<DOC> [106 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:68451.wais] S. Hrg. 106-812 WHAT IS CONTRACT BUNDLING? ======================================================================= ROUNDTABLE BEFORE THE COMMITTEE ON SMALL BUSINESS UNITED STATES SENATE ONE HUNDRED SIXTH CONGRESS SECOND SESSION __________ SEPTEMBER 13, 2000 Printed for the Committee on Small Business ______ U.S. GOVERNMENT PRINTING OFFICE 68-451 WASHINGTON : 2001 _______________________________________________________________________ For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 COMMITTEE ON SMALL BUSINESS ONE HUNDRED SIXTH CONGRESS CHRISTOPHER S. BOND, Missouri, Chairman CONRAD BURNS, Montana JOHN F. KERRY, Massachusetts ROBERT F. BENNETT, Utah CARL LEVIN, Michigan OLYMPIA J. SNOWE, Maine TOM HARKIN, Iowa MICHAEL ENZI, Wyoming JOSEPH I. LIEBERMAN, Connecticut PETER G. FITZGERALD, Illinois PAUL D. WELLSTONE, Minnesota MIKE CRAPO, Idaho MAX CLELAND, Georgia GEORGE V. VOINOVICH, Ohio MARY LANDRIEU, Louisiana SPENCER ABRAHAM, Michigan JOHN EDWARDS, North Carolina VACANCY Emilia DiSanto, Staff Director Paul Cooksey, Chief Counsel Patricia R. Forbes, Democratic Staff Director C O N T E N T S ---------- Opening Statements Page Bond, The Honorable Christopher S., Chairman, Senate Committee on Small Business, and a United States Senator from Missouri...... 1 Cleland, The Honorable Max, a United States Senator from Georgia. 21 Committee Staff Smith, Cordell, Professional Staff, Majority Staff............... * Forbes, Patty, Staff Director and Chief Counsel, Minority Staff.. * Participants Aguilera, Esther, Director, Office of Small and Disadvantaged Business Utilization, Department of Energy, Washington, D.C.... * App, Steven, Deputy Chief Financial Officer and Acting Deputy Assistant for Secretary for Management Operations, U.S. Department of the Treasury, Washington, D.C.................... * Ashley, Ivan R., Director, Office of Small and Disadvantaged Business Utilization, Agency for International Development, Washington, D.C................................................ * Bonkowski, Casimir, Director, Office of Small and Disadvantaged Business Utilization, Department of Housing and Urban Development, Washington, D.C................................... * Boshears, Kevin, Director, Office of Small Business Development, U.S. Department of the Treasury, Washington, D.C............... * Brown, Jeanette L., Director, Office of Small and Disadvantaged Business Utilization, Environmental Protection Agency, Washington, D.C................................................ * Bryan, Ken, Director, Office of Small and Disadvantaged Business Utilization, Department of Justice, Washington, D.C............ * Capuano, Joseph A., Acting Director, Department of Transportation, Washington, D.C................................ * DeLuca, Anthony, Director, Office of Small and Disadvantaged Business Utilization, Department of the Air Force, Washington, D.C............................................................ * Denniston, Scott, Director, Office of Small and Disadvantaged Business Utilization, Department of Veterans Affairs, Washington, D.C................................................ * Faithful, Robert, Director, Office of Small and Disadvantaged Business Utilization, Department of the Interior, Washington, D.C............................................................ * Foreman, Tim, Deputy Director, Office of Small and Disadvantage Business Utilization, Department of Defense, Arlington, Virginia....................................................... * Gerich, Michael, Deputy Associate Administrator, Office of Federal Procurement Policy, Washington, D.C.................... * Gisondi, Frank, Business and Procurement Specialist, Office of Small and Disadvantaged Business Utilization, Department of the Interior, Washington, D.C...................................... * Green, Mike, Deputy Director, Office of Small and Disadvantaged Business Utilization, Department of Agriculture, Washington, D.C............................................................ * Harris, Sharron, Director, Office of Small and Disadvantaged Business Utilization, Department of Agriculture, Washington, D.C............................................................ * Hopewell, Luz A., Director, Office of Small and Disadvantaged Business Utilization, Department of Transportation, Washington, D.C............................................................ * Jackson, Mirinda, Deputy Associate Administrator, Office of Enterprise Development, General Services Administration, Washington, D.C................................................ * Jaramillo, Vi, Director, Office of Small and Disadvantaged Business Utilization, Department of Education, Washington, D.C. * Jones, Ramona, Procurement Analyst, U.S. Department of Commerce, Washington, D.C................................................ * King, Lynn Sheri, Program Manager, National Women's Business Council, Washington, D.C....................................... * Kuders, Anthony J., Deputy Director, Small and Disadvantaged Business Utilization, Defense Logistics Agency, Fort Belvoir, Virginia....................................................... * Martin, Arthuretta, Deputy Director, Office of Small and Disadvantaged Business Utilization, Department of Health and Human Services, Washington, D.C................................ * McCall, Stan, Small Business Specialist, National Aeronautics and Space Administration, Washington, D.C.......................... * McNabb, Dale, Deputy Director, Office of Small and Disadvantaged Business Utilization, Department of the Air Force, Washington, D.C............................................................ * Mukitarian, Diana, Chief, Small Business Program, National Institutes of Health, Rockville, Maryland...................... * Murfree-Fleming, Valda, Contract Specialist, Library of Congress, Washington, D.C................................................ * Murphy, Debra, Chief, Contracts and Logistics Service, Library of Congress, Washington, D.C...................................... * Neal, Robert, Jr., Director, Office of Small and Disadvantaged Business Utilization, Department of Defense, Washington, D.C... * Oscar, Ken, Acting Deputy Administrator, Office of Federal Procurement Policy, Washington, D.C............................ * Pinson, Tracey L., Director, Small and Disadvantaged Business Utilization, Department of the Army, Washington, D.C........... * Quiros, Raul, Director, Office of Small and Disadvantaged Business Utilization, Minority Business Development Agency, Washington, D.C................................................ * Robinson, Jackie, Associate Administrator, Office of Enterprise Development, General Services Administration, Washington, D.C.. * Robinson, June M., Director, Office of Small Business Programs, Department of Labor, Washington, D.C........................... * Saji, Ben, Program Manager, National Park Service, Washington, D.C............................................................ * Senich, Donald, Senior Advisor, Small Business Procurement Policy, National Science Foundation, Arlington, Virginia....... * Tarrant, Nancy, Director, Small and Disadvantaged Business Utilization, Department of the Navy, Washington, D.C........... * Trakowski, Frederick, Special Assistant to June Robinson, Department of Labor, Washington, D.C........................... * Tychan, Terrence J., Director, Office of Small and Disadvantaged Business Utilization, Department of Health and Human Services, Washington, D.C................................................ * Vera, Mauricio, SDBU Program Manager, Smithsonian Institution, Washington, D.C................................................ * White, Durie, Director, Office of Small and Disadvantaged Business Utilization, Department of State, Washington, D.C..... * Wiggins, Elois, Small Business Program Manager, Nuclear Regulatory Commission, Washington, D.C......................... * Williams, Linda G., Associate Administrator, Office of Government Contracting and Minority Enterprise Development, Small Business Administration, Washington, D.C................................ * *Comments (if any) at various points throughout the roundtable. WHAT IS CONTRACT BUNDLING? ---------- WEDNESDAY, SEPTEMBER 13, 2000 United States Senate, Committee on Small Business, Washington, D.C. The Committee met, pursuant to notice, at 9:30 a.m., in room SR-428A, Russell Senate Office Building, The Honorable Christopher S. Bond (Chairman of the Committee) presiding. Present: Senators Bond and Cleland. OPENING STATEMENT OF THE HONORABLE CHRISTOPHER S. BOND, CHAIRMAN, SENATE COMMITTEE ON SMALL BUSINESS, AND A UNITED STATES SENATOR FROM MISSOURI Chairman Bond. Good morning and welcome to another one of our Small Business roundtables. I am pleased once again to be able to welcome the directors of the various Offices of Small and Disadvantaged Business Utilization, or OSDBUs. We had an OSDBU roundtable last November. It was a great success. We learned a lot from it. We thought we would try it again and we hope to learn and to share information with you as we did before. I apologize, I have to leave to go to a VA/HUD markup in subcommittee this morning. For any of you whose agencies are independent agencies, you probably would like to know: we think we have got the money to keep the Government running in the VA/ HUD agencies area, but it is close. It is always interesting. Today's roundtable has a particular focus, the problem of contract bundling. We have heard from small business owners that it is the No. 1 problem. I had a women's small business conference in Kansas City in June of this year and contract bundling was really an overwhelming problem for women small business owners, as well as all other small business owners. The Small Business Act challenges the OSDBUs to ensure that small business has ``the maximum practicable opportunity to participate'' in agency procurements. You know how difficult this is, however, when agencies take discrete, small contracts, and roll them into massive procurements that are too large for small businesses to handle. That is why the Small Business Reauthorization Act of 1997 directed OSDBUs to help identify instances of such bundling and to recommend alternative approaches to ensure small business participation. The law also enhanced the SBA's ability to identify and challenge bundling. That is what we will focus on today. The SBA recently published its final rules to implement the 1997 law, and we would like to hear from you today in detail about how those rules work, could work, should work, and will work in the real world. Last year, the Federal Government engaged in over 10.5 million contract actions worth a total of $199 billion. On average, that means almost 20 contract actions every single minute of every single day of the last year. Every