you would
call them, that all of the set asides for small business are taken up
by minority and women-owned businesses. And there's all kinds of
shell games being played out there so they can qualify as a minority
or a woman-owned business.
 
And it's my experience that if you're a small business struggling
to get started and to make it, it doesn't much matter what your color
or what your gender is. I mean, you may need these set asides for
help.
 
Can you speak to that? Are all of these, or the vast majority of
these, being taken up by special categories rather than small
businesses, in general.
 
ALDRIDGE: Well, yes, sir. Not only do we have a small business
goal across the department, but we have sub-categories of small
business goals within each of the categories of -- an 8A (ph) firm, a
minority owned, women-owned firm and, of course there are hub zone
areas we also have goals set for. So, yes, there are all types of
different categories of goals.
 
Do you want to say something about that Frank?
 
RAMOS (ph): Yes.
 
What I'd like to do is kind of put this a little bit into
perspective. And I'd like to share with Congressman Velazquez --
clearly, we share your concern about the appearance of this bundling
that's taking place within DOD. I told Mr. Aldridge -- and, believe
me, I'm not saying this just to be patronizing, I've been around town
a little bit. I have Mr. Aldridge and Mr. Michael Winn (ph) who are
my immediate directors. They have given me tremendous license to roam
around the Department of Defense looking at these issues.
 
I was just describing to Mr. Aldridge that if you look at the
metrics and go back 10 years, if you will, on all of those statistics
that are up on the board, if you look at them almost like a heartbeat,
that heartbeat is rather consistent whether it been in the past
administration, this current administration, they all have been fairly
consistent. There's only been one blip in terms of -- factor in terms
of that metric performance and that was the Persian Gulf War.
 
I kind of expect we're going to have another impact in this next
year. We don't know because the data is not there.
 
So what I'm saying and what I'm describing here is that we've
been rather consistent, not withstanding the different directions that
they've had at the Department of Defense.
 
So we're taking a look at that.
 
With respect to the issue on bundling, if we saw a loss in there
across the board, generically speaking, then we could say it's pinned
to that. But the slope of dollars and the slope of numbers of
contracts that we see for small business is rather consistent. It
isn't where we want to be. Clearly, it isn't where we want to be.
 
However, when we look at the bundling aspect of it, we have had a
series of reports whether people agree to them or not -- we've had the
General Accounting Office -- we've had an inside contractor take a
look at them. And I guess we can arrive at a conclusion that it's not
conclusive because there's a lot of different factors.
 
The president has currently put together a task group of all the
federal agencies to examine this. It is our expectation at the
Department of Defense that we get some clarity of definition of what
bundling is in the real sense. And we'll also get some cross-cut from
the other federal agencies to compare to us to see what it is that we
can use as the best model to penetrate this issue of bundling.
 
It is nagging at us, Congressman Velazquez. It tears at us in
terms of having to be reactive to this. We have provided to the
staffer here on this Committee a listing of all the bundled contracts
that we have had, at least under the definition.
 
We haven't had a chance to analyze and do the analysis as you
request, Congressman. And we are going to do this.
 
VELAZQUEZ: Sir, when you said to me that you're working hard and
that you're trying to do your best and that you're doing better --
look at the numbers. Last year, your achievement in terms of your
goal of 23 percent was 21 percent in year 2000. Year 2001, it dropped
to 20 percent. That's a big drop. It represents a lot of money for
small business.
 
RAMOS: We're looking at a statistical issue. And I agree with
you. There's some variances there. But if you look, again, at the
dollars in terms of the units, if you will, they're consistent in
terms of what I'd look -- at the trend. We have to look at the trend
in terms -- for us to analyze. And that's -- I guess my commitment to
you, Congresswoman -- when I first met you, I told you I'm going to
dig into it. And that's what we're going to do.

VELAZQUEZ: Well...
 
RAMOS: We're going to...
 
VELAZQUEZ: ... let me just say this to you...
 
RAMOS: ... (inaudible)
 
VELAZQUEZ: ... this is not a statistical issue with all the
small businesses that are here and will be testifying. This is about
money and this is about jobs and when they are forced to shut down
their businesses or fire their employees.
 
 
RAMOS: OK. Mrs...
 
MANZULLO: Mrs. Tubbs Jones?
 
TUBBS JONES: Good afternoon, Secretary Aldridge -- Mr. Ramos.
 
Let me address my comments, first of all, or my questions to the
secretary -- Mr. Aldridge.
 
Mr. Aldridge, would you agree that, as the leader of the
Department of Defense, it is you who sets the goals and objectives of
your department?
 
ALDRIDGE: We set the policy. We try to work closely with our
service counterparts to make to make sure that...
 
TUBBS JONES: Short answer is yes -- as the leader of that
agency, it's your job to get the troops in line. Is that a fair
statement?
 
ALDRIDGE: The Secretary of Defense is the leader of the
Department of Defense.
 
TUBBS JONES: Right. But...
 
ALDRIDGE: I simply...
 
TUBBS JONES: ... for the department -- for DOD -- you're in
charge of DOD. Is that a fair statement?

ALDRIDGE: No. The Secretary of Defense is in charge of the
Department of Defense.
 
TUBBS JONES: You're in charge of procurement. Let me be a
little clearer, then.
 
ALDRIDGE: That's right.
 
TUBBS JONES: OK. And, so, as the leader of that division,
whatever you do, whatever you say, the troops ought to get in line.
Is that a fair statement?
 
ALDRIDGE: We have set the policies for the small business
goals...
 
TUBBS JONES: I don't have but five minutes. I need a yes or a
no on some of these questions, if you'd help me, please.
 
ALDRIDGE: Well, I'm not sure I understand exactly what you're
asking me to agree to.
 
TUBBS JONES: In other words, whoever's in charge of procurement
or whatever the division is sets the policy for the people who they
lead. Is that a fair statement?
 
ALDRIDGE: That's correct.
 
TUBBS JONES: OK. You have a statement that you gave to this
Committee this afternoon, sir. And nowhere in the statement do you
mention 8A (ph) programs. Are you familiar with 8A (ph) programs,
sir?
 
ALDRIDGE: I am.
 
TUBBS JONES: Can you tell me what they are?
 
ALDRIDGE: Yes. They're the -- we have set a goal for 8A (ph)
programs that are at 2 percent -- an internal function for the -- I
think you're criticizing us for not having...
 
TUBBS JONES: I haven't started criticizing yet. I asked you do
you know what an 8A (ph) program is, sir.
 
ALDRIDGE: It's disadvantaged business -- yes, ma'am.
 
TUBBS JONES: And what is a 8A (ph) program, excuse me?
 
ALDRIDGE: It's a disadvantaged business.
 
TUBBS JONES: There is a program called small and disadvantaged
business. But there is also a 8A (ph) program that's for -- ask Mr.
Ramos (ph) what a 8A (ph) program is.
 
RAMOS (ph): The 8A (ph) program is a small and disadvantaged
business who has suffered economic and social disadvantages that are
certified by the Small Business Administration.

TUBBS JONES: And included in those are minority businesses -- is
that a fair statement?
 
RAMOS (ph): Minority businesses -- it's certain protected
groups. It could be anybody else, including a majority person,
showing economic disadvantage.
 
TUBBS JONES: Let me back up. Mr. Aldridge, what's your policy,
as the leader of procurement, with regard to minority businesses?
 
ALDRIDGE: My policy with regard to -- do you mean my goal for
how much business...
 
TUBBS JONES: I want your policy and your goal, sir.

ALDRIDGE: My policy is I'm supporting small business activities
within the Department of Defense, as it...
 
TUBBS JONES: And how do you represent that policy, sir?
 
ALDRIDGE: I have issued guidance to the military departments
regarding the goals that we set...
 
TUBBS JONES: Why don't you take a moment and read the memo that
your staff just gave you so you know what it is.
 
MANZULLO: You can tell that Congresswoman Tubbs Jones is a
former policy...
 
ALDRIDGE: The policy that I have set forth for the military
departments as to what goals they need to set, how they're going to
measure their progress and how do they report them back to us has been
issued to each of the military departments.
 
TUBBS JONES: Do you know the policy, sir?

ALDRIDGE: Do I know the policy? I'm searching for what...
 
TUBBS JONES: It's simple. Either you know it or you don't know
it. The question is if you don't know it, how does the rest of your
staff know it? And the goals and the percentages that are represented
or how many minority persons have had an opportunity to do at DOD show
that you don't know the policy. And, therefore, you've not been able
to implement it.
 
ALDRIDGE: No. If you're talking about the policy in regard to
the goals we've set for 8A (ph) firms -- I know that -- that's 2
percent of our procurement.
 
TUBBS JONES: Have you met that?
 
ALDRIDGE: No sir -- no ma'am.
 
TUBBS JONES: And you are having a problem figuring out whether
I'm male or female, though, are you not?

(LAUGHTER)
 
And can you tell me why it is you think you haven't met that
goal, sir?
 
ALDRIDGE: I think there's two reasons. One is we have to have
people who are qualified to -- we have to have a pool of people who
are qualified to do the business and to compete for the business in
that goal. And we have not been able to do that. Doesn't mean
there's...
 
TUBBS JONES: Well, I didn't invite any of these people. Will
all the minority folks in this room stand up, please, that have been
trying to do business with DOD and they've been determined not
qualified to do business. Is there anybody in the room? Guess they
haven't been invited here to be at this session. But let me assure
you, Mr. Aldridge and Mr. Ramos (ph), there are minority business
people in the United States who are prepared and capable of doing
business with you. And I'd love to have an opportunity to present...
 
ALDRIDGE: I have...
 
TUBBS JONES: ... you a list of those so you don't have this
question that everybody says we can't find none because I've got
plenty for you.
 
I yield the balance of my time.
 
RAMOS (ph): Madam Congressman, I haven't heard the question from
inside of Department of Defense that we can't find minority
contractors.
 
TUBBS JONES: You may not have heard it, but just what your
leader just said. So it must -- that's the point I'm trying to make
to you, gentlemen, that whoever sits at the top sets policy and
agenda. And if they can't articulate it, if the people can't see what
they're doing, then the people who are doing the job can't implement
it. And that's solely my point.
 
RAMOS (ph): I carry out the policy for Mr. Aldridge. I know the
policy and we're endeavoring to carry it out.
 
We do have the minority firms. We have small disadvantaged
firms...
 
TUBBS JONES: So you disagree with Mr. Aldridge that there are no
minority firms qualified to do the job that he just said.
 
RAMOS (ph): We both are saying that there are minority firms
that are qualified. And there are minority firms who are...
 
TUBBS JONES: But you can't find them.
 
RAMOS (ph): I never said that -- never said it.
 
TUBBS JONES: I'm not going to go back through the record. The
point that I'm trying to make is, Mr. Aldridge -- Mr. Ramos (ph), we
sit here representing people of all color, race, sex, religion,
national origin in these United States. There's enough money at the
governmental till for everybody to have an opportunity to step up to
the plate to participate. And we believe that DOD, who does 65
percent of the procurement for the United States, has an obligation --
a duty -- a moral principled obligation -- to give minorities -- women
-- opportunities to do work with the federal government, no matter
what it takes for you to do that. Can you agree with that?
 
RAMOS (ph): In principle, yes.
 
TUBBS JONES: Thank you. Folks, I'm asking you to implement it.
 
RAMOS (ph): OK. But there are some factors in implementing that
we're trying to share with the minority firms -- and all small
businesses, as far as that goes.
 
TUBBS JONES: Would you send those to me so I can share them with
the minority firms that I know are qualified to do work for the
federal government.
 
RAMOS (ph): Actually, we'd be glad to meet with them, if you
wish, and explain...
 
TUBBS JONES: Well, I want you to send me, though, whatever those
principles are so I can clearly give them an opportunity to be
prepared to respond.
 
RAMOS (ph): OK.
 
TUBBS JONES: Could you do that?
 
RAMOS (ph): Yes, ma'am.
 
TUBBS JONES: Thank you.

MANZULLO: How much time do you need for that, Mr. Ramos (ph)?
 
TUBBS JONES: If there are (inaudible)...
 
RAMOS (ph): We could probably do it the first of next week, if
you wish.
 
TUBBS JONES: Oh, thank you very much.

(CROSSTALK)
 
MANZULLO: I'm going to take my turn at this time.
 
Mr. Secretary, the question was posed earlier as to meeting the
small business goals -- this is for all small businesses. And your
response, and I heard it again, is that the pool is not large enough.
We had a -- Deedradee (ph) came out about five months ago and held a
procurement conference in my district. Two hundred forty people
showed up. Several people have gone with the Peetack (ph) afterwards
and signed up to qualify for the contracts.
 
But I'm finding your answer -- maybe it's not clear or maybe I
misunderstood. I thought there were more than sufficient numbers of
small business people in line out there ready to get the contracts
when they were being offered. But what did you mean by "the pool is
not large enough"? Am I missing something here?

ALDRIDGE: Perhaps I misspoke. The goal we've set for ourselves
-- this Committee and our office within the Pentagon are after the
same objective -- is to increase the health of the small business
community. We are trying to do that. We have set goals for...
 
MANZULLO: You've done that on FAZ (ph).
 
ALDRIDGE: We did it on FAZ (ph). We're trying to do it on other
things as quickly as we can. But...
 
(UNKNOWN): (OFF-MIKE)
 
ALDRIDGE: Well, I hope we are. I'm not familiar with them, but
I hope we are.
 
MANZULLO: But could you explain what you mean by "the pool is
not big enough"?
 
ALDRIDGE: Well, I think I probably misspoke about the pool. The
question I'm getting to is performance. We want to achieve the
objective of the national security of the Department of Defense. I
could meet goals by just passing money out. That is not the intent at
which we are trying to achieve. We just don't pass money out to
achieve a goal. We have to get a return of performance on that. And
in the process, we are not able to achieve the goal because, for some
reason, we are not getting the ability...
 
MANZULLO: Are you saying that the small business people are not
performing to standard enough?
 
ALDRIDGE: No. It's when we go through the process of issuing
the -- going through competition, we, obviously, are trying to achieve
the goal all the time. We are not able to do it...
 
MANZULLO: Well, there...
 
ALDRIDGE: ... for some reason.
 
MANZULLO: Then the problem there is -- it's got to be an
internal reason or the bidding process or something because we've got
folks back home that are stacked up like train cars ready and itching
to get those government contracts.
 
Is there is a disconnect somewhere here, Mr. Ramos (ph)?
 
ALDRIDGE: Yes, sure, go ahead.
 
MANZULLO: Could you help us out?

RAMOS (ph): Let me tell you what -- and this is pretty much
generic across the federal government, but even more so at the
Department of Defense because of the war-fighter needs -- what they're
looking for is past performance. That is, a capability of being able
to perform on contract.
 
MANZULLO: But that would hinder the start-up businesses,
especially minority businesses.

RAMOS (ph): There's some other factors that go along with that.
The 8A (ph) firms are certified because of their managerial and
technical competency. And they also have the financial capability to
perform. Those are factors that the contracting officers look at with
respect to whether or not that firm can perform on the contract.
That's past -- and including past performance.

What we're suggesting in advocating for a lot of firms,
particularly start-up ones -- and I think those are the ones that are
raising a lot of question -- because in my experience at DSP (ph), we
had the same experience with small business -- they want to get in the
door. The way to get in, and we're advocating this to help them move
into the system, is to partner -- to joint venture so that they get
that past performance.
 
MANZULLO: Joint venture -- so the small business has to joint
venture with the big business...
 
RAMOS (ph): They do it all the time, sir.
 
MANZULLO: ... in order to get performing -- let me give an
example. I mean, say you need 100 of these made up -- of this object
here -- you put out RFPs for five of them. Award one contract -- one
each to five small businesses and see how they perform on that. I
mean, can't you do that, as opposed to forcing a small business to
form a partnership with a large business to get a performance
contract?

RAMOS (ph): What I'm saying is that it's relative in size, based
on the contract. That probably will not need a partnership. If you
have that product and you're the only one can produce it, that isn't
the issue. If you get into the more major issues and systems, that's
where the small businesses have a harder time because of the
managerial, technical and also the financial capabilities.
 
MANZULLO: OK.
 
Dr. Christian-Christensen?

CHRISTIAN-CHRISTENSEN: Thank you, Mr. Chairman.
 
Welcome Secretary Aldridge and Mr. Ramos (ph).
 
I want to go back to the 8A (ph) question for a minute. Can you
tell me what, specifically, you're doing to increase -- you said you
didn't meet the goals. Our information is that the 8A (ph)
procurement has been steadily declining. Can either of you tell me
what you're doing about that? What specific steps are you taking to
increase 8A (ph) participation?
 
RAMOS (ph): First of all, the Department of Defense did not
participate in the 8A (ph) goaling (ph) in the past. And this is the
first time that they have some metrics in there.
 
CHRISTIAN-CHRISTENSEN: Oh. Why?
 
RAMOS (ph): Why? I can't answer because I wasn't here. That
was the past policy. OK? All I know is from here on out. It is
there. If you look at an 8A (ph) firm, that can also be a small and
disadvantaged firm. So they kind of blend, if you can.
 
Now, what we're going to do with the 8As (ph) is we're going to
try and address them as -- because the 8As (ph) are also women-owned
business, service disabled veterans, Native Americans and others.
 
CHRISTIAN-CHRISTENSEN: Right. And I see that you plan to focus
on that. I'm impressed with that. But I want to make sure that we
address this particular program which seems to be coming in conflict
with some others.
RAMOS (ph): Well, 8As (ph), in some cases, enjoy a preference
because they are certified. Dependent upon the offering, they can
enjoy an advantage with respect to that offering that may come from
any of the service branches.

Now, the question is where can they best fit into those
opportunities? And...
 
CHRISTIAN-CHRISTENSEN: Can I...
 
RAMOS (ph): ... I think this is what Mrs. Velazquez is saying
there.
 
CHRISTIAN-CHRISTENSEN: ... can I just interrupt you to maybe,
kind of, fine tune your answer? Do representatives from the agency
meet with the Small Business Administration on a regular basis to
identify any specific projects that 8A (ph) program participants might
be particularly well suited for? Do you ever meet...
 
RAMOS (ph): Let me just tell you one of the initiatives that
I've taken up since I've been there. We have set up with Fred
Armendaters (ph), he's the associate administrator for contracting, we
are setting up periodic meetings with them. We set up a first meeting
about a little over a month ago to talk about common issues like this,
and including bundling. That was the last conversation with him.
 
So our intentions and our commitment between the two agencies is
to discuss that very subject.
 
CHRISTIAN-CHRISTENSEN: Have you talked about hub zone versus 8A
(ph) because that's...
 
ALDRIDGE: Hub zone versus...

CHRISTIAN-CHRISTENSEN: ... becoming a conflict...
 
ALDRIDGE: We haven't had...
 
CHRISTIAN-CHRISTENSEN: ... for us?
 
ALDRIDGE: ... the discussion with them about it. But we have
some initiatives with respect to the hub zones.
 
CHRISTIAN-CHRISTENSEN: What are those initiatives?
 
ALDRIDGE: Well...
 
CHRISTIAN-CHRISTENSEN: Back to using and focusing on the Native
America reservations?
 
 
RAMOS (ph): In part. What we're developing right now is a
strategy in how to approach hub zones because we have urban hub zones.
And we have rural, if you would, hub zones. And then you have -- hub
zones, by definition, are all Native American reservations.
 
I'm a big advocate of partnering between the different
disadvantaged groups. The Native Americans enjoy a certain priority
with respect to contracting, particularly the Alaskan tribes. By
definition, as I said earlier, reservations are hub zones and we're
trying to encourage partnering with the Native Americans in those hub
zones so that they can have an advantage into the contracting to get
them inside the door. So we're developing that strategy as we speak
now. In fact, one of my special assistants is trying to develop that.
 
And we already talked to the Navajo and to the Hopis in Arizona
to see how we can get in the door in that respect.
 
CHRISTIAN-CHRISTENSEN: And other than that, are you finding that
-- who gets preference between a hub zone and a 8A (ph)? Is there a
priority -- one over the other?
 
RAMOS (ph): It depends on the set of circumstances and what
you're trying to accomplish. They each have their own advantages.
There are preferences in the hub zones because of the economic
benefits of a community that gives incentives to a business that
starts up a business or has business within a hub zone.
 
And 8A (ph), in itself, does not enjoy that. But if you couple
the two together, you have a tremendous opportunity. And that's what
we're trying to advocate, particularly with the Department of Defense.
 
CHRISTIAN-CHRISTENSEN: Why would you have a difference in the
goals for either one? It seems to me -- and the reason I ask the
question is because you have a higher goal for hub zones than you have
for 8A (ph). And, given the fact that they come into conflict and
given the fact that 8A (ph) are largely disadvantaged or women-owned
or minority owned businesses where hub zone businesses don't have to
be, why -- there's a discrepancy there just in looking at your goals.

RAMOS (ph): Unfortunately I wasn't there when those goals were
negotiated with the Small Business Administration. I do wish to,
during my tenure, if we have another opportunity, to discuss that.
And, hopefully, beforehand to see what the rationale in establishing
those goals were.
 
Because, as I eluded to earlier, there is kind of a historical
performance of all the federal agencies. And there's something that
has to drive them to get over that hump. And that's what we're going
to try and do.
 
CHRISTIAN-CHRISTENSEN: There's so many questions. If I could
get in one last question?
 
Just this consolidated contract versus the bundled contract --
when an organization combines requirements previously performed under
separate contracts, the larger contract is a consolidated contract.
If the previous smaller contract was suitable for award to the small
business and the consolidated contract is unsuitable for award to
small business, then it's a bundled contract.
 
I'm still not clear that a consolidated contract is not a nice
word for a bundled contract.
 
RAMOS (ph): Let me just...
 
CHRISTIAN-CHRISTENSEN: Can you help me out?
 
RAMOS (ph): ... I'll speak from the street.
 
If you want to manipulate the system, you can manipulate it by
using the bundle process. If you really want to help out the small
businesses, you will segment those bundled agreements to benefit the
small businesses that we're trying to grow.
 
I think the big debate right now -- and the president has taken
the incentive here to address this issue because it's reached his
administration's attention -- we have all federal agencies coming
together -- I'll just say the majority ones, including the SVA (ph),
who are going to scrutinize this question because there's a lot of
confusion with respect to definition.
 
And I kind of agree with you -- there's confusion. And my role
inside the DOD is to attempt to diffuse and to clarify that confusion
because we see segments of that. We just saw it with Congressman
Velazquez yesterday -- talking about some other circumstances. And
you can see the lack of clarity. And that happens.
 
CHRISTIAN-CHRISTENSEN: Thank you. And I hope that when it is
resolved, the weight of that resolution is given towards small
businesses.

RAMOS (ph): I'm with you.
 
ALDRIDGE: I think, though, it's very clear what the president
has told us to do.
 
MANZULLO: Before I recognize Mr. Bartlett, I will state for the
record that minority and majority staff members of this Committee are
meeting with Mr. Ramos (ph) on a periodic basis on those seven
contracts that are with DOD. And we appreciate the fact that the foot
is in the door. And we're there to help. And maybe give you lists of
people back home that need contracts and things of that nature. But I
just want to recognize that for the record. I appreciate the effort
on that.

RAMOS (ph): Thank you, sir.
 
MANZULLO: Mr. Bartlett?
 
BARTLETT: Thank you very much.
 
Our developing technology is presenting challenges for
contracting with small business. Let me give you one example -- and
there are others.
 
The procurement cycle in government is so long that by the time
we procure the new information technology equipment, it is pretty much
obsolete. And so, a number of our agencies -- and one of the first
that we had contact with was the Navy and Marine Corps -- were issuing
a single contract -- not to buy equipment, but to buy performance so
that the contractor could then always have the latest, best equipment
available.
 