minute the Government purchased an average of $377,000 of goods and services. We, the Congress, could not review all those actions. We depend upon you to help make sure that the appropriate share goes to small disadvantaged businesses. We reserve the right to review and oversee any of the actions as circumstances warrant it, but we know it will be more productive to have a sound agency review process in place. Solid anti-bundling regulations will allow those close to the action to intervene in time to make a difference. I think that the SBA's long-overdue publication of those rules is a step in the right direction. Again, we welcome your comments. Publication of these final rules also permits the Federal Procurement Data Center to make software revisions to collect data on bundling. A study I requested from the General Accounting Office indicated that publication of those final rules was the last hold up in getting that data collection started. We cannot simply wait for those data to accumulate so that we have a statistically useful sample. By that time, it may be too late. Someone out there has the information. That is one reason we are coming to you--as the advocates for small business at your agencies. What have you observed in the contracts you have seen? The SBA's rules provide thresholds to determine when a bundling provides ``measurably substantial'' benefits that may make bundling ``necessary and justified'' under the law. But we ask you the question, ``How do these thresholds compare to the size of the contracts you see at your agencies?'' Finally, the SBA rules do not expressly mention the OSDBUs as part of the process. The SBA envisions a vigorous role for the Procurement Center Representatives or PCRs. How sure are we that PCRs will even find out about proposed bundlings? Can you find out about them in time to take remedial action? These are questions we would like to have you discuss today. We hope to learn from your personal experiences. We appreciate very much the hard work you do. It sometimes seems like a thankless job, but I can tell you it means a great deal to the women and the men who are out there trying to make small businesses work, and we want to see them get their share of contracts. We, at the Committee, hope to develop a closer relationship with you. We want to learn from your experiences and we appreciate your coming to share them with us. I am off to an appropriations hearing. My colleague, good friend and Ranking Member, Senator Kerry will be joining us before long. Obviously, we have the staff here, and the staff for all the Committee will be paying a great deal of attention. We thank you for your time and wish you well and look forward to the guidance that you can give us today. Thanks very much. Mr. Smith. Good morning. Thanks to everyone for being here. Let me just say a couple of quick words about how this works. Most of you were here last year so you already know, but we will go over the ground rules just for a quick refresher. Generally, we have found it works very well that if you have something that you want to say, just take your name tent and turn it up prominently so that I can see it from over here, and I will be happy to get to you just as quickly as possible. That has proven to be the best way to let us know when you have something to say. Obviously, it is not a confrontational setting of any kind so it is a chance for you to throw something out if you have something you would like to say on these issues. If not, if you have nothing to say on the subject at hand, that is fine. It will help us to stay on time. So that is good, too. We are not really going to try to look so much at specific contract actions that are out there that people are concerned with. Most of those are hideously complex and we will not resolve this morning whether they are good or bad for small business or good or bad in terms of the bundling regulations. Our hope here is to focus on the process rather than on individual procurements. Now, individual contracts may come up to the extent that they illustrate the process; however, the hope here this morning is to focus on the process. We are not really out to attack the regulation. When we wrote our law 3 years ago, we took a stab at this issue and tried to come up with something that works, and the SBA has done the same thing and taken a stab at it. We are all going to learn from this experience, and hearing about that experience is what we are trying to do here today. So, that is all that I had for opening. Patty, did you want to say a couple of quick words? Ms. Forbes. Thank you all for coming. It is really a very impressive group. I did not realize there were quite so many of you but I am glad you could make it today. This is obviously a very important issue for small businesses. We are trying to struggle, this Committee is trying to struggle with the conflicts of streamlining and reserving contracts for small businesses or making sure there are contracting opportunities for small business. We do have concern that if there is too much streamlining there will not be enough competition when, in fact, we need competition in the future. Senator Kerry is going to try to come. He has a scheduling conflict at this time which is why he could not be here to open the roundtable with Senator Bond but he will be very interested in all your comments. So thank you very much for coming. Mr. Smith. Thank you, Patty. Also just one quick reminder as you see us trading the microphones back and forth, please feel free to do the same so that our court reporter is able to get a good record of what is going on and to generate a useful transcript. It helps also if, when you are speaking, and given the size of the group, if you will identify yourself and the agency that you are from. I want to start just a little bit with the question--the title of the roundtable is ``What is Contract Bundling?'' and you see that statement is written a little farther down on the agenda. I want to start with the broader question of who decides. I have a chart here, and you have copies in your packets. If you look, there is one that reads, ``Does Procuring Activity Need to Supply Documentation To PCR for Buying Activity?'' [GRAPHIC] [TIFF OMITTED] T8451.001 Mr. Smith. That issue is what gets the whole ball rolling on this regulation: when a proposed contracting strategy is underway that needs the attention of small business advocates at the agencies and at SBA. This chart here illustrates that there are four basic screens that proposed strategies have to go through to determine if requirements need documentation submitted to the PCR. The first screen tests whether it is something that is currently being performed by a small business. This is a relatively objective thing. You can see whether there is a current contract that small business is doing. You can determine that. Is participation likely or unlikely by small business? That is a little bit on the subjective side. Does it package discrete construction projects? Again, objective. And then we have the contract bundling definition itself as the last screen. If you get past all four of those screens, no documentation is required to the PCR or the SBA Office of Government Contracting. So my question to you, based on your experience in dealing with these problems at your agencies, is: will the SBA's PCR ever get documentation about a proposed bundling action to get the chance to review it in the first place? Will the documentation go to the people who need to see it and will PCRs even know that something is in the process that needs their attention? What have you observed in your agencies with this regulation? Mr. Denniston. Mr. Denniston. Somebody has to start this off. Scott Denniston, Department of Veterans Affairs. For a minute forget the definition of significant bundling, the $75 million, but just look in terms of consolidation, if you will, of discrete opportunities. The answer to your question, as it relates to the Department of Veterans Affairs, is no. The reason I say that is because we have got 200 buying centers around the country, but we have PCRs that are assigned to less than a dozen of those 200 facilities. So just by those sheer numbers, most of the facilities that we have do not have PCRs covering them. Mr. Smith. How does that compare to other people's experiences? Mr. McCall. Mr. McCall. Stan McCall, NASA. We have about 10 buying centers. Any requirement, not necessarily based upon the $75 million dollar range, should face some mechanism to involve the PCR in anything of this magnitude. The normal process should provide some involvement with the PCR to determine the impact the contract is going to have on small business. Normally, if you have got a relationship going, there is a dialog on the overall program and anything of that significance will just automatically be discussed. Mr. Smith. That is actually one thing I definitely want to focus on, because I want to know, in places where PCRs have been assigned, are they part of the acquisition team to begin with? Do they know what is happening? Are they part of the sessions as the strategy is being prepared, or do they simply have to hope that they can find out about it as things go along? Mr. Bryan. Mr. Bryan. Ken Bryan, Department of Justice. I think one of the significant things that you just talked about was the presence of the PCRs themselves. Again, we are not slamming anyone, here. But because of the cutbacks of the PCRs themselves, there are not that many to go around to be able even to review the contracts you are talking about. At the Department of Justice I cannot remember the last time that our PCR may have reviewed a consolidated contract, or any contract for that matter. And it is not because they do not want to but, again, it is because of the scarcity of the PCRs. Mr. Smith. Ms. Brown. Ms. Brown. Jeanette Brown, EPA OSDBU. The same thing here for the EPA. We are in contact with the PCR. We talk when we need to, but my PCR is assigned to four agencies and as a small agency we do not get that kind of attention. Mr. Smith. Ms. Pinson. Ms. Pinson. Yes. Tracey Pinson, Department of the Army. We experienced the same problem in terms of coverage of PCRs. We have over 200 buying activities and some PCRs are assigned there on a resident basis, and some are roaming which means they get there if they can. But we do have our small business advisors there, small business specialists there at all of our contracting activities that do review all the acquisition plans that come out of contract. In fact, there is a Form 2579 in the Defense Department that basically requires the SADBU to concur on the acquisition strategy. Mr. Smith. So there is a place for you and your office to sign off? Ms. Pinson. Not my office but, yes, at the contracting office level. Mr. Smith. Right. Someone in your office at some