We met with them -- Mr. Kroft (ph) and I met with them and, to
their credit, they withdrew their RFP and issued another RFP assuring
that 35 percent of all that business would go to small business and 10
percent of it would be direct pay.
 
So some of the challenges we face in contracting with small
businesses are a result of this developing technology, which makes it
more desirable for us to go to these large contracts -- call them
consolidated or bundled or whatever you want to call them -- in any
event, you can provide opportunities for small business there, if you
wish.
 
I was one of perhaps 35 people who came to this Congress from
NFIB (ph). I was a small business person, in another life. I also
worked for the government. About, I guess, 40-some years ago I left
the government as a GS15 (ph). And when I was in the government, I
was involved in issuing RFPs and reviewing the response from the
business world.
 
And then I became a small business person. First I worked for a
big business like IBM and responded to RFPs there. And then I had my
own company.
 
And there's a couple of issues that I wanted to talk with you
about very briefly that I think present challenges for better
mobilizing the small business community so that we can capitalize on
the greater creativity that you find in the small business community.
 
One of those is the fact that contracting officers are graded on
how well their contractors perform. And so when you get responses and
RFP in from a variety of contractors, as a contracting officer, you're
very disposed to go with Joe because Joe's performed several times in
the past. You know he'll do a good job. Jim might have presented a
response to the RFP that maybe looks at least as good -- maybe a
little better than Joe's -- but, gee, I never saw Jim before. I don't
know whether he's for real -- whether he can perform or not. And so
the contract goes to Joe. It makes it very difficult -- I experienced
this personally -- for new people to break in.
 
Somehow we need to reward our contracting officers for reaching
out. They're going to fail once in a while -- that should be OK. If
they haven't failed, they aren't reaching out enough. And so you need
to have some new performance guidelines, I think, that encourage our
contracting officers to reach out and to cast a broader net.
 
Another problem we have that there are many small businesses out
there that have solutions that you never issue an RFP for because you
don't know that they're out there. So somehow you have to be able to
issue RFPs that just say, you know, "Do you have an idea for doing
something better than we're doing it? And if you do, you respond." I
know you have something that aims at that -- but, "If you respond, you
know, you've got the ball. And you're going to carry it now because
if you can save us money and do it better, we're going to give you the
opportunity to do that."
 
We have to do a better job of reaching out. I know we do it
somewhat. But I think that there are small businesses out there that
still have ideas that we aren't reaching with our requests for
proposals.
 
And another very recent problem I've been introduced to that many
of our contracts now provide security clearance. If you're a big
business, it's easy to have some people around that you can pull
together to perform on a classified job. If you're a small business,
you can't do that. So from the get-go, you're excluded from that
process. And I know that you're starting to do this -- we need to do
it better -- and to let small business know we're doing it -- we need
to pre-qualify. They need to know that they can have their people
pre-qualified so that when they respond to an RFP that requires
classified work that they'll be able to compete.

These are several things that I think that we can do to cast a
broader net to encourage our contracting officers to reach out to
these others. And to have more of our companies prepared because they
now have pre-qualified people for classified contracts.
 
Could you comment?
 
ALDRIDGE: Yes. Please. Let me talk about two of the most --
Frank will talk about the third one.

The first one -- talking about getting contracting officers to go
after small businesses -- that's the value of setting goals to try to
encourage people to do this. If there's no goals set, they're not
incentivized to go try them. And one of them -- in fact, October 26,
we issued the largest defense contract in the history of the
Department of Defense called the Joint Strike Fighter. We have set
goals for small businesses of the Joint Strike Fighter at a minimum of
20 percent for small business, with a stretch goal of 30 percent.
 
So we've incentivized the program manager, General Hudson, to go
after and include small businesses in the Joint Strike Fighter
program, which is a very positive thing.
The other part of that is trying to encourage small businesses to
get involved -- we have a thing called a broad area announcement.
These are ideas that -- we have a need -- we want to find out who has
ideas to meet that need. And a good example of that is after
September the 11th, the created a counter-terrorism technology task
force, which identified some areas that we felt were important to
fighting terror. And I had been receiving phone calls from industry
and from people wanting to help.
 
So what we did is we put out a broad area announcement by our
office out to individuals, universities, small businesses, big
businesses, whomever wanted to reply to ideas for how to fight terror
-- counter-terrorism. And we got 13,500 inputs, most of which were
from small businesses and people who had innovative ideas --
individuals and so forth.
 
We are now going through the process of evaluating those with a
technology team. We've got it down to about 400. And we'll probably
even contract, probably, about 20 of these ideas. But this is a
process by which I think we get to your problem. But when we have an
idea we need something, let's see who can respond to it, as well as
getting inputs in from other people.
 
BARTLETT: What about technologies out there that are addressing
problems that you don't even know can be addressed because you have no
idea that technology is out there?

ALDRIDGE: Well, I think that case many of the laboratories and
the various acquisition centers throughout the military department
have small business advocates in their facilities that small
businesses can come to them and present ideas. I believe that there
is a process where -- I think the ideas -- we have to make sure that
the small businesses know where to go to get their ideas evaluated.
 
MANZULLO: OK. Thank you.
 
ALDRIDGE: Can we -- we had...
 
MANZULLO: Congressman Acevedo-Vila?
 
ALDRIDGE: ... one other...

MANZULLO: I'm sorry.
 
RAMOS (ph): I just wanted to clarify -- we are doing something
-- and this is aimed at the veterans -- you asked a question about
security -- the people that are best prepared to meet security
requirements are veterans, because of their background. We are
starting the Mentor-Protege initiative to explore -- and we already
had a brainstorming group with some veterans as to develop this
program.
 
And we've had the National Security Agency come in and give us an
outline of how to do this. So we are moving in that direction to try
and use our resources inside of the Department of Defense so that we
can inform and instruct our small business how to get into the
security areas, if you will, within the Department of Defense.
Because, you're correct, sir, they don't know how at this time, by and
large. So we're going to try and help them get through that
threshold.

MANZULLO: OK. Thank you.
 
Congressman?
 
ACEVEDO-VILA: Thank you, Mr. Chairman. I will yield my time to
Congresswoman Velazquez.
 
VELAZQUEZ: Thank you.
 
Will you please get the memo up there?
 
Well, let me just react to what Mr. Ramos (ph) just said.
 
MANZULLO: Could you yield for just a second?
 
VELAZQUEZ: Sure.
 
MANZULLO: We have about a half a dozen seats over there for the
fist six that -- look at this --look at all the guys going and leaving
the ladies behind. OK. There comes one lady. And we have some more
room over there. Please just help yourself to some seats over there.
There you are.
 
VELAZQUEZ: Mr. Ramos (ph), you just said, in response to the
gentleman's question, that veterans are the best to handle security
issues. Right? That's what you just said?
 
RAMOS (ph): I'm saying because of their veteran experience, many
of them have security clearances and experience in dealing in secured
environments. And we're trying to reach out to those veterans.
 
VELAZQUEZ: And reach out to them for what?
 
RAMOS (ph): So they can come in and have...
 
VELAZQUEZ: And that is how you would explain that you didn't set
any goals for veterans?
 
RAMOS (ph): Well, again...
 
VELAZQUEZ: Thank you.
 
Let me go to Mr. Aldridge.
 
Mr. Aldridge, your memo of March 2001 clearly shows -- do you
remember that you issue a memo? OK. It clearly shows that the
department doesn't plan on achieving its goals.
 
 
VELAZQUEZ: In fact, the memo doesn't have the department meeting
the small business goal until fiscal year 2003. Your memo doesn't
have the department -- right there -- meeting the women-owned business
goal even by 2006. And doesn't even mention the service disabled
veterans business goal. Doesn't even mention the 8A (ph) program
goal.
 
Why did you issue a memo that shows such low goal achievement?
 
ALDRIDGE: These are projections which we think we can achieve
with a reasonable outreach program. We can set goals...
 
VELAZQUEZ: Sir...
 
ALDRIDGE: ... I could set a goal of 20 percent up there, which I
know I cannot achieve on any one of the smaller disadvantaged
business. We are trying to put goals that we think we can stretch to
but we can try to achieve.
 
VELAZQUEZ: Sir, how can you explain? You control 65 percent of
federal contracting dollars. When we look at other smaller federal
agencies, they negotiate goals that are much higher than the ones that
you negotiated for your agency.
 
ALDRIDGE: I think that the issue is it's not just a percentage
number that we have...
 
VELAZQUEZ: It's not...
 
ALDRIDGE: ... it's the amount of money.
 
VELAZQUEZ: ... -- the issue here is, sir, statutory goals set by
Congress. That's the law -- 23 percent for small businesses -- 5
percent for women-owned businesses.
 
And then, I will ask you, why did you take until fiscal year 2002
to establish an 8A (ph) program goal when a presidential executive
order, dated October 6, 2000, required the establishment of one? You
were the only agency in the federal government -- everybody else set a
goal for the 8A (ph) program. What is it? Is it your attitude? Is
it the culture of the Department of Defense?
 
And let me just react to something that you just said to the
Chairman, here. You said that you don't have a pool of qualified
small businesses out there. I resent that statement. And it reflects
your attitude toward small businesses. We are not asking here for
handouts for small businesses. We are asking here for a level playing
field that would allow for small businesses who can provide the hammer
that you pay $700 -- maybe you can get it from a small business
person...
 
ALDRIDGE: Madam?
 
VELAZQUEZ: ... for $50...

ALDRIDGE: Madam?
 
VELAZQUEZ: ... or the $7,000 that you pay for coffee makers.
 
ALDRIDGE: I don't have to be here being insulted.
 
VELAZQUEZ: No, I'm not insulting you.
 
ALDRIDGE: Yes, you are.
 
VELAZQUEZ: I'm saying if your attitude -- you were the one who
said here that you don't have a pool of qualified small businesses.
 
ALDRIDGE: Yes.
 
(CROSSTALK)

VELAZQUEZ: I'm telling you...
 
Mr. Chairman, this is my time.
 
... that here we have people -- small businesses people that can
provide...

MANZULLO: Mrs. Velazquez?
 
VELAZQUEZ: ... the products that you need.

MANZULLO: Let's give the secretary the opportunity to answer.
 
Mr. Secretary, this issue is very passionate with Mrs. Velazquez.
And I can attest that she is not trying to be insulting. She's trying
her best and I'm sorry if you took it that way.
 
Please proceed.
 
ALDRIDGE: Thank you.

VELAZQUEZ: What I'm saying, sir, we are not here to jeopardize
the national security of the Department of Defense. We are here to
ask you that you comply with statutory goals that are set by Congress.
I'm asking you why of all the federal agencies you were the only one
who didn't set a goal for the 8A (ph) program, despite the fact that
an executive order was issued by the president of the United States in
the year 2000.
 
ALDRIDGE: May I answer now?

VELAZQUEZ: Sure.
 
ALDRIDGE: We set a goal. We set our own self-imposed goal
because internally -- I arrived here, in the Department of Defense, in
May of 2001. Almost immediately I issued this memorandum to go out to
the various departments setting goals, setting a process and setting a
way to report upon their achievement of the process. We set our own
internal goal because there wasn't one. There wasn't one in the
Department of Defense. Why it was not established by the time I got
here, I have no idea. All right?

What is interesting is that we have the same objective, yet we
seem to be fighting each other trying to get to the same goal. I am
here to try to achieve those goals. I am trying to tell you,
realistically, what I think we can do. And we have initiatives
underway to make that happen. I am not against small business.
 
MANZULLO: Mr. Davis?
 
DAVIS: Thank you very much, Mr. Chairman. And let me thank you
for holding this hearing.
 
And, Mr. Secretary and Mr. Ramos (ph), I want to thank you
gentlemen for appearing.
 
There is a common perception among most people that I know who
monitor small business activity and who monitor the relationship of
small minority, women-owned businesses to the federal government that
the Department of Defense has the worst record of all agencies within
the federal government -- that there is none worse.
 
How would you respond to that characterization?

ALDRIDGE: In December of 2000, there was a -- women and minority
owned businesses did a vote. They considered the Department of
Defense the premiere government agency for promoting multi-cultural
business opportunity.
 
So the perception, apparently, is different from many minority
and women-owned businesses about the role of the department.
 
This year, we achieved the most funding for small businesses in
the history of the department. $51.8 billion went to small
businesses, of which, as I mentioned before, 54 percent of those are
prime contracts. That is not a record of an agency that is against
small business. We are promoting small businesses. We need small
business. They are the innovative companies that we try to solicit.
 
We have set goals and, like I said, in the Joint Strike Fighter,
for a program that could be as big as $200 billion of funding for 20
to 30 percent small businesses.
 
All of the activities we have are aimed at trying to promote
small businesses as an essential part of our industrial base. It's
not that we're against small businesses. We're trying to do all we
can, but we're trying to do it by setting realistic goals for
ourselves.
Percentages don't mean much to me up there. The dollars that go
into the -- how much money are we giving into the small business is
the important part. And, hopefully, turning small businesses into big
businesses someday.
 
DAVIS: Well, I would agree with you that dollars certainly are a
better barometer.
 
But, I mean, you could also look at it in terms of how many
dollars or how much resource one would have at their disposal that
would determine -- I mean, if I'm a small agency and I've only got a
little bit to spend and I spend a good amount of that. And somebody
else has got a great deal more to spend, they're going to spend more
money than I do. But it doesn't mean that they're doing a better job
of spending with certain entities than I am.
 
But let me move -- and I appreciate the fact that you would
disagree with that characterization -- do you have a program -- I come
from a historically black college and university. I went to a little
small school in Arkansas, as a matter of fact. And many of these
schools have had difficulty having access to government resources and
doing business with government -- doing research -- building research
capability -- interacting. Do you have a program that reaches out to
historically black colleges and universities?
 
RAMOS (ph): Yes, we do.

Inside of Mr. Aldridge's organization we have the research
technology and engineering site. There's a gentleman by the name of
Dr. John Hops (ph), the former provost of Morehouse University of
Georgia, is heading that program. He had at his disposal a
substantial -- I might say a modestly substantial amount of funds that
he has engaged with HBCUs (ph) and MIs (ph). He has taken a hard look
at that and we have collaborated on that very issue.
 
We both agree that we need to do, let's say, a more intelligent
way of distributing the money so that we can grow those universities.
 
We are engaging, again, through some of the initiatives that we
have across the board, the use of HBCUs (ph) and MIs (ph) as a
transfer of knowledge -- that is, in one of our programs called
Mentor-Protege Program, we have a fund that we try to develop small
business so that they can be more competitive within the Department of
Defense.
 
So we're looking at how to broadcast, if you will, that knowledge
that we're investing into HBCUs (ph) and MIs (ph) and including the
Native Americans. It's an asset that we are going to clearly go after
and we have engaged in discussions with them already.
 
DAVIS: Thank you very much.
 
And Mr. Chairman, I see the red light is on, but could I conclude
with this question?
 
You mentioned earlier that if one really wanted to deal
effectively with the whole business of contract bundling -- and, as
far as I'm concerned, it's a contradiction that -- it's a policy that
will never work in terms of trying to promote small business
development. I mean, it's like saying to me, "If you want to promote
iceboxes, go out and buy a refrigerator."
 
But you did mention breaking contracts up into smaller segments.
And dispersing those in a meaningful way throughout an industry rather
than one or two entities being able to hog the whole show or get the
whole thing.
 
Are you having experience with doing that? I mean, is DOD
attempting to do that in compliance, at the same time, with government
policy and regulations?
 
I'm saying if the boss is telling you, "I want you to bundle
these contracts." And at the same time telling you, "I want you to
promote small businesses." That sounds to me sort of like saying,
"Make bricks with no straw."
 
ALDRIDGE: Well I think the boss has told us very clearly what
the guidance is -- the boss being President Bush. He says he's
against bundling. I think that's a very clear guidance that's going
to go down through the Department of Defense that if somebody finds a
reason to bundle, they'd better have a very, very good reason to go
against what the president has told them to do.
 
DAVIS: Thank you, Mr. Chairman, for your indulgence.
 
MANZULLO: Thank you very much.
 
Let me conclude this first panel with the statement to Mr.
Secretary -- when you had just been sworn in, the FAZ (ph) contract
was coming into being at that time. And I remember calling you.
 
ALDRIDGE: Yes.
 
MANZULLO: We sent you a letter and said, "Could you stop the
contract?" You said, "No, I can't. But I'd be glad to meet with a
member of your staff." And you did. You met with Nelson (ph), from
my staff. And at that time you promised that you would work very
diligently on making sure the small businesses were not ignored.
 
You kept your word. The FAZ (ph) contract -- it's over 70
percent of small businesses.
 
And you also -- you and Mr. Ramos (ph) have been of tremendous
assistance in openness of your department. There's a lot of work that
has to be done -- a lot of passion on both sides of the issue because
we know this is extremely confusing. I don't know if I understand the
difference between bundling and consolidation. But to the extent that
it injures the small business person, there is no distinction on that.
 
But, again, I appreciate your coming here. I thank you for
taking your time.
 
Mr. Ramos (ph), you're going to be sticking around for the rest
of the hearing, just in case there's some technical questions that
come up you might be willing to help us out on? OK.
 
ALDRIDGE: Thank you, sir.
 
MANZULLO: Thank you, Mr. Secretary, I appreciate that.
 
And if you could work on getting this second panel up there.
 
 
MANZULLO: The committee will come to order. We lost half the
audience here. That's why I asked how many had come with the
secretary and three people raised their hands. And I said, oh, I
don't think that's the case. I didn't think we were that popular.
Did you? Is that what it is? OK. OK. In any case, we welcome the
second panel. The first witness is -- it's my pleasure to welcome Don
Degiancomo, John Degiancomo. John is my constituent in charge of the
Procurement Technical Assistance Center at Rock Valley College,
Community College in Rockford, Illinois. And we look forward to your
testimony. The purpose of the lights is we give you five minutes.
And if you go over, it goes like this. If you go too much over, then
I get more excited and I bang the gavel. All of your, all of your,
all of your -- procurement is a very complicated, a very emotional
issue for all of us up here. Mrs. Velazquez and I have spent hundreds
of hours working this issue and I share her passion to make sure that
the small business people get their, get their share of it. So -- get
their share of the contract. So, Mr. Degiancomo, we look forward to
your testimony.
 
DEGIANCOMO: Thank you.

MANZULLO: You have to put the mike real close to you, John.
 
DEGIANCOMO: (inaudible)
 
MANZULLO: It's got to be closer than that.
 
DEGIANCOMO: Closer than that.
 
MANZULLO: There you are.
 
DEGIANCOMO: Is that better? Thank you. Mr. Chairman, ranking
member, members of the committee, my name is John Degiancomo and I am
with the Procurement Technical Assistance Center at Rock Valley
College. We assist small business in doing business with the
Department of Defense.
 
MANZULLO: Would you (inaudible). Phil, would you go get Mr.
Ramos, maybe rescue him from outside so he could have the opportunity
to sit and listen to the testimony? I think that was his plan. If
you would suspend (ph) just a second.
 
DEGIANCOMO: Sure.
 
MANZULLO: Well, why don't you go ahead?
DEGIANCOMO: Myself and my other colleagues at the 88 other
procurement programs around the country work closely with small,
minority, women owned and veteran owned businesses to do business with
the Department of Defense and other government agencies. We see on a
daily basis all the obstacles, all the problems and all the successes
that small business has in doing business with the government. I'm
grateful for the opportunity to share our experience and our clients'
experiences with you today. How important are small businesses to our
nation's health and economic welfare? In 1984, Congress addressed
this very issue that we are discussing today, how to expand small
business participation and created the Peak Act Program. At that
time, ...
 
MANZULLO: Hang on just a second.
 
DEGIANCOMO: OK.

MANZULLO: Would you proceed?
 
DEGIANCOMO: Thank you, Mr. Chairman. I appreciate that. We
assist small businesses in doing business with the government. In
1999, the most recent year that we have procurement figures
nationwide, we have assisted in bringing to the small businesses over
$6.8 billion in contract awards. These award figures are based on
letters that we have received from our clients voluntarily that they
send to us on a monthly basis telling us what they are doing with the
government from the assistance that we provide. I have here over 100
copies, or 100 letters of award letters from my clients that they have
given to us and this is just from my one small center. You can
imagine the impact of the rest of the country with all the 88
procurement centers. The Peak Act continually draws new companies in.
You mentioned the Pro Con Conference. We had over 240 attendees to
that conference. Over 100 of those companies signed up to do business
with the government.
 
Those were small, minority, women owned businesses that are in
the process now of becoming qualified to do business with the
government. The results that we have had with the Department of
Defense have been mixed. For the most part, in dealing with the
government agencies, the contracting officers, they have been
positive. But we have had some systematic problems, contract
vendoling (ph). There's been a sharp decrease in the total amount of
contracts that we have seen going to our small business, rule
manipulation that have set -- that have eliminated small business from
being able to bid on contracts, credit card micro purchases where we
cannot get the lists of credit card holders to be able to market to
them. The procurement centers are there to assist small business.
We've been around since for about 17 years. And in my area alone, I
covered 13 counties with over 6,000 businesses in it. We do this on a
daily basis. We are professionals in doing business with the
government. And we provide these services to our small businesses
daily. We're there to help the Department of Defense and Congress to
achieve the goals that they wish to achieve. If you have any
questions, I'd be more than happy to answer them.
 
MANZULLO: Thank you for your testimony. Our next witness is
Cathy Ritter representing the American Council of Engineering
Companies. We look forward to your testimony.
 
RITTER: Thank you. Good afternoon, Chairman Manzullo, ranking
member Velazquez and members of the committee. My name is Cathy
Ritter and I'm a registered professional engineer and President of the
Constellation Design Group, a small woman owned engineering firm in
Maryland. Today I come before the committee representing the American
Council of Engineering Companies which is a business association of
America's engineering industry and we represent more than 5,800
private engineering firms. ACEC members deliver vital infrastructure
services to the American public and to the military, including the
design of roads, airports, power plants, waste water treatment
facilities, the safe disposal of unexploded ordinates, the clean up of
SuperFund sites and most recently, the clean up of anthrax from the
Hart Senate office building. More than 60 percent of ACEC members or
4,000 firms are small businesses and I mean very small businesses
because we have fewer than 30 employees.
 
The Department of Defense procures over $2.1 billion in
engineering services annually which is a significant potential market
for our membership who operate as both primes and sub consultants. As
a small business owner myself, I'm extremely pleased with President
Bush's agenda for small business which speaks to many of the obstacles
that hinder us from contracting with federal agencies, and
specifically, the Department of Defense. The firms of ACEC are
pleased with the President' comments on two matters that are of
concern to small private engineering firms, contract bundling and the
practice of government agencies performing work that is readily
available in the private sector. The federal government's practice of
consolidating projects into one large contract, or contract bundling
is a major obstacle to small engineering firms attempting to do
business with federal agencies. DOD's practice of bundling, or
consolidating contracts makes it almost impossible for small firms to
compete as we often lack the range of discipline and geographical
reach which is necessary to successfully fulfill the parameters of
these contracts.
 
As a result, we believe that DOD is eliminating many of the most
qualified competitors. In many cases, the designer best qualified to
handle a project is a firm that's located close to the project site.
A local firm's knowledge of such details as the soil characteristics,
the climate, the permitting process and local construction practices
results in the purchasing agent receiving the best quality service for
the best value. Bundled projects, however, are often awarded to a
firm which is half a continent away.
 