level to sign off that they have seen it? Ms. Pinson. SADBU. Right. Mr. Smith. And that way it gets routed past---- Ms. Pinson. And if there is a PCR assigned, then that PCR would also have to sign off on that 2579 as well. Mr. Smith. I see. Ms. Williams. Ms. Williams. In conjunction with the number of PCRs we are the first to admit that there are not enough. We have tried to get coverage where it is possible and we have hired an additional 13 PCRs to try to expand our coverage but our regulations also say that when there is not an applicable PCR, the documentation should come into the area office that has responsibility for that activity. As Ms. Pinson mentioned, agencies have small business specialists, and our PCRs work with them in order to review these requirements. I mean if there were not bundling regulations the PCRs would still have a role to play in looking at opportunities that should be set aside for small businesses. So all of this is still within the normal responsibility of the small business specialists and the PCRs. Mr. Smith. That is an excellent point to make. One thing that I wanted to ask regarding the SBA Government Contracting area office, when notification comes in, is there a person in that office who is asked to do something with the documentation when it arrives? Is there someone at each area office that is the substitute PCR for this office? One of the charts in your packet describes this situation. [The chart follows:] [GRAPHIC] [TIFF OMITTED] T8451.002 Ms. Williams. We try to funnel it to the appropriate person to handle. Mr. Smith. Is it possible to cover all the workload? Because I could see an area office covering a lot of contracting activities and getting a lot of material that is more than one person can handle. What is the word you are hearing on how that is working? Ms. Hopewell. My name is Luz Hopewell. I am the Associate Administrator for Government Contracting at the SBA. We do have a very large workload. I just started with the SBA 2 months ago. I have been evaluating everything that is going on. The workload on the PCRs is really significant. The number of PCRs that we have across the country is very limited. I know the SBA has taken corrective action and we have actually hired 13 new ones that we are training at the end of this month. Then for 2002 we will be getting 15 more. But I think in terms of the requirements, we do need more coverage. Mr. Smith. So it would be helpful to have more staff. It would also be helpful to make sure you have a process-- something like the Army has--where people actually get something routed past them to make sure that it actually gets seen? Ms. Hopewell. That is correct. Mr. Smith. That actually raises another question. Is there some place where acquisitions, before they end up in Commerce Business Daily, are printed or some sort of information is out there that is a resource where people who are small business advocates can look to find out about stuff that is happening, or is it just kind of a game to see if we can get the acquisition out the door before the small business people find out about it? I thought I saw that Mirinda Jackson had a comment, I am sorry, a moment ago. Ms. Jackson. I was going to comment on a previous question. I am Mirinda Jackson with the GSA. We have a process in place that allows the PCR to sign off on all of the GSA's procurements that are not set aside for small businesses. We have a form that is called a GSA Form 89. Mr. Smith. I see. So some agencies have various forms that do allow the routing. Some do not, but some do, is the impression that I am getting; is that about right? Stan McCall. Mr. McCall. We call it an acquisition forecast. Mr. Smith. Right. Mr. McCall. And anything of this magnitude would probably be caught in the acquisition forecast. We probably would give some kind of indication that it would be a bundling-type activity. Mr. Smith. I see. And that is OSDBU that puts that out? Does everyone put out the forecast from OSDBU or is that other places? It looks like we got a lot of yeses there. Let me look at a couple of specific questions on this. I am sorry, Ms. White, you had something? Ms. White. In addition to the forecast I know some of the agencies also publish an inventory of active recurring contracts that kind of cues people that, next year, a particular contract is coming up. We also have on our website at the State Department our Information Resource Management (IRM) strategic plan, which high-tech companies can read to see what is coming up. Mr. Smith. I see. Let us go ahead and look at a couple of points on the specific tests here that are on this chart. Again, you have a copy in your handouts. [The chart follows:] [GRAPHIC] [TIFF OMITTED] T8451.003 Mr. Smith. This kind of raises a question that I had when I was going through the regulation. There were two pieces of it I was not sure how they fit together. One of those was the requirement to perform market research. The market research seems to end up with the judgment of whether the benefits are measurably substantial and then you can make a judgment whether the bundling is necessary and justified. It seems to me that if you get all the way down to the test here, the last diamond of the chart that asks, ``Is the acquisition strategy a bundled requirement?''--then the Agency has to submit a written statement stating that the bundling is necessary and justified. Then obviously, at that point, they need to have the market research done in order to be able to make that statement and supply that documentation. As part of the market research process, it says that the acquisition team should consult with the PCR, or the Office of Government Contracting. It does not say that they must but that they should. Have you all run into some examples of the market research and how that is working? There is one instance that I know of with the Air Force, but I am not aware of other instances in the market research process and how that works yet. Mr. Capuano, you had something on the previous issue I think? Mr. Capuano. Joe Capuano, Department of Transportation. I wanted to mention on the PCR issue--of course, we commend the SBA for getting additional PCRs. We are very fortunate at Transportation. We feel we have one of the best in Reggie Holloway. He is resident in our headquarters building. We have been very fortunate. I also think the issue of establishing relationships with the small business specialists throughout the department and with our procurement officers is very important. Reggie Holloway does that. We include him in all of our monthly meetings. We include him in our major decisionmaking and he is very helpful to us in that respect. So, I think it is important to establish the balance, especially on large procurements. The second point is on the procurement forecast. Many of us publish it electronically on our website. Transportation has one of the better websites in the Government. We are very pleased with it. But again in working with the PCR it is very important to involve them even as you get into your procurement planning processes. And that is, I think, where the issues are because they are so drained in terms of other responsibilities and other programs. The key issue is how to develop the priorities for the PCR working together? I think that is extremely key. Mr. Smith. Thank you. Ms. Pinson. Ms. Pinson. On the issue of market research, we found that it is very easy to just say we will put something in the Commerce Business Daily to ascertain the interest in the small business community and if we do not get any interest, so be it. But we found that we have had to go one step further and work with the SBA, ask them to give us firms and also hold forums with the small businesses that may be interested in the procurement, because invariably on some procurements the Small Business Administration might appeal us. We want to demonstrate that we did adequate market research and that is not just putting a notice in the Commerce Business Daily because for whatever reason we do not always get a good response. Mr. Smith. Does the likelihood that the SBA might appeal become, basically, a club that can be used to say this is a reason why you should get the PCRs in early to avoid delay at the end of the cycle? Ms. Pinson. I think so. Yes. Mr. Smith. Ms. King. Ms. King. If I could just follow-up on what Mr. Capuano is talking about in regard to the PCRs and the procurement forecast from the perspective of business owners: How do they know about these PCRs? How do they know where they are? How do they know they can get in touch with them? And things like that because relationships should be developed both on the PCRs extending outreach to small businesses and vice versa. Small businesses need to be proactive with these PCRs but they need to know who they are and how to get in touch with them. The second point is on the forecast. There are still some agencies that do not put their forecast on their web page. Whatever the agencies and OSDBUs can do to deal with that, it is necessary. It really needs to be, in the information age, on the web pages. Mr. Smith. Thank you. Mr. Bryan. Mr. Bryan. To follow with what Tracey Pinson was saying, I think the Commerce Business Daily (CBD) is an important tool that all the agencies use. I know at the Department of Justice even though it is, in fact, a part of the market survey, many times that is a copout. One of the things that I have heard many small business representatives say is that they do not actually take it seriously because many times they think that by the time it hits the Commerce Business Daily it is already ``awarded'' to someone anyway. So I think this may be one of the reasons why some of the smaller businesses are not necessarily responding to the Commerce Business Daily--because they do not necessarily take it that seriously. Mr. Smith. Ms. Jackson. Ms. Jackson. We use the CBD but we also use some of the small business media. We use the Set-Aside Alert. We use the Minorities In Business Insider. We post all of our major acquisitions on our home page. Whenever we have a major acquisition we do what we call a networking session. We try to bring together potential prime contractors and potential small businesses so that they can consider partnering or doing a joint venture. And that has worked for us. Mr. Smith. Jeanette Brown. Ms. Brown. Even after it is publicized in the CBD I know there is a tendency--because we have to make a recommendation as to whether or not there is a small business community out there that can, in fact, do the work. The program offices are really sharp in coming up with ways of saying that they are technically not qualified. A lot of times when the small businesses respond they give us a general response in terms of what their overall capabilities are. Often that is to their disadvantage because they do