RITTER: At best, the local firm becomes a sub. DOD should not
trade the quality and innovation of a small business for
administrative convenience. For similar reasons ACEC is concerned
about the increased use of large, indefinite quantity contracts.
Several years ago, a number of federal agencies began to use ID, IQ
contracts for a certain base period with an option of additional use.
Specific projects are not identified, but are usually small and do not
seem to the agency to warrant advertising in selection of a design
firm on a specific project basis. However, DOD is increasingly
relying on ID, IQ's as a primary contract vehicle and is pricing these
contracts in such a way that small firms can't compete. We are
effectively shut out from much of this work when the contracts call
for multiple year, multi-million dollar awards with no specific
projects or facilities in mind. One such example of an ID, IQ
contract comes from a Nasaq (ph) solicitation from 2001. The
solicitation states, and I quote, "the majority of work will be
located within the commonwealth of Virginia, the state of West
Virginia, the commonwealth of Puerto Rico, Western Europe, but may
include the state of North Carolina, the states of Delaware,
Pennsylvania, New Jersey, New York, Rhode Island, Massachusetts,
Maine, Vermont, New Hampshire, Maryland, the District of Colombia or
at locations under the cognizance of engineering field activity,
Mediterranean, Europe, ...
 
MANZULLO: Could you, could you suspend, ...
 
RITTER: ... and the Bahrain.
 
MANZULLO: ... could you suspend?
 
RITTER: Yeah, I sure will.
 
MANZULLO: Is this type of contract language still going on?
 
RITTER: This is from 2001.
 
MANZULLO: All right. If you have something that's more recent,
could you get that to me personally?
 
RITTER: Yes.
 
MANZULLO: And I'll talk to the secretary personally and Mr.
Ramos.
 
RITTER: Yes. Be happy to.
MANZULLO: And put an end to crap like this. I mean, I'm
serious. This is the reason, this is the reason we're having this
hearing because I want exact - the right thing to do. And we'll take
it small business person by small business person, clause by clause
until we help the secretary stop the bundling that's going on. It's
obvious that this clause is intended for big guys and to smoke the
little people like yourselves. So if you could give me something
that's later than that, then I want to find out who got the contract
and maybe we'll try to end the contract by saying it was illegal. OK.
Go ahead. I took some of your time, but it's going to be yours.
Thank you.
 
RITTER: All right. It's all right. I'm almost finished,
anyway. Well, my obvious next point was being required to work across
such a large geographical region excludes all small engineering firms.
It is ACEC's hope that all DOD contracting agencies will properly
evaluate proposed work associated with the ID, IQ contract such
as this and refrain from bundling projects that span such a large
geographical area or entail numerous disciplines and solicit
professional services based on the specific services required. The
debate that is currently taking place regarding the outsourcing of
government commercial activities occurs at a critical time. As
federal agencies face tighter budgets and a looming human capital
crisis, the need to efficiently allocate resources has become
increasingly important. ACEC is pleased with DOD's commitment to
outsource work that is not inherently governmental, but it is deeply
concerned about several attempts by law makers to stop outsourcing in
its tracks.
 
Over the past two years, amendments were offered to the DOD
Authorization Bill that aim to restrict DOD's ability to contract
services with private industry. These amendments would have required
that all DOD contracts go through a lengthy, public, private
competition process commonly known as A-76. The amendments will
increase the time and expense for design firms seeking to provide
services to DOD and would put many small firms out of business before
they ever received the contract. Perhaps most importantly, these
efforts tie the hands of the DOD and prevent it from procuring the
best services available to fulfill its national security mission. We
ask each member of this committee to oppose any type of amendment or
bill that would seek to restrict the federal government from
contracting with private industry. Finally, I would like to thank the
committee for inviting ACEC to testify today. We appreciate your
efforts on behalf the small business community. And thanks again for
this opportunity.
 
MANZULLO: Thank you very much. Our next witness is Miss Pamela
- is it Brandon?
 
PAMELA BRANDON, PRESIDENT, GRYPHON TECHNOLOGIES: Yes.
 
MANZULLO: President of Gryphon Technologies in Arlington. And
look forward, look forward to your testimony.
 
BRANDON: Thank you. Mr. Chairman and ranking member Velazquez
and members of the committee, my name is Pamela Brandon. I'm the
President of Gryphon Technologies, a woman owned, 8A (ph) certified
small business. My firm performs a wide range of engineering services
for the federal government, principally the Navy. Prior to forming
Gryphon, I worked for over 20 years in marketing and contracts for
three different government contractors. I'm here today on behalf of
the Professional Services Council. I serve on PSC's board of
directors. And PSC serves as a leading policy advocate for our
industry commenting on the impact of legislation and regulations on
both our industry as a whole and on PSC members specifically. Some
firms such as mine prefer to be prime contractors. Others prefer to
be sub contractors. Still others prefer just to get business. Small
business is getting a share of the federal government procurement
market, although it's not clear that we are getting a fair share.
 
However, I do not believe the creation of additional number of
small, minority, veteran and woman owned set asides would solve this
problem. I believe we need to enforce the regulations that are
currently in place. The federal procurement process is complex and
constantly evolving. There has been a significant growth in use of
large, multiple award contracts, task orders and blanket purchase
agreements replacing the more traditional request for proposal, the
RFP process. These consolidated contracts, BPA's, have significantly
higher ceiling (ph) values than the previously issued RFP's. In some
instances, the contract values are measured in billions rather than
millions. When these contracts have been consolidate, the small
business contracts and sometimes the 8A (ph) contracts get rolled into
the mac (ph) BPA's. When they are competed, it's under an open mac
(ph) BPA competition and the quotas under prime sub agreements are not
enforced. In addition, when evaluating these proposals submitted,
procurement officers are not required to give any preferential
treatment to small or minority businesses.
 
Therefore, we are forced to compete head to head against large
contractors such as Lockheed Martin and Northrup Grumman for these
contracts, for the same contracts that were awarded to us previously.
Changes focusing on only one element of the procurement system often
have unintended consequences in other areas. Therefore, it is
appropriate that this committee and other specialists in the federal
procurement process look carefully at how small businesses are
approaching the federal marketplace and how the federal government is
responding to small business needs. I'd like to focus my remarks on
three major issues, federal sourcing policy, contract bundling and
contract finances and payment. Over the past decade, the government
has made significant strides in sourcing policies. The advent of best
value contracting and increasing awareness of and desire for
innovative solutions have helped the government access cutting edge
capabilities to better serve its many constituents and customers. At
the same time, these and other trends have also helped serve hundreds
of small businesses develop and thrive.
 
Today, however, there are unprecedented threats to growth and
development of small businesses in the federal marketplace, including
HR721, the so-called track act. It is a radical and devastating piece
of legislation. It would do nothing to improve the quality of
government contracting while forcing scores of companies, particularly
small businesses, out of the federal marketplace. My message to this
committee is to do all you can to ensure that the track act or any
part of it or any variation of it never sees the light of day. There
is no question that small businesses are deeply concerned about the
impact of contract bundling for prime contract opportunities. This
committee has initiated legislation that provides a solid foundation
for addressing the issue in a balanced and fair manner. In the Small
Business Reauthorization Act of 1997, Congress authorized contract
bundling only if it is necessary and justified based on the benefit
analysis. PSC is concerned that precious little guidance or training
has been provided to the acquisition workforce to enable them to
understand and follow the bundling rules. We compliment the DOD
Office of Small and Disadvantaged Business Utilization for its
January, 2002 benefit analysis guidebook.
 
The acquisition teams can use this in assessing the elements of
bundling laws and regulations and analyzing the substantial benefits
standards required by the law and in describing ways to mitigate the
impact of bundling on small businesses. Overall, the guidebook is
reasonable and will be useful to procurement officials, even though it
does not address BPA contracts or small business set asides within the
mac (ph) and BPA process. However, it does not appear that
procurement officials have had an opportunity to implement or enforce
this since it was released in January of '02. Therein lies what we
believe to be the most important issue, the need for more aggressive
and focused guidance and training so that the statutes are actually
put into practice. Should I continue? OK. It's OK? OK. Contract
finance and payment issues. Contractors should be paid on time for
work performed according to a contract. All government service
contracts (inaudible) the issue of late payments. But for obvious
reasons, it is an issue of special concern to small businesses that do
not have the resources and reserves to cover expenses when payments
from government customers are late.
 
Payment has improved because of the changes to the Prompt Payment
Act. In addition, there have been special payment challenges for
service contractors. The Department of Defense is now subject to
interest under prompt payment rules. Businesses providing services to
the civilian agencies do not receive the benefits of this law. PSC
urges Congress to extend government wide, the government wide benefits
of the interim payment provisions that are now applicable to DOD.
Conclusion: thank you again for the invitation to PSC and for myself
and allowing me to present my views on these important matters. OK.
 
MANZULLO: Appreciate your comment. Thank you. Our next witness
is Mike Tucker, owner of George W. Allen. Oh, OK. Our next witness
will be introduced by his Congressman, Mr. Bartlett. Forgive me.
 
BARTLETT: Thank you very much. We have two Maryland witnesses
here. One, my constituent. The other, in the state that I, that I
represent. Welcome to both of you. Mike has a degree in Business
Administration from the University of Maryland, '72. That was exactly
20 years after I got my doctorate at the University of Maryland. Mike
and his wife, Sheryl (ph) are lifelong residents of the state of
Maryland. And have resided in Howard County in West Friendship for
the past five years. Mike and Sheryl (ph) have five children, Case
(ph), 23, Caty (ph), 19, Haley (ph), 16, Anna, 12, Brian, six. His
career in the office product industry spans 28 years with 15 years
spent with a manufacturer, one year with a national chain and most
recently, 12 years as an independent dealer. Mike is the President
and Owner of GWA located in Beltsville, Maryland and has a staff of 45
employees, a number of which also live in my district. Thank you very
much. He has been a member of National Office Products Association
Board of Directors for the past three years and has chaired its
Government Affairs Advisory Council since its inception three years
ago. Mike has been a member of the Independent Stationers, a buying
group supporting independent dealers all across the country for the
past five years. Mike has been a member of the General Services
Administration, Bender Steering Committee for the past two years and
currently serves as Chairman ...
 
MIKE TUCKER, PRESIDENT, GEORGE ALLEN COMPANY, INC.: Are you
almost at the end of ...
 
BARTLETT: ... of its small business committee. Thank you very
much.
 
TUCKER: Thank you.
 
BARTLETT: (inaudible)

MANZULLO: Well, we expect some great testimony, sir,
(inaudible).

TUCKER: I think I've been set up.
 
MANZULLO: If you want to, flip the mike around.
 
TUCKER: I think ...
 
MANZULLO: Oh, you've got it right there. OK. We look forward
to your testimony.
 
TUCKER: One's more than enough. Thank you. Well, thank you,
Congressman, for that very kind introduction. Mr. Chairman, ranking
member and members of the committee, I appreciate the opportunity to
testify before the committee today to address the issue of procurement
policy and its impact on small businesses. My name's Mike Tucker and
I'm the owner of George Allen Company, an office supply dealership
located in Beltsville, Maryland. George Allen is a family owned
business and the company was founded in 1948 by a gentleman named
George Allen, no relation to our former football coach. As an
independent office supply dealer, this hearing is important because it
will shed light, I hope, on the problems plaguing small businesses in
their attempts to do business with the government. My company has
gone from doing 80 percent of our business with the federal government
to down to 65 percent just in the past three years. There is a reason
for that. The federal government is simply failing to meet its small
business contracting goals. This loss of business is significant to a
company like mine. I estimate this loss cost my company in excess of
$1 million annually. This is business that I once had with long-time
government customers.
 
During the six years since the Federal Acquisition Streamlining
Act became law, my company has been able to compete for contracts that
we once successfully bid for. Big office supply companies such as
Office Depot and Boise Cascade have stepped in to take huge sole
source contracts mostly because of the desktop delivery requirement
which requires a company to provide overnight delivery to at least 90
percent of the country on one of these contracts. This requirement
alone limits competition from local companies like mine. Agencies
such as IRS, NASA Goddard, Harry Diamond Laboratories and the U.S.
Postal Service had been George Allen customers for years. Now the
only time we get a call from these agencies is for something
discontinued or backordered by one of their sole source vendors.
These blanket contracts are negotiated behind the scenes without any
small business input or competition. The national chains have
convinced many agencies that small business, small supply companies
like mine are not competitive. We are even told by one official at
the United Postal Service at a time we were looking at one of their
sole source contracts that independent dealers were irrelevant. This
is simply not true. We belong to buying cooperatives that allow us to
leverage our purchasing with several thousand other independent
dealers.
 
 
TUCKER: With $12 billion in buying power we certainly can
compete on price. The federal government tells a good story of how
they reach out to small businesses. Agencies host conferences and
meetings where hopeful vendors are given lists of contracts and told
how many millions and billions of dollars are spent on their products
each year. Unfortunately, most of us find out the hard way that the
customers they are trying to land have already been told what large
company they must buy from for the next several years. Prime
contractors play the same game with their sub contracting plans. I
had the opportunity to see a proposal sent to the Postal Service
indicating that the prime contractor was a stocking dealer for 83
small and minority companies. When the final catalogue was issued,
only 11 small businesses and 34 items made the cut out of 1,500 items.
Many of the items listed were products like thermal fax paper and
spring lock metal tab holders. These may be antiques, but they are
certainly not big sellers. Again the plan is designed to sound good,
but it creates miniscule opportunity for small business.
 
I use the Postal Service as an example. Although they are quasi-
government entity, they exemplify the current problems we are facing
with federal agencies, not just the Postal Service or the Department
of Defense. Mr. Chairman, as you know, the Department of Army
recently sent out a solicitation on $100 million blanket purchase
agreement for office products. Initially, independent dealers were
not even considered in the bidding process, even though some of us fit
the criteria. It was only after you and Miss Velazquez got involved
were independent dealers able to submit bids. Mr. Chairman, it took
you help to make this happen and at the end of the day I am told some
nine to 10 independent dealers were able to meet the very short
deadline and submitted bids. My company was one of them and it is my
hope that our bids will be reviewed and given the same consideration
as our large corporate competitors. If they are, the Department of
Army will find that our pricing is competitive, our service is very
good and our time of delivery will meet their needs. I am hopeful
that at least a couple of independent dealers will be awarded some of
this business.
 
If we get the opportunity, we can use this contract as a stepping
stone to show other agencies that we can meet their needs. Let me
state we appreciate the Army's willingness to do what they did and
hope the other branches of military will follow their lead. I've
recently become aware that the Department of Air Force is also
planning a similar procurement. Independent dealers would like the
opportunity and we hope you will give us some help with that. We just
want the same considerations. I'm hoping this hearing will help
change attitudes and agencies will begin to utilize more small
business. Given the chance, we can compete. Mr. Chairman, to save on
time, I've just given you a sampling of the real problems that exist
in our industry and small businesses in general when trying to do
business with the government hoping you have the opportunity during
any questions to delve deeper in more detail to these problems. Thank
you for the opportunity today and I would be happy to answer any
follow up questions.
 
MANZULLO: Thank you very much. Our next witness is Frederick
Erwin who's an attorney, an expert on these affairs. And we look
forward to your testimony. Mr. Erwin.
 
FREDERICK ERWIN, PROGRAM MANAGER, DIMENSIONS INTERNATIONAL, INC.:
Thank you, Mr. Chairman. Chairman Manzullo, ranking member Velazquez,
members of the committee, my name is Frederick Erwin, although my
mother never used that unless she was mad at me. She called me Dean.
But give me an opportunity, not to talk to so much about a procurement
issue directly, but what is involved with procurement. And that is
electronic commerce training and assistance of the small business by
the federal government. In doing so, I would like to discuss this
important issue that you recognize by virtue of calling these hearings
from the perspective of a program that provides invaluable assistance
to small business. The program I am referring to is the recently
suspended Electronic Commerce Resource Center Program, which was
funded by Congress and operated under a contract through the Defense
Logistics Agency. The ECRC Program was to provide education,
training, technical support to small businesses and enable them to
learn about and more effectively participate in e-government.
 
I would like to acknowledge that small businesses do have greater
visibility and access to some federal procurements since October of
last year through the government wide single point of entry called Fed
Bus Ops (ph), which I believe you were briefed on it recently.
However, as helpful as Fed Bus Ops (ph) Internet site is, it does not
resolve all of the challenges facing small business today in the
electronic business environment. This fact is highlighted by the
recently released, today, score card three and the GAO report to the
Senate Small Business Committee which was issued last fall and the
University of Scranton survey conducted in January of April of this
year. Such reports and surveys support the need for small businesses
to become electronically enabled. It is critical, not only to the
success of the small business, but also to the success of any e-
government initiative. Existing public resources should be leveraged
to enable small businesses to seize their electronic commerce
opportunities, meet the new generation of electronic challenges and
enable small businesses to participate in government contracted as
stated by the President and members of this committee.
 
The ECRC Program has assisted over 400,000 small businesses in
the past five years and only recently been discontinued. Many of the
relationships, personnel, infrastructure, tools, training programs and
support capabilities are still in place. This valuable resource
represents many years of government investment and is still available
to provide assistance to small businesses. However, urgent action is
required as these resources will quickly erode and are on the verge of
being lost. We cannot and should not allow this resource to be
obliterated. I am not proposing a continuation of the ECRC Program as
it currently existed. But in its place, I am recommending the
establishment of a new program that uses the former ECRC Program as a
springboard that will offer a more advanced level of assistance. I am
proposing that you take action to leverage the infrastructure and
knowledge gained through the ECRC Program and establish a program that
focuses that knowledge towards serving the needs of small business
through existing programs such as the Procurement Technical Assistance
Program mentioned earlier.
 
The program, the new program would focus on using contract skills
and lessons learned to assist small businesses in becoming
electronically enabled from an integrated business standpoint. No
other program exists today that would meet the small business needs.
Such a program, such a program would have the ability to build an
arcade of small businesses to support many government procurements.
More specifically, more specifics are provided in my prepared
statement which I have presented to this committee. In closing, I
would like to urge you to recognize the valuable government asset that
exists today in the ECRC Program and that is about to be decimated.
Small businesses have a need for such a program and these needs have
been documented in several independent reports. Please do not let the
needs of small businesses go unanswered. Again, I wish to thank the
Chairman and the members of the committee for permitting me to come
before you today. I would be pleased to answer any questions the
committee may have.
 
MANZULLO: Sorry about that. Just got your testimony. Our next
witness is Mr. Bill Cabrera (ph), President of Lord and Company in
Manassas, Virginia and we look forward to your testimony.
 
LORD CABRERA (ph), PRESIDENT, LORD AND COMPANY: Thank you, Mr.
Chairman and thank you ranking member Velazquez for the opportunity to
testify before you today. My name is Bill Cabrera (ph). I'm
President of Lord and Company, a graduated 8A (ph) construction firm
out of Manassas, Virginia. I've worked in this industry for 28 years,
20 years with Lord and Company. I'm pleased to share with you my
experiences as a contractor with one federal agency in order to bring
awareness to some aspects of the procurement process which may need
your attention. I'd like to talk about two incidents which I believe
are examples of how the government can unfairly harm small companies
enough to put them out of business. First, the ID, IQ indefinite
delivery, indefinite quantity procurement program. Under this
program, an agency often maintains a stable of three or four companies
under contract with the flexibility to negotiate a project with one
company or solicit bids from selected companies.
 
When the contractor receives an order, he's under increased
pressure not to question or upset the government representative. For
if you do, you will simply not get any additional opportunities to do
work under the contract. And you face the strong probability of a bad
past performance rating which effects your entire future in government
contracting. The threat of this occurring puts small companies
practically at the mercy of government inspectors who are aware of
their power over the small company can then change requirements and
conduct themselves in any manner whatsoever. This was my experience
with an ID, IQ contract at Walter Reed Army Medical Center.
Specifically, we received a fast track delivery order to convert a
large barn into a sports facility. Although we met about the project
some four months before its completion, it took seven weeks to get us
preliminary drawings and three additional weeks to give us pricing
drawings. As required by contract, we priced the project in five
days.
 
After negotiating the price as much as they could, the government
reduced the price even farther by deleting items from the scope of
work. Within a week after negotiations and after receiving the firm,
fixed price delivery order, we were given a new set of drawings, which
not only included the items which they had deleted during
negotiations, but added a significant amount of work to the project.
With six weeks left to complete the job and based on implied
commitments made during a recent partnering session with the
government, we proceeded with the work as required. During the course
of the project, we received several new directives and sketches to
address unforeseen conditions, such as extensive termite damage which
required us to replace the siding and several structural members on
the facility. The government representative insisted without
flexibility in special order items like light fixtures would have to
be imported from Denmark at a cost of $1,800 each in 16 week delivery.
 
MANZULLO: What was the name of that government officer?
 
CABRERA (ph): The government officer ...
 
MANZULLO: The person that said he wanted to import the stuff
from overseas?
 
CABRERA (ph): It's Mr. Fleri, Mr. Nino Fleri with ...
 
MANZULLO: Would you spell his name, last name, please?
 
CABRERA (ph): F-L-E-R-I.
 
MANZULLO: And what department is he with?
 
CABRERA (ph): He's with the JOC Branch of the Walter Reed Army
Medical Center.
 
MANZULLO: What is the JOC Branch? What is that?

CABRERA (ph): Job Order Contract.
 
MANZULLO: So he is an Army employee?

CABRERA (ph): He's a Walter Reed employee.
 
MANZULLO: He's a Walter Reed employee?
 
CABRERA (ph): Which falls under the Army. Yes, sir.
 
MANZULLO: Is he still there at that position?
 
CABRERA (ph): Yes, sir.
 
MANZULLO: Can you give me the purchase orders of the stuff
coming in from overseas that are going into American facilities?
 
CABRERA (ph): I would be more than happy ...
 
MANZULLO: Have they been delivered yet?
 
CABRERA (ph): It's been delivered and installed, sir.
 
MANZULLO: And you installed it?

CABRERA (ph): Yes, sir.
 
MANZULLO: All right. Because I want, I want those orders. I'm
going to have him here before this committee. He apparently is a
(inaudible) of the Berry (ph) Act. I don't think the Berry (ph) Act
applies to this. But I want to find out why he's buying stuff from
foreign countries for installation in American facilities.
 
CABRERA (ph): These are light fixtures, very simple ...
 
MANZULLO: These are light fixtures. Would you work with Mrs.
Velazquez and me in preparing the letter? Because ...
 
CABRERA (ph): I'd be happy to.
 
MANZULLO: We're going to prepare the letter. We're going to
send it to him. We're going to ask him to meet with us in our office.
If anybody's here that you are in charge of him, if he does not meet
with us, I'm going to issue a subpoena (inaudible), take his testimony
under oath. This stuff is going to stop. Anybody here in the service
that does that, you will personally come into my office. I will put
you under oath and I will have your job if this nonsense continues in
the United States of America. Please continue, Mr. Cabrera (ph).
 
CABRERA (ph): Thank you, Mr. Chairman. And thank you for your
comments. They weren't the only things that we had to order. We
ordered some glass shower basins, also high cost, long lead item. The
government representative also required us to change the color of
bathroom tiles after we had already purchased and had the tile
delivered and on site. He made us change the color of the ceiling
paint after it had been painted. All the while, we were denied a
place to put a construction trailer or storage trailer having no place
to store our material, having to store it outside under tarps where
petty thieves would constantly run off with our material. Never did
it occur to us that in the end of this, at the end, this new partner
of ours would refuse to issue a change order to cover the costs of the
new directives. In another delivery order under the same contract, we
were asked to revise our previously submitted quote for miscellaneous
work at the commissary. We were to include a quote for automatic
doors which the government had received from a contractor who had been
servicing the old doors. We were just the middle men.
 