not speak directly to the requirement that is at hand and they may or may not have enough information to give us at that time because it is a brief synopsis of what the requirement is. That also is a barrier to the small businesses participating. That is what we have seen at the EPA. Mr. Smith. Would it be useful, and I have not seen one of these notices in Commerce Business Daily or in the various other media on this--is there usually a phone number where if people do not understand they should call and develop a relationship and ask questions about what the information is that you are seeking and how they can be responsive? Or how does that work? Ms. Brown. There is a phone number and a point of contact and we also solicit information over the Internet. However, when the paperwork comes in what we have seen in the past is that it is not detailed enough to make a valid determination as to whether or not a small business, in a lot of instances, is really qualified for the work. Mr. Smith. Let us go ahead and move on to the next phase here. Thank you for your input on this question. We will look at the main focus here on ``What is contract bundling?'' You will recall that the last screen before we decide whether documentation is required for the PCR or the Office of Government Contracting is, ``Is the acquisition strategy a bundled requirement under the definition in the Code of Federal Regulations?'' I think some of you saw the definition as you came in the front door here this morning. We put it out on the little poster there. It is quite an involved little definition. There are a lot of implications to some of the word choices and all those other good things. [The chart follows:] [GRAPHIC] [TIFF OMITTED] T8451.004 Mr. Smith. I have actually something a little more basic to ask and that is what is a ``contract'' and how does that differ from a ``contract action?'' I understand ``contract action'' takes in something a little bit broader but what constitutes a ``contract'' as used in the bundling definition? And I can see that there would be a number of things that might happen that people would say, ``Well, that is not really a contract so, therefore, it cannot be a bundling.'' What are you observing on that question? What constitutes a contract for the purpose of this definition? I have a specific question if no one volunteers. Actually, the following question I guess is on the question of Indefinite Delivery/Indefinite Quantity contracts (IDIQs). I have to say I am not sure exactly which one is the broad categorical term. I have seen IDIQs. I have seen multiple award contracts. I have seen Blanket Purchase Agreements (BPAs). I have seen Government-wide Acquisition Contracts (GWACs). I am not sure what the broad-basket term is for all of those. I would be interested in some discussion of how those differ from each other. The impression that I have is if you have a contract that is a standing arrangement to buy from somebody and various agencies come to it and buy off of it, they do not consider those additional orders to be contracts. They consider them to be orders, and, therefore, they are not contracts, and even though you are coming from several different agencies it does not constitute a bundling. What are you observing on that score? Mr. Gerich. First of all, I am Mike Gerich from the Office of Federal Procurement Policy. Because you have a little problem, I guess, on the definition of contract, I will take a shot and I will hope that individuals will come in. Now as far as experiences you are going to have to look to the agencies and their actions there. But the regulatory definition of contract, procurement contract, et cetera versus the general legal definition of contract--procurement contract obviously involves something the Government is buying as opposed to giving something away as far as grants. As far as contractual actions we have a procurement contract where you actually sign a contract, a contract document, that is generally the procurement contract. The Government is buying something. A contract action might be something like a contract modification as opposed to a beginning contract. You also might have orders under a contract where you already have a contractual document in place. It gets a little sketchier when you come to multiple-award contracts and orders under those, whether an order might be a contract per se for one purpose versus a contract for other purposes. Generally when you fund something, an order under a contract you are adding additional funding. That traditionally is considered another contract. Whether that is a contract for the purposes of contract bundling I do not know. I think that is probably where you are driving at. That is where we need to probably flesh it out a little bit. Mr. Smith. Right. Mr. Gerich. But that is just the general definition. Mr. Smith. Are there differences for this purpose between the BPAs and the GWACs and the IDIQs and various other things that seem to be variations on the theme here or are they pretty much all the same thing at least on this particular question? Mr. Gerich. My understanding is that some agencies are issuing supplemental regulations to the FAR, the Federal Acquisition Regulation, to provide more specific guidance on how to handle those orders. So there are some agencies that have gotten more specific in that area and how to handle this for bundling. Mr. Green. Mike Green with USDA. When we talk about contracts--anything that we use to buy goods and services is a contract. I think a lot gets confused with the FAR in using contract procedures. We have contracting procedures and we have got simplified acquisition procedures where, in fact, the question has to be raised: Is a simplified acquisition a contract? The answer is yes because we are buying a good or service. When people, companies, and government employees use the term contract they are typically talking about a document to buy goods and services even where different types of procedures were used to buy that product. And that is what we have a contract for. Now these IDIQs, these BPAs, these GWACs, are all basically the same. One is a contract and one can be a simplified acquisition with zero dollars in it and you issue task orders on an as-needed basis whereas an IDIQ typically is relegated to the use of that Federal agency. A GWAC contract can be a huge contract with maybe a stipulated amount, over the contract amount for the original buying agency, where other agencies can also buy off that by issuing task orders. For all intents and purposes I would think any GWAC contract would be a bundled contract if it is going to be that big. Any IDIQ contract, if it does not go to a small business, I think we can consider a bundled requirement because when you start lumping all these things together and giving Contract Line Item Numbers (CLINs) and all this, you have one contract where anybody can buy from that one source. If you are buying services, hardware, software from that one source, you are cutting the potential for other small businesses and other businesses who compete with that product. Mr. Smith. So if you have an arrangement in which different agencies can buy off of that same instrument, those probably would have been separate contracts from each agency previously. And now, you have a standing arrangement where they can all buy off of the same thing and it becomes a de facto bundling even if technically it is not. Mr. Green. Government-wide bundling is what that is. Mr. Smith. OK. Mr. Green. And then IDIQs are more of a localized agency bundling. Mr. Smith. Esther Aguilera, you had some thoughts? Ms. Aguilera. Yes, thanks. Cordell, I agree with Mike Green there. At the Department of Energy, we recently had to issue some guidance from our procurement head, as well as our Deputy Secretary, to clarify that GWACs are covered within the contract bundling definition because when we had the lawyers look at it they could not make a clear determination whether that was the case or not. So we just decided to go ahead and make it and send the word out that that is the case. One thing that is happening is, in a GWAC where you have a company chosen off of a schedule and that schedule only has large businesses in it, they are setting some of these up to then add more contracts and requirements later on. So they build on that vehicle and that I think is how the GWACs are being used. Mr. Smith. So you modify it down the road and basically it is the camel's nose under the tent and then you can modify it subsequently and it just gets worse. Ms. Aguilera. Right. Mr. Smith. And if the modification is a contract action, not a whole new contract, it would never come under these rules? Ms. Aguilera. Right. Well, what we did clarify at DOE is that for new contracts, subsequent modifications would come under the rules. We would have to review them for potential small business impact. But if that clarification were not in place, they would be able to go through the process of bringing modifications under that larger contract without our review. So we were able to catch it and have a process in place to have that review. But it is a potential danger there. Mr. Smith. Lynn King, you have had your card up for some time. Ms. King. I am actually here also representing Patricia Stout who is a council member, National Women's Business Council, and unfortunately she was unable to make it. Patricia owns the Alamo Travel Group in San Antonio, Texas. She is a small business owner. She prepared a definition of contract bundling that she was going to offer and I think it is a good perspective from the small business owner on what her perception is of contract bundling. And I will just read her words. The bundling of government contracts is a consolidation of requirements that may provide obstacles to participation by small businesses. The contracts are so large that it limits the potential prime contractors to a few giant companies. In fact, the potential contracts are so large they even limit the ability of medium-sized companies to bid. Bundling creates offerings that exceed the capability of small- and medium-sized businesses and reduces participation in these types of contracts to a mere fraction of the available competition. This runs contrary to every principle of competitive procurement. Mr. Smith. Mr. Foreman. Mr. Foreman. Tim Foreman from the Department of Defense. In regards to the IDIQs, BPAs and GWACs I think the important issue from a small business standpoint is the new environment that we are operating under in procurement, as a result of the Federal Acquisition Streamlining Act (FASA) and the Federal Acquisition Reform Act (FARA) and pressures on personnel reductions in the Department of Defense we have gone from about 460,000 personnel involved in procurement down to 280,000. These are convenient tools and methodologies to get contracts out quicker. I do not know if I can say better, faster, cheaper but quicker is the key word, less administrative cost. And it is a new environment and does have a tremendous effect on small businesses. It does have a tremendous effect on our ability to meet the various statutory goals now that we negotiate with the SBA. So it is a critical issue. Do I want to turn the clock back? I do not know that I do. I have also, I think, learned a lot. And I think I have learned a lot in terms of small businesses that can perform other things in the commercial arena and also have been somewhat successful in these other arenas. So that is just food for thought, more than describing what they are. By the way, the largest of the group is probably the Federal Supply Schedule, which we did not really talk to but that is a huge and growing arena. Mr. Smith. Right. Actually I was hoping that someone would discuss all the different flavors of this thing. I had some questions on the Federal Supply Schedule that I wanted to do as follow-up but no one took the bait. Terry or Terrence, which do you prefer? Mr. Tychan. Yes, Terry Tychan. Mr. Smith. Nice to have you here. Mr. Tychan. I am from HHS and currently I am acting OSDBU while we are replacing ours. I have had a chance to have some conversations with all of our contracting officers and small business specialists because I have gotten a lot more interested in all of these issues and how we are achieving or not achieving our goals. I just wanted to mention and kind of echo the last remarks that the idea of GWACs and Federal Supply Schedules and all these larger-type contracts even transcend the questions of bundling, the issues of bundling. It is just as was described. It is all the reforms. They are good, they are very good in a way, but they present a very general problem. And that is: How do we meet our small business goals and ensure that we foster the capacity of small business and still take advantage of sensible economies of scale and so on? And I think that is where our department is really struggling, to see how can we do this. There have been a lot of good things that agencies have done in setting up those contracts. I think that is probably a key area where we want to do more and where we should look at how one sets up these government-wide contracts to make sure that small businesses are able to compete well. So just a general comment that that is a problem across the board. Mr. Smith. Mr. Neal. Mr. Neal. I am Robert Neal with the Department of Defense. I have got a couple issues with the description that IDIQs are just consolidation. We go through an extensive process of competing to select firms for IDIQs. We are in the process now that we have looked at a select number of case studies and what we have found is that a large number of those IDIQ awards have gone to small businesses with a substantial increase in the amount of contract opportunity that results in awards to small businesses. So to make the general statement that an IDIQ keeps out a small business I think is inaccurate. I think we need to recognize that there is a balance that has to be struck here. We have competing pressures. The most difficult task in looking at all of this is trying to strike that balance, being able to understand that we have pressures that are pushing all of our departments, with reduced personnel, to be more efficient and more effective and at the same time provide the same opportunities to small businesses. IDIQs in and of themselves do not preclude small businesses from winning. GWACs do not preclude small businesses from winning. The strategies that we employ in selecting the firms are the key here. When we have reserves that are set aside for small businesses it results in substantial improvement and opportunities for small business. We have a number of major bundle opportunities here where we have gone to the Nth degree to assure that small businesses get good opportunities. That means that the management has to be committed. It is not the tool, it is the management of the process that I think we really ought to start focusing on and stop throwing rocks at the tools because the tools are only effective in the hands of the individuals that are using them. Mr. Smith. Ms. White. Ms. White. I would just like to talk a little bit more about that segue with your comments, Mr. Neal. Oversight is a major problem with the GWACs as well. Whether an IDIQ and a GWAC and so forth constitute a contract is almost secondary to whether the OSDBUs and/or the PCR even know what is going on. We have no ability to influence whether something is going to go to a small business or not if a program officer decides to use a GWAC or another agency contract of some sort. A lot of people are using them to circumvent the small business program in my opinion. I also think it is going to create a problem in measuring how all the streamlining is-- well, for example, Federal Supply Service (FSS) does allow the funding agency to take credit for an award, but for all the other non-FSS GWACs it is a matter of the discretion of the agency and whether the agency pushes that award and whether it is Commerce or Federal Technology Service (FTS). If we push to get the credit for it, then yes, but if not, there is no uniformity. So we do not even know. Our measurement is sporadic as well because sometimes an FTS contract is credited to GSA, sometimes it is credited to State. So we do not know if we are getting a good measure. Mr. Smith. Thank you. Senator Cleland of Georgia has joined us. Senator, if you would like to say a few words, please feel free. OPENING STATEMENT OF THE HONORABLE MAX CLELAND, A UNITED STATES SENATOR FROM GEORGIA Senator Cleland. Thank you very much. I would like to congratulate the Chairman for convening this roundtable. May I say that the issue of contract bundling is an important one to many small business owners in this era of mega-mergers, global economics, and e-commerce. Small businesses still remain the backbone of our Nation's economy despite all the factors stacked against them. All too often government contracts are being bundled to create a single contract that is simply unattainable for many small businesses and I appreciate the Chairman convening this meeting. I am a Member of the Small Business Committee, and I am interested in your input here. In my own home State of Georgia there is a bundling issue that exemplifies the difficulties and the relationship between the Federal Government and small businesses. The heated debate over the Air Force's Flexible Acquisition and Sustainment Tool, or FAST Program, at Robins Air Force Base is just one example of many similar cases across the country. Certainly, as a friend of the Air Force, I find myself in the difficult position of wanting to do whatever I can to help Robins Air Force Base save money in a time of increasing responsibilities and extremely tight military budgets. The Air Force believes that this program, which also is under consideration at the other Air Force depots in Oklahoma and Utah, would conserve tax dollars and increase efficiency, two objectives which I share. However, I have always considered myself a champion of small businesses and I know how important it is for the small business person to have access to government contracts, both prime contracts and subcontracts. The concern, that some small businesses in Warner Robins and Macon have not had access to these contracts, is something I am closely monitoring. I have written to Secretary Cohen regarding this issue and I am pleased that the SBA is also focusing on trying to protect the interest of small businesses in such cases. As I mentioned earlier this is just an example of the difficulties faced by both the Federal Government and small businesses. I hope today's roundtable will help cast some light on some of these difficult questions so that both the Federal Government and small businesses can operate efficiently and effectively. Unfortunately, I have got to go to another Committee meeting. I am unable to stay for the entire roundtable but my staff will be here monitoring the testimony and I welcome any comments from the representatives of the Air Force or the SBA who may want to make a statement for the record. Thank you all for coming here today and I appreciate your participation in this roundtable. I appreciate your interests in the expansion and development of our small businesses. Thank you all very much. Mr. Smith. Thank you, Senator. Mr. DeLuca, would you like to say something quickly? Mr. DeLuca. I am Tony DeLuca and I am Director of Small Business for the Air Force and thank you for the segue, Sir. I appreciate that, to talk about what we have done in Warner Robins and what we intend to do with FAST. By way of background for those who are not aware of what we are attempting to do, we are attempting to go ahead and put a tool in place, as Robert Neal indicated, that would provide the Air Force an opportunity to do three things. First, it would give us an opportunity to go ahead and obtain rare spares, rare repairs in a very timely fashion. Second, it would be able to save the Air Force, we estimate, over $100 million a year. And third, it would increase total small business utilization by more than double the prime contract awards and probably more than triple the subcontracting awards. We talked earlier about the issue of the involvement of PCRs and the type of contracts that we look at. FAST and our work on FAST has been going on for at least 18 months that I know of in trying to work through that. If there is a lesson to be learned here, and I would share this with the entire group, it is that in the beginning when you stop working through things and you are really unsure of what to do, certain individuals will come out and make the pronouncements that something is a fait accompli when in reality it was not. That was one of the difficulties we ran into at FAST. There were things that were put out that were assumed to be the way we were headed, which indeed was not that way at all. When we first got into FAST, really the whole focus was originally just on large business as prime contractors because the work was thought to be so involved and so complex that small businesses could not do it. The infrastructure required in terms of being able to support payroll and so forth was fairly heavy. As we went through that we took a look at the work involved itself. And there was a real concern that what we were doing was going to take work away from existing small businesses down at Warner Robins and throughout the United States. We found that the work we were talking about was work that would be added to the work already being done at Warner Robins. What I mean by that, it was work that we had MIPRed (Military Inter-departmental Purchase Request) in most cases to the Army. The reason