In September, 2000, six months after we had revised our proposal,
we were notified that they had received the funding for the project
and at a meeting with the client, the door contractor and the JOC
Branch representative, we were told that we were to complete the
project prior to Thanksgiving. The door contractor felt he could meet
the schedule if we ordered the doors immediately. So we issued him a
purchase order. When the delivery order was received some six weeks
later, it did not include the costs of the doors. Immediate inquiries
led us to believe that this was being corrected. But it never
happened. What followed was countless meetings, phone calls, letters
over the -- and over the next year twice we thought the problem was
resolved only to watch months go by without receiving a delivery
order. In October, 2001, I was sued by the door contractor which
forced me to seek legal council and pursue the claim. Recently as a
result of the claim, the government has again committed to buy these
doors. Maybe this time it'll happen. In two and half years at Walter
Reed, we were always denied a place for an office trailer, an office
to work out of. Not a place to put a filing cabinet or a fax machine.
No place for a dumpster to get rid of the trash or a place to store
materials. Payment problems were endemic, taking as much as eight
months to get paid and often asked to resubmit invoices with new dates
just so they won't have to pay the interest.
 
 
CABRERA (ph): Our award fees that were to be processed every six
months are taking well over a year to process. Mr. Chairman, small
companies like mine don't have the financial cushion that major
corporations do that allow them to sit back and wait for federal
checks. Nor do we have the legal budget to challenge agencies on
issues as they come up. These practices will continue to discourage
and even bankrupt small businesses that do a good job and often
cheaper than our large competition. I hope my testimony will give you
a better idea of some of the serious problems that can face small
businesses. And frankly, we have no place to go to. Legal action or
elevating problems to this level cannot be the only way for a small
company to be heard. We need to craft solutions so that small
businesses are not sidelined or ruined by federal government. Thank
you, Mr. Chairman.

MANZULLO: Mr. Cabrera (ph), I want to work with you on this. I
also want to know the name of the person that told you to submit new
invoices so they didn't have to pay interest. I think that's
fraudulent. That could be a criminal referral to the Department of
Justice. I also want to let you know that in your continued dealings
with the federal government, that should you notice anything unusual,
that you are being punished for testifying here today, bring that to
my attention immediately.
 
CABRERA (ph): Thank you, Mr. Chairman.
 
MANZULLO: I'll contact the Department of Justice on it. That
has happened in the past to people who have testified before this
committee, that they've been punished. They have not been given
contracts that should have happened. And I'm just, I'm just shocked
at how far this has gotten out of control. Nydia, would you, would
you go first? Give me an opportunity to have some more, please (ph).
 
VELAZQUEZ: Sure. Mr. Tucker, Ms. Brandon testified in her
remarks that there's no reason for new laws regarding contract
bundling. She states in her testimony that the problem is simply a
lack of training and understanding by government acquisition
personnel. Do you agree with this assessment?
 
TUCKER: Not in our industry. That's not the case at all. Thank
you. Before FASA (ph) was passed five, six years ago, small
businesses like ours competed very successfully in the federal
government market along side with the big competitors, Office Depot,
Staples, and so on. After FASA (ph) was passed, it created a couple,
legislatively, a couple situations, one in particular, the micro
purchase procedures which required no competition or you didn't have
to do any type of procurement procedures when you bought from a --
whether it was a small business, large business. And in particular in
our industry, that is probably 95 percent of the purchases. So it
hurt us dramatically. And now instead of those procedures and things,
we have goals. And those goals, as we hear from DOD can be arbitrary,
may not be enforced. They change from agency to agency, year to year.
And without some kind of consequence or accountability on these
issues, I don't see how it's going to change. I think there needs to
be some type of a legislative solution.
 
VELAZQUEZ: Thank you, Mr. Tucker. Mr. Degiancomo, in your
testimony, you state that there has been a sharp decrease in contract
opportunities appropriate for small businesses as the department
relies increasingly on consolidated, mega contracts. Yet, Mr.
Aldridge testified that bundling only accounts for .2 percent of
Defense contracts. How do you explain the differences in what you are
seeing and what Mr. Aldridge has testified to?
 
DEGIANCOMO: Well, in the '90's, the government, federal
government wrote approximately 15 to 18 million contracts per year.
Last year, our government wrote about 10 and a half million. That is
a significant decrease to me. I don't know if all of those are being
bundled. We have no figures on that to be able to verify it. We know
that some of these are being bundled. But there has been a decrease
and we're seeing it. Our small businesses are not able to compete.
 
VELAZQUEZ: Thank you. Mr. Tucker, I would like to highlight a
point you make in your testimony. Your government sales have gone
down from 80 percent three years ago to 60 percent. That isn't
because your prices weren't competitive, is it?
 
TUCKER: No, not at all. As I mentioned, we belong to buying
cooperatives that have enormous buying power, more than any of the
large companies that I mentioned individually. And the contracts that
we are not given the opportunity to quote on or the agencies we're not
allowed to sell, it has nothing to do with the price. They are for
convenience, awarding these blanket purchase agreements, which, you
know, I realize they have smaller procurement staffs and things like
that. But they're using that as the excuse to, you know, bundle or
consolidate the procurement process. And you get into a situation
where the pricing where, you know, the management levels of these
agencies are being shown some very long discounts in pricing, very
much like grocery store pricing, if you will. So they show them some
long discounts. And then when the contract is awarded, and most of
these are five year contracts with one year renewals, these contracts
go on for a long, long time. And believe me, some of those
preliminary low prices are made up long before those contracts are
over. But it's not the pricing issue that's keeping us out at all.
 
VELAZQUEZ: Thank you. Miss Ritter, how do you believe that the
pressing small business agenda will help small businesses?
 
RITTER: Well, I think the words that he spoke and the directives
that he gave to the federal agencies were that they needed to pay more
attention to small businesses. I think that gives us an opportunity
to come and speak. You know, there have been years in the past when
we couldn't even get the opportunity to come in and speak. So I think
at least attention has been focused on small businesses. And I think
small businesses across the United States, small business owners feel
-- Oh, gosh, I hate to use this word -- empowered a little more to
speak up and feel like that they can and that they will finally make a
difference.
 
VELAZQUEZ: Miss Brandon, how many members of the Professional
Services Council have less than 500 employees?
 
BRANDON: Thirty-five, I think.
 
VELAZQUEZ: Thirty-five.
 
BRANDON: Yes.

VELAZQUEZ: How many of those companies have contracts with the
Department of Defense as prime contractors?
 
BRANDON: A large number.
 
VELAZQUEZ: Does the Professional Service Council support
Representative Tom Davis' Service Acquisition reformat? Do you have a
position on that? You do.

BRANDON: Yes.
 
VELAZQUEZ: Thank you.
 
BRANDON: We have been supportive.
 
VELAZQUEZ: No more questions, Mr. Chairman. Thank you.

(UNKNOWN): Thank you very much. From the testimony of at least
two of our witnesses, I gather that we have a problem with justifying
bundling or consolidation. I agree that those two words might be
interchanged and what somebody's -- one person's consolidation may be
another person's bundling. The example I referred to, I don't think
you can criticize when our agencies cannot procure up to date
equipment because the government procurement cycle is so long that by
the time we get the equipment, it's already obsolete. That they are
then forced to go to a performance contract. If you're going to do a
performance contract, it's (ph) necessarily a big contract. But the
Marine Corps, Navy did reissue the RFP giving 35 percent of all of
those contract dollars to small business and 10 percent of it direct
pay. We also had a similar discussion with NSA with reasonably the
same outcome and expectations. NSA, exactly the same problem. They
just couldn't keep current with their equipment because our
procurement cycle is too long. You know, but other industries don't
have that kind of a problem.
 
For instance, Mike, your sales of office equipment remind me very
much of the problem that movers had when our DOD decided to issue a
single contract removing household goods. Now all -- obviously,
there's nobody in the whole world who can move all of the military's
household goods in the world. What we used to do is have an RFP and
companies competed. And somebody won. And the person who won could
deliver as many, you know -- could do as much as he could do. Which
obviously, was a tiny percentage of the total work to be done. Than
any other contractor could come in and deliver household goods at the
same rate. I would think that that would be a reasonable analogy for
the problem that you all have. Why do you think they have to go to
these big, single source, blanket contracts rather than doing what our
moving people used to do, simply issue an RFP, have a lot of people
like you compete? Somebody's going to win. They're going to, you
know, bid to deliver it better and a lower cost. And then anybody
else who wants to can compete at those same levels. Why wouldn't that
be a reasonable way to let small businesses participate here?
 
TUCKER: I think it's a very reasonable way. I can't answer a
question why they wouldn't pursue that path. But there seems to be a
thing here where once a contract like this has been negotiated, there
seems to be a need or a desire on the part of the people who negotiate
it to defend their position, what they've done. They've done this to
save the agency money and time, and so on, and so forth. And I've
said this before, if you ask people in some of these agencies at the
headquarters level what they think of these new negotiated sole source
contracts, the people at the management level go, oh, this is great.
It's saving us lots of time and money and man hours and all the rest
of it. And then you go down and you talk to the people with the
credit cards that are, you know, placing the small purchase orders and
they're just, you know, they hate it. It's dreadful. They have
service problems. They can't get their bills straightened out. They
get substitutions. So, to address your point, I would love to see
something along those lines offered. You know, that would certainly
be a way to do it and to, you know, possibly break this up or have it
renegotiated.
 
(UNKNOWN): Mr. Degiancomo, do you think that there is a
possibility of requiring a justification for these consolidated -- I
know that you now have to justify a bundling. But, you know,
consolidation could be bundling. If we had to justify that, I don't
think that in the case of moving or the case of office furniture that
it's easy to justify a single contract for the whole world. I would
think doing what we used to do for moving is the reasonable thing to
do. Because to make it more convenient for the government purchasers
to just let a single contract -- you know, that really now is denying
access to many small businesses. If everybody that had that kind of
an attitude, Bill Gates working out of his garage or was it his
basement, would never have become Microsoft. You know, we just have
to give an opportunity to these small businesses. We have to find a
way to meet the government's needs while still not excluding our small
businesses from competing. Do you think that by regulatory reform
that we could reach this objective? Or do we need some legislative
reform from committees like this?
 
DEGIANCOMO: I firmly believe that there has to be some kind of
justification for bundling contracts of any type. It hurts my small
businesses. They're not able to compete. We have situations where
small businesses, they don't even bother to try any more. We in
Rockford are trying to set up a coalition of small businesses that can
bid on some of the larger contracts. But it's very difficult to get
these small businesses to work together because they're all very
entrepreneurial and independent minded. So, I hope that answered your
question.
(UNKNOWN): Thank you, Mr. Chairman. Everybody is for
efficiency. But when that efficiency eliminates competition that
brings the skills and entrepreneurship to the, to the government, you
know, that's moving in the wrong direction. And maybe we can be a
factor in changing these regulations so that small business can
continue to contribute as they have in the past.
 
MANZULLO: What I think would make an impact, I think somebody at
Walter Reed is not going to be very happy with me today. But that's
tough. Life's (inaudible). Congresswoman Millender-McDonald.
 
MILLENDER-MCDONALD: That's all right, Mr. Chairman. We are
happy with you and you have my vote of confidence on your actions
today. I agree with you that something needs to be done to get to the
bottom of the inability for small businesses to have contracts by the
federal government. And I am appalled at the inconsistency of the
Department of Defense and their inability to meet the goals that are
set forth through legislation. Mr. Tucker, I read parts of your
statement with some interest and the others, you're all talking about
the same thing that our Congressional that was held in my district
just a couple of weeks ago spoke about. That's e-commerce. And it is
so important for small businesses to get up and going and get to be a
part of this technology that's going to really drive the economy, so
to speak. But you stated that the federal government is simply
failing to meet its small business contracting goals.
 
That is hurting to me sitting here representing the federal
government. That particular statement goes through the veins of all
of your statements that you've said today in essence. And you have
tried several times to try to seek these contracts. Some of you have
gotten them. I've read where others have been met with sub
contracting from an Army Corps of Engineer, which, in fact, that sub
contractor did not pay. And so, consequently, you sued. Now (ph)
small businesses shouldn't have to go through with that. Now maybe
that is not some of the statements that I've read here, but I've read
it someplace else. Mr. Chairman, first of all, I would like to
suggest to us, the small business committee and I as the ranking
member that we call into play every department head, secretary,
whatever to this committee to see just how well they are faring on
meeting the goals for small business contracts with them.
 
 
MILLENDER-MCDONALD: The DOD was your first. I applaud you and
the ranking member on this. But I think every department should come
before us so that we can get a clear understanding of whether they're
meeting the goals of small businesses. Because we all know that small
businesses are what make the economy really move. You are the ones
who create the jobs and you are the one that's really the engine. I
would like for you to talk with me, some of you, to tell me just
whether or not -- how many DOD contracts do you have? I have not read
all of your testimonies. And how many of you have sought to get the
contracts of DOD and have not gotten them yet? So can I start from
this gentleman here and go all the way down?
 
DEGIANCOMO (?): Actually ...
 
MILLENDER-MCDONALD: I'm sorry I was not here. I had other mark
ups and other committee meetings I had to go to.

DEGIANCOMO (?): I assist businesses that want to do business
with the government. I work under a Department of Defense grant to
help small, minority, women owned and veteran owned businesses. I
have ...

MILLENDER-MCDONALD: And what success have you met with?
 
DEGIANCOMO (?): I have 741 clients at this time. Of them, about
one third of them actually bid on an ongoing basis. And about one
third of them have been awarded contracts.
 
MILLENDER-MCDONALD: And that's with the DOD or with all of them
across the board?
 
DEGIANCOMO (?): That's with -- it's across all the agencies with
that majority going with the Department of Defense.

MILLENDER-MCDONALD: OK.
 
DEGIANCOMO (?): I brought a sampling of 100 contract award
letters that we received from our clients. And we do cover a
extremely large area. I cover 13 counties. There are 6,000
businesses in my counties. That's a lot of businesses to be able to
cover and be able to do an adequate job. But we are doing that every
day. And we do see a lot of success. And success to a small business
is not just getting the million dollar contracts. Success to a lot of
my clients is getting the $50,000 a year contract that keeps the
environmental consultant working or the technical writer.
 
MILLENDER-MCDONALD: And how many of those have you been
successful in getting?
 
DEGIANCOMO (?): A number of them. I have environmental
consultants and technical writers who do get government awards.

MILLENDER-MCDONALD: The gentle lady there.
 
RITTER (?): At the present time, I do not have any DOD work. I
was trying to rack my brain. I don't think I have any federal work
right now, frankly. And that's been a decision, a business decision
made over the last seven or eight years. The red tape got to be too
much and the difficulties in attempting to meet all of the parameters
of -- I am a civil engineer by trade. We design roads and bridges and
that sort of thing. And we're able to keep ourselves busy without
getting into the federal market. And to a certain extent, that's sad.
I've been in business 20 years and I just sort of, the last five or
seven years maybe in my old age I've just gotten tired of trying to do
it. And I've kind of written it off.
 
MILLENDER-MCDONALD: It speaks volumes to why we're here today.
Miss Brandon, is it?
 
BRANDON: Yes. Brandon. I have -- we're a $17 million company,
five years old. And I'd say 95 percent of our contracts come from the
Navy.
 
MILLENDER-MCDONALD: OK. Mr. Chairman, I see the red light, but
can we have Mr. Tucker speak and then ...
 
MANZULLO: Yeah. Go ahead.

MILLENDER-MCDONALD: OK. Fine.
 
TUCKER: Mine requires a little explanation. The way the
military used to buy their office products was the military bases
across the store and across the country and including the Pentagon
used to have large supply stores on their bases. And we used to --
the company that I work for, I used to travel around the country and
call on those bases and had large opportunities to sell supplies. And
then as the process that GSA was using changed and the warehouses
started to be eliminated or these stores started to close up and they
were buying more of these products from some of the big GSA
warehouses. And our company was fortunate enough to have some GSA
contracts to sell supplies to the warehouses which in turn, service
the military bases. But since this contract bundling and federal
acquisition streamlining happened, what's happened is whole branches
of the military now -- the Department of Army is negotiating a
contract right now which I mentioned in my testimony for $100 million
to service all the Army bases in the country. The Department of Navy
in San Diego for the last four or five years has had a bundled
contract where that whole southern California Navy complex is serviced
by one dealer, Corporate Express.

MILLENDER-MCDONALD: So you cannot get anything there through an
RFP or ...
 
TUCKER: No. I'll walk in and I might as well be selling
cheesecakes. I mean, they don't want to -- and now as we understand,
there's this same situation going on with the Air Force. And we've
been trying to contact by Patterson Air Force Base to get some insight
on that. And we can't get the SADBU (ph) rep to return our phone
calls.
 
MILLENDER-MCDONALD: So in other words, the infrastructure that
we put into place for small businesses to go after contracts has been
absolutely cut from under you and a whole new dynamics has put into,
has been put into place for the thing.
 
TUCKER: Exactly.
 
MANZULLO: Would you yield a second?
 
MILLENDER-MCDONALD: Yes. Of course, Mr. Chairman.
 
MANZULLO: What is the name of the person you're trying to call?
What is his name?
 
TUCKER: Well, I can get ...
 
MANZULLO: (inaudible) Mr. Ramos said ...
 
REYNOLDS (ph) (?): Have him contact me. I'll look into it.
 
MANZULLO: Thank you. All right.
 
MILLENDER-MCDONALD: Thank you, Mr. Reynolds (ph).
 
REYNOLDS (ph) (?): Thank you.

MILLENDER-MCDONALD: Thank you, Mr. Chairman.
 
MANZULLO: Thank you.

MILLENDER-MCDONALD: This is so telling. This is absolutely so
telling. We tend to think that once we pass legislation, things are
in place. We have a lot to do here, folks. So we go on to the next
hurdle, not knowing that some of these others that we put into place
have absolutely been taken from under us and from under you. And so I
am -- I don't think I need to go to the other two. Mr. Cabrera (ph),
I certainly about -- I heard from you and it is true that you need to
be electronically enabled. And yet, you can't even get to first base
with that. Mr. Chairman, I will again ask that we bring every
department head into accountability here by having them come before us
to suggest what types of contracts, if any, they are awarding to small
businesses. And I am very much interested in that. Again, thank you
so much for this hearing, though I have not been here on all of it,
I've read little excerpts from all of the testimony to see that we are
in a big problem. Thank you, Mr. Chairman.
 
MANZULLO: Thank you. We have asked the GAO to do a study as to
the contract bundling of Boise-Cascade. That's B-O-I-S-E dash C-A-S-
C-A-D-E, which is sort of a big company. As to the efficiency of it
-- and I guess what bothers me is why would the Department of Army
want $100 million blanket purchase agreement for office supplies. Why
can't they go to the local stores? I mean, this is, Mr. Ramos, this
is, this is the policy issue. This is, this is where we start. It's
not a matter of just the big boys have been able to bid on this and
people like Mike Tucker and a few others who have nationwide
catalogues able to get into it. But what's going on here is this
smokes hundreds, if not thousands of small mom and pop stationary
stores across the country. For years they supply office supplies to
the Department of Army. And then all of a sudden, some lazy officer,
procurement officer, for a matter of convenience, says, well, let's
just have one big contract. And well, that's a great idea. I mean,
how many procurement office positions are eliminated at the Department
of Army? I bet, I bet none are. I mean, if this is a matter, if this
is a matter of saving money, you can take a look at it. But there's a
policy statement here that contracts for pencils and staples and
things of that nature. This shouldn't even be any consideration for a
large contract. And what I, what I would like to do, Mr. Ramos, let's
-- is this, is this contract been let out yet? Mike -- it hasn't been
let out?
 
TUCKER (?): Not that I'm aware of.
 
MANZULLO: You're bidding on it?
 
TUCKER (?): Yeah. They've had it in their hands for about six
weeks now and we've had a little dialogue, a couple technical
(inaudible).
 
MANZULLO: What I, what I would like to do is I would like to
write a letter and ask the Department of Army to justify before this
contract is let out that it's going to be any cheaper to have a -- now
this is a bundle. This is a classic bundle. And this is how small
people get screwed in this country because there are what, 17,000
procurement officers at DOD? Is there that many? Does anybody know?
Is there more? Pardon? Anybody have a guess? Because I know there
are folks here from DOD. There are 15,000. Five?
 
(UNKNOWN): Five. Five, eight thousand. Five, eight thousand.
 
MANZULLO: Fifty-eight thousand?
 
(UNKNOWN): (inaudible) somewhere in terms of the acquisition
staff. (inaudible)
 
MANZULLO: OK. But in, but in any case, -- and I think we have
somebody from Department of Army? Somebody here from Army? She just
left. What I would like to do is -- perhaps this is interfering in
the awarding of a contract. That's great. We're good at interference
in this committee. But I want to see -- and I think the tax payers
have a right to know. There should be a letter in writing by the Army
justifying this bungle, bundle. Bungle. And Nelson, if you would
prepare that letter immediately so that Mrs. Velazquez -- yes? All
right. But in any case, I understand where negotiations are. But I
just don't think this contract should be awarded.
 
VELAZQUEZ: Mr. Chairman?

MANZULLO: Yes?
VELAZQUEZ: I will propose that we send the letter to Secretary
Aldridge. And I requested when I was questioning him to send to us an
analysis of the cost savings that the seven mega contracts will
represent.
 
MANZULLO: OK. Well, let's do then, let's do a separate letter
for each contract. That way it's easier to get it through the
agencies. And I think it's time we come to an understanding. This
committee will not rest. We will not rest. We will continue with
these hearings. I will do everything I can to bust up this contract
bundling. Now, does anybody know does it violate some law for this
committee to request the Department of Army to make a cost
justification of the bundled contract? And is the Department of Army
obligated by law to grant that contract? Could anybody answer me
that? Would you know the answer to that, Mr. Ramos? That's a legal
question. I don't know if you --
 
RAMOS: I'd rather defer answering that. I'd rather find out for
you, sir.
 
MANZULLO: OK.
 
RAMOS: (inaudible) because we've been having some discussions
with the Army (inaudible) issues. And I'd rather (inaudible).
 
MANZULLO: I appreciate that very much. So we will -- Mr. Credit
(ph), if you could, if you could prepare that letter. Let's start,
let's start with this one. OK? And we're going to make it a
statement of this, of this committee that we're going to do everything
that we can to break this $100 million contract into as many pieces as
there are stationary stores that surround every single Army base in
the country. That's where we're going to start to unbundle. And I
want, and I'm going to instruct the Department of Army in a letter and
I want that answered within 10 days to give a cost justification for
this contract. If that cost justification is not here within 10 days,
we will have another hearing here and I will continue these hearings
until we find out why somebody came up with that brilliant idea to
bundle the contract to put thousands of small businesses out of
business in this country. So we look forward to working with Mr.
Ramos. I remember the conversation we had with Deidre Lee (ph). And
she said, Chairman, she said, there is so much money involved in these
contracts that we cannot stay on top of them and we depend upon
members of Congress to bring these abuses to our attention so that we
can move on them. And I just want to again, thank Mr. Ramos, you for
coming, for bringing your staff, listening to the testimony. I want
to thank the witnesses for persevering. If anybody here again, has
any indication in the course of doing business with the federal
government that for some reason you're not getting the contracts
because of your testimony here, you let me know about that
immediately. OK?
 
This hearing is adjourned.
 
END
 


NOTES:
[????] - Indicates Speaker Unknown
   [--] - Indicates could not make out what was being said.[off mike] - Indicates could not make out what was being said.

PERSON:  DONALD MANZULLO (68%); 

LOAD-DATE: May 21, 2002