is that the Army had a vehicle that was good for us, that we could get to quickly and that would be able to satisfy the program manager's needs. I think, for all small business people, we have to look at ourselves and say what are we going to do? Are we going to put our heads in the sand and say, ``Gee, that is no good'' or are we going to provide the customer--in this case, the program manager--an opportunity to have a vehicle that can at minimum compete with something else that is out there? And that is what FAST has done. What we evolved into was a strategy that will have six contracts in place, two of which will be awarded to small businesses. We also address the area of bait-and-switch. This was another concern that small businesses have raised where they are part of a team when the contract is awarded, but guess what, they do not get any work afterward. We have addressed that through the incorporation of a matrix which identifies the team members as well as the Standard Industrial Classification (SIC) codes assigned to those team members and the type of work they will do. So, when those tasks are levied on the contractor, they must go to those companies and if they do not, they have to come back to the contracting officer before they can go to anyone else. The other thing that we have done is we have assigned a 23- percent total contract value to the subcontracting portion and we intend to enforce that by measuring past performance in the utilization of task orders. The other thing that we have done is we have put in place an oversight board at the senior headquarters in the Air Force, and we have invited the SBA to join us on that senior oversight board. We want to ensure that what we tell people we are going to do, in reality we will end up doing. It is our sincere belief, and it is my sincere belief--and I will tell you, Senator Cleland, I have been in this job 10 years, I have been in Federal work for 32 years, I was a former competition advocate of the Air Force--this is a good deal for small business. And I would not say that if I did not believe it. We have worked through it hard and over. What it comes down to is how do you balance the need to ensure effectiveness and efficiency with the assurances that small businesses need to play. We have letters that come to us from small business teams that said, ``Hey, we believe in what you are doing. Let us get on with it.'' And that is what we are attempting to do. I think when all is said and done, hopefully we will get a contract in place, and we will be able to come down and sit with this group and really go through, wholesale, the lessons learned. I think from a standpoint of knowledge management, which is a new buzz word everybody is throwing around, about how one uses intellectual capital to ensure continued improvement, we will be able to share that intellectual capital with everyone. I hope that in the process we can all benefit from what we are doing. So, Senator Cleland, I want to assure you from an Air Force perspective we understand your concerns. We feel that we have addressed them, and we are willing to do whatever it takes to ensure that people understand that. Senator Cleland. Tony, a question. Andrew Carnegie once said to put all your eggs in one basket and then watch that basket. We are going to be watching your basket. OK? Mr. DeLuca. Yes, Sir. Senator Cleland. Thank you all very much. Mr. Smith. Thank you. Luz Hopewell, would you like to take a few minutes to comment because the SBA prepared the appeal on this. Then we need to move on to our regular agenda. However, I do want to get everyone's perspective on the record as long as the issue has been broached. Ms. Hopewell. As you know, we did submit an appeal to the Air Force on the FAST contract. We did look at it very carefully and we wanted to make certain that we were able to balance the requirements of the Air Force as well as the requirements for small businesses. We know that when you develop a strategy early on, and take into consideration the inclusion of small businesses in the process, it can work. I just came from the Department of Transportation and in Transportation we put in place two major GWAC contracts: ITOP I and ITOP II (Information Technology Omnibus Procurement). I am very proud to say that we had over 40 percent participation by small businesses as primes. They were able to compete against large businesses for every task order. So it can be done, but the key to the whole thing is to have an open dialog at the very beginning when you start to develop the strategy that you are going to use for that acquisition. I feel that the sooner the OSDBU directors as well as the PCRs and the acquisition workforce come together and do that development and that planning, the sooner you will be able to succeed. I would like to put in the record the three points that we used in the appeal to the Air Force. One of them is that we felt that the statement of work was too broad. Because it was so broad it was difficult to point to small business participation. The contracting office did not provide information or complete the steps required to justify the contract bundling in accordance with the contract bundling regulations. The other major point is that an inappropriate Standard Industrial Classification code was utilized, resulting in an assigned size standard of over 1,500 employees and that really does not represent the majority of the work that is performed by small businesses. Mr. Smith. In the interest of moving on, if you, Luz and Tony, would submit clean copies of your appeal letter and your response letter, we will insert both of them into the record and we will let readers of the transcript decide for themselves. That way we can then proceed. Is that agreeable? Mr. DeLuca. I agree because obviously we do not agree with my good friend, Luz on this. Mr. Smith. Unfortunately, I think we could spend the next 3 hours on this one. Mr. DeLuca. Right. I agree. We have been spending 18 months; what is another 3 hours? [The information referred to follows:] [GRAPHIC] [TIFF OMITTED] T8451.005 [GRAPHIC] [TIFF OMITTED] T8451.006 [GRAPHIC] [TIFF OMITTED] T8451.007 [GRAPHIC] [TIFF OMITTED] T8451.008 [GRAPHIC] [TIFF OMITTED] T8451.009 [GRAPHIC] [TIFF OMITTED] T8451.010 [GRAPHIC] [TIFF OMITTED] T8451.011 [GRAPHIC] [TIFF OMITTED] T8451.012 [GRAPHIC] [TIFF OMITTED] T8451.013 [GRAPHIC] [TIFF OMITTED] T8451.014 Mr. Smith. Let us move on then to the next segment on the specific standards and terms that are used in the regulation. I apologize for those of you who had additional comments but I am afraid we want to try to keep on track so the OSDBU council can meet on time after this is over. The one thing that caught my attention is one of the phrases that is used in the law and which appeared in the SBA's regulation--the term ``measurably substantial.'' In order to determine whether a bundling is necessary and justified we look to see whether the benefits from it are measurably substantial. Both words are important because I thought the SBA seized on a very valid point in the regulations. The term ``measurable'' implies quantifiable. If you are going to measure it, you have to be able to put a number to it and there is certain logic to that. What I wanted to ask you was, how would non-monetary benefits be calculated? Especially since the thresholds in the regulation are expressed in terms of dollars. There are some thresholds such as quality improvements, reduction in acquisition cycle times, and better terms and conditions that do not automatically come to mind with a specific price tag associated with them. I wonder how well we know how to translate those non- monetary benefits into a monetary standard. While someone is thinking of what to say on that, I will give the reason why I have a concern with this. I used to be a lot more thrilled with estimates of cost savings until I submitted an amendment once to the Congressional Budget Office (CBO) for an estimate. They came back with an estimate of $12 million plus or minus $2.5 million, which was about an error margin of about 17 percent either way. I was kind of impressed at the level of arbitrariness in these estimates, so that concerns me. Stan McCall. Mr. McCall. I think Bob Neal said something earlier about there being opportunities within bundled contracts for small business participation. I think measuring the cost of doing this is really what we need to be looking at. I think we are paying a bigger cost than we realize. My observation has been that bundling is wreaking havoc with the development of new businesses. It is not only from the aspect of creating bundled contracts that large businesses win. We are also bundling within the set-aside programs themselves, in that small businesses and 8(a) firms are putting them together to make larger requirements. Once these instruments are in place they tend to soak up every new opportunity that comes along. Now I feel that over time the smaller requirements that were out there were developing the American small business base, which was building up the tax base. That is where the jobs are being created. It was also building competition, which was giving us better prices. I can point to many examples of small businesses that got their first small opportunity, grew, and then they were able to compete against the large companies, resulting in much better prices. But those opportunities have been soaked up not only by large businesses but other small businesses and 8(a) set-asides that grant these huge requirements that the little start-up company does not have access to anymore. How do you measure that impact? You cannot but I know it is there. And despite a 10-percent savings we might be getting up front, we are paying a bigger cost with less competition, less building of the tax base down the way. So where do we draw the boundary of where you measure the cost. Mr. Smith. So perhaps there needs to be a cost component to the definition somehow. Although in that case the costs are so wide you would be hard to attribute it to any particular contract but I think that is a very important concern. Mr. Robinson. Quick question. Based on the strength of his argument---- Mr. Smith. Mr. Robinson. Mr. Robinson. Yes, I am sorry, Jackie Robinson from GSA. Based on the strength of your argument, Mr. McCall, what is your recommendation? Mr. McCall. I think one thing we have got to do is put more than just a cost definition on a particular bundle. Other additional approaches that we must analyze are, we must try to define what we put to this test, including contract consolidation, new requirements, a lot of things that are really bundling but they are not called that. Like I said we are even doing it within set-aside programs but it is not subject to any tests when we are doing it there. It is a start. Those are some of the things I think we could address. Mr. Smith. There was something that Charlie Alderman mentioned to me some months ago before he moved on to bigger and better things. And that was that there had been a study in the early 1960's about the effect of contracting in the, I guess it was at the Defense Department, and that before a lot of the small business program was well-developed, things had become so consolidated that a contractor was essentially able to name a price. Does that ring a bell with anyone? I have not been able to track down that study. I sure would be interested in knowing where that is or if anyone knows who produced it. Mr. Neal. What we are in the process of doing now is what we have gone through, as a commitment to the House Small Business Committee, of performing a bundling study in which we have invited several advocates to sit on our oversight review board for the study. What we are finding--we did not find that particular study because we did do a historical search and we were not able to locate it--but what we are finding as we go through the process is that the point that Stan McCall is making is one that many of us in procurement positions have not come to grips with. With the economies of scale that we are asking folks to look at, inherently we are looking for firms that have capabilities that are not present in emerging firms. You cannot ask us to serve the mature small business community and the emerging population at the same time and reduce our resources. You are having us at odds with ourselves. When we consolidate and when we go for efficiencies you have a tendency to look at mature firms with past performance, with history, that you have less difficulty and you spend fewer of your resources assisting. We do not have the people so we are looking for mature firms that can hit the ground running and do the job and we never have to look at them again. As we look at all of our consolidations at whatever level, the study is coming back to us and pointing out that we are having this schism occur. And so those are our preliminary results saying that we are focusing now on mature firms at the expense of emerging firms. Now we have a lot of programs that are out there for emerging firms, but do we have contracts that would allow the emerging firms to gain the experience? That is where we really have the difficulty in the agencies. Because if I have a choice as a program manager, I am not going to risk my program on an emerging firm when I know that there are mature small businesses that will give me a check in the check box and satisfy my oversight committees if I use a mature firm. So we are going to need some help in assisting our leadership as we come up with innovative strategies to try to enhance the opportunities for emerging firms. However, we are going to need some tools in order to assist the emerging firms. Now we used the Mentor-Protege program as one of the tools to assist an emerging firm. But it requires a commitment on the part of the commercial sector, requiring our prime contractors to invest their resources along with the resources that we have available. There is very strong sentiment that there should not be a Mentor-Protege program where we offset the cost. If that happens, then emerging firms are going to be dead in the Federal marketplace. One other point I want to make on this cost-benefit analysis piece, when you ask the question of whether or not we should have cost-benefit analysis, we have got to recognize that we went through a long, painful process with the Office of Management and Budget (OMB) Circular A-76 process to finally get to the point where we feel we have a cost-benefit tool that is useful. We have just begun to scratch the surface in small business and looking at consolidations and recognizing that we need a cost-benefit analysis tool that is useful. Now that we have recognized that, we can benefit from looking at what took place in the A-76 process and maybe appropriate that cost-benefit analysis tool that took years to develop, and also be able to use it in the area of understanding, what are the costs and the benefits of doing a consolidation. That is going to take us a little time. That is something--as some of the preliminary indications that we have gotten from our consolidation study show--that there is a great demand for us to have clear, concise, detailed guidance to everyone that is involved in the process on how to perform a cost-benefit analysis as it relates to consolidations. Because, as it is right now, we are throwing out very raw generalizations to our contract folks and we are expecting them to come back with A-76-type cost-benefit analyses and that is not what we are getting from them. What we are getting is the best that they have available to them at that particular point in time and within their abilities. But we are not getting the kind of detail that you would like to have, that we would like to have in order to make informed decisions and help our leaders make informed decisions on consolidations. It is one area that we are going to have to spend a considerable amount of resources, and when I say resources I mean money, in insuring that we have a good cost-benefit tool because that A-76 tool cost us considerable amount of resources over a number of years. Mr. Smith. And if we have already invented the wheel, there is not a lot to be gained by reinventing it. Do you recall how A-76 handles some of the non-monetary things like reduction in acquisition cycle times and terms and conditions and the non- monetary things? Does it have a process that has already been thrashed out on how to translate those into dollar figures? Mr. Neal. They have tried to thrash out many of those areas. I would like to submit for the record copies of the cost-benefit analysis that is utilized by the OMB as the beginning where we can start to look and see where it may be tweaked to be more appropriate for what we use in the procurement field. Mr. Smith. If you will submit that to us, we will make that a part of the record. Thank you. 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Sharron Harris, you have been waiting very patiently. Ms. Harris. I would say that I recognize San McCall's concerns and I agree with what Bob Neal is saying. Part of it is looking at the tools that we have now that we are working with and making determinations for how this bundling will affect small businesses. There may be many small businesses that participate if we are making multiple awards for a requirement. That is a major opportunity if multiple small business partners get an opportunity at their varying levels of capability to perform. So we are still looking at the tools. Mentor-Protege is one of those tools that can help us with this. Subcontracting is another one of those tools if we are looking at large business as prime contractors in the bundling. And that is an area that we have got to do a lot of work in strengthening how we manage subcontracting. There are a lot of weaknesses in the tools that we have under subcontracting to make it work effectively. Ms. Williams. I just want to echo also what Bob Neal is saying. When we put the rules together and looked at the literal words of the statute, trying to do the measurably substantial benefit analysis and testing cost was grouped together as one factor. When we looked at trying to craft the rule we said agencies can look at costs as well as the other factors individually or in the aggregate to come up with their analysis. But, we certainly do need help in trying to come up with best practices that we can share with our PCRs as well as with the agencies to come up with a good model for trying to conduct these analyses. So we tried to craft the rule looking at benefits and recognizing that cost is one of those benefits that must be achieved. Mr. Smith. As an offset to benefits, right. Ms. Williams. Right. Mr. Smith. Ms. Aguilera. Ms. Aguilera. Thanks. I guess one of the key words that we found was balance in here and from what Stan McCall was saying there is clearly a role for the Federal Government to play to ensure we have a strong small business community. But we also have extraordinary tools through our contracting to help do that. The question becomes the tools and how we could promote programs within our program office. If I were able to go to a program manager and say, ``Listen, you do not need to worry, we have got some extra resources here to do some business development in that particular area of scientific work that they are doing,'' they would get excited about it. Right now we do not have that extra tool for business development. I do think that the subcontracting area is a huge area that is underutilized. I agree that prime contracting needs to continue to have a very strong push, but we should consider subcontracting as one of the ways where we can develop some of the smaller firms and things of that nature. There are weaknesses in subcontracting but that is a key tool. Right now we do not have a particular goal and we do not measure subcontracting and how much we do. There is a ton of opportunity there. So there might be a balance in looking at how we could leverage some of these opportunities. Mr. Smith. Tracey Pinson. Ms. Pinson. One benefit that I think that we have a tendency to overlook, that we probably should be trying to assess, is the extent to which small businesses will benefit from the bundled contract. Invariably we may take 20 or 30 contracts and consolidate them down to one or two, but can we package those contracts in such a way that small businesses will still participate as prime contracts? I think that is what, since we are kind of accepting the fact that bundling is here to stay--I do not know whether we want to say that publicly or not, but I think that is a reality--but we want to make sure that small businesses can still play at the prime contracting level. So bundling is not always negative for small business. Now it may be negative for that small business that is being consolidated out of the process and may not be that one or two that gets the contract but again, our objective is if we have to live with the bundled contract, we want to make sure that the small business can play at the prime contracting level. I think that is a benefit that we have to take a look at, and a reality. Mr. Smith. Mike Green. Mr. Green. Just a little follow-up on the subcontracting aspect of bundled contracts. When you are talking about subcontracting plans, $500,000 or a million dollars, you have got these things called commercial plans that somebody puts together for all business and one agency accepts it so that is the plan that everybody accepts. The way subcontracting is currently structured, there is really no way to ensure that those companies, excluded from government opportunities by a huge bundled contract, would have an opportunity to participate as subcontractors instead. The Government does not have a right to direct prime contractors to consider specific firms for their subcontracting. Prime contractors do that themselves. But it would be kind of interesting to see if we are, in fact, losing numbers of small businesses in the prime contracting game. There is something to be done about commercial plans, something to be done for each contract that we issue. For a huge contract that the potential small contractors that have been weeded out, at least give them the opportunity to compete with that big prime for the requirements to become subcontractors. Nine times out of ten the big prime will already have their subcontractors in place and companies that are doing business with the agencies do not have such an opportunity to compete at all. Mr. Smith. Jeanette Brown. Ms. Brown. One of the other things, going to what Tracey Pinson was saying, I think we also need to look at and strongly encourage the small businesses to team together and do the joint venturing so that they can go after these large contracts. We do not see enough of that and I think it is our job to work with them to get them in that position. If contract bundling is here to stay and this is a factor that we have to live with, a lot of times they can team together to go after these contracts and win. But I think the onus is on us in the small business community to work more with them and the SBA to get them to that point. Mr. Smith. Michael Gerich. Mr. Gerich. If you will let me, I would like to just backtrack a little bit. This conversation started on the question of measurably substantial benefits, the statutory and regulatory definitions, the SBA regulation, et cetera. In defense of the SBA and also the Administration it did, in fact, yes, take a long time to come up with those regulations in interim and in final form. But I think that reflects the difficulty in balancing these situations. We have got competing, compelling interests on the part of--and DOD has given you examples of the reductions in manpower. We have to deal with these situations. Nevertheless, we all are committed to small business participation. It has only been since, I believe, July 26 that both the final regulations on contract bundling, SBA's and the Federal Acquisition Regulation (FAR) were put in place. The difficulty, I think, in arriving at those regulations reflects the fact that we have to balance these concerns: the small business interest, the bundling interest, and the procurement reform efforts that often reflect the reduced resources we have. I would hope that before we delve into mandatory changes in the statutory and regulatory definitions of measurably substantial benefits, et cetera, we give some time to operate for our agencies to experience these regulations and find out what is necessary. You see examples here where perhaps we need more best practices. We need to develop more practices using these regulations. Again, these may not be perfect but again, there was difficulty at arriving at those regulations. That reflects the various interests here: the interest of the major procuring agencies, the SBA and all involved. So I am hoping that we will have a little more time with those regulations and operations and agency experiences with those regulations. Mr. Smith. That is a very worthwhile comment. We are not wanting to use this as a chance to throw rocks at anybody at the SBA or the OFPP or anybody. This is just simply to get a temperature check to see how people understand the regulations as they currently are written and what they are beginning to see as it starts getting underway. So it is really intended to be more of an information session. So that is kind of what we are shooting for here. Ben Saji, you had a comment? Mr. Saji. Bundling, to me, seems to be really a return to business as usual with the potential for monopolistic practices. It was just a few years ago that we were using strategies on how to break out some of those big dollar contracts so that small businesses could participate. We did that because there was no real savings to the Government in the first place with what looked like monopolistic practices. Now I do not see any promise of government benefit and what we now say is we must have bundling procedures in order to help the Government. Whether or not it is hurting the small businesses seem to be clearly evident as they are screaming at the top of their voices that they are being hurt. I do not see how anyone is being helped by it. Mr. Smith. Let me make one quick statement and raise something for everyone and then move to you so that we can be thinking about the next thought. One of the tiers that the SBA came up with in its regulations was the $75-million threshold of looking at measurably substantial benefits at a two-tiered level, and trying to figure out when those benefits should be reckoned as a different figure above a certain threshold. The figure they used was $75 million. The regulations--the explanation and justification I think they called it--the SBA maintains records on the value of bundled contracts and over the past 4 years they determined that the majority of bundled contracts fell within a range of $50 million to $75 million and that is kind of the origin of that. And that is looking I guess at a government-wide basis, just collecting from all over. I was curious though about some of you. Some of you have smaller budgets than others, and I was wondering how you look at that $75-million threshold and how that applies to your agency. Is it very high for your agency? Is it very low for your agency? Or what is your experience? Lynn King, if you want to go ahead and comment, but if everyone would please be thinking about that. Ms. King. This will sort of tie in a little bit. Again, these are the words of my council member, Patricia Stout, and this is her experience, not to throw stones but to just provide information to the directors here from a small business owner. Last year, the GSA issued multiple-award contracts for travel services. That included a good number of set-asides to small business. The GSA included multiple awards for nationwide travel services whereby government agencies could select a single travel contractor to provide services to all those government agency's locations nationwide. This was done to allow the greatest flexibility possible to the various government agencies. The sheer size of the GSA contract line item for the nationwide coverage limited the competitors to the very few, very large travel companies. Through this practice the small business set-asides were not enforced. Just to give an example, the travel contract for the Department of the Interior was recently awarded to a nationwide single contractor for a total of $49 million and that again, ties with the threshold $50 million to $75 million and has effectively removed its purchases from the small business set-aside. The INS, the GSA, and the SBA are a few of these agencies that are adopting this practice and this just happened this year. So I mean the issue of the $50 million to $75 million does, I think, depend on the agencies because obviously DOD for their contracting numbers that is all right, but smaller agencies and independent agencies might not have that threshold level of the $50 million to $75 million, maybe $49 million and under. Mr. Smith. Tony DeLuca. Mr. DeLuca. Just a couple of comments I guess. First of all, I would caution us all that we do not take something out of here as a given when indeed it has yet to be proven. What I mean by that is, we are going through a study in DOD now looking at what is happening in bundling and what is not. So I would hate to have everyone leave the room thinking that bundling is bad and we are bundling every contract we have and that small businesses cannot play because that is not true. We do not really know the answer to that yet. I think that is something that we have to find out. With respect to the teaming issue, I think that is a very good point. The SBA changed the affiliation rule and I co- authored a letter with the head of contracting in the Air Force encouraging all contracting officers to take advantage of that. We have done that. At Brooks Air Force Base we awarded a contract to a team of two women-owned businesses for $100 million. Individually they could not have done that. So I would note here again that is an opportunity that should be taken advantage of. The issues of tools and bundling and break-out reps-- reminded me of years back when I was competition advocate and being there we had to fight toilet seats and hammers. The way we did that is we introduced competition. Competition is nothing more than the phenomena of the marketplace. We have a cycle going now. And we see that cycle in large businesses. I saw this statistic and it was in the Democratic platform, and I am not saying I am for one or the other, but it stated that of the 22-million jobs created in the last 8 years, 90 percent came from small businesses. So, are we bundling? Yes. Is it affecting small businesses? Well, if job growth is really there, I am not sure. I think the other thing we have to look at, Cordell, is that within the context of this overall 23-percent fandango, we have got so many subgoals it is like, which one am I pushing today? And oh, by the way, we in DOD have lost one of the biggest tools we had, which was our small disadvantaged business set-aside, because it was determined that we could not do that anymore. So I think as we go forth on this, yes, balance is to be achieved, but I think we need to take a look at what is happening in the environment out there. What does the economy look like? Sometimes we have to step back and say, ``If we are really going to make a difference, if the Federal Government is really going to step in and do something, then we have to understand that the role needs to be effectiveness, not always efficiency.'' Effectiveness sometimes runs right smack against efficiency, and that is something that we run into everyday. Mr. Smith. Sharron Harris. Ms. Harris. I agree with Tony DeLuca's comments but what I was also going to say was that as we look at that $75-million threshold for some agencies--and Agriculture is a large agency that is still in the higher scale for industry specific thresholds, and I know that creates a ton of confusion when you are looking at industry-specific thresholds--but that $75 million is a large volume. We do a lot of food commodity acquisition. Mike Green and I were thinking. We cannot recall when we have done a food commodity acquisition at that threshold and we are struggling for small business participation in those industries. So that is a substantial threshold. It may not be for DOD, we recognize that there are agency uniquenesses but for some of the larger agencies that is a significant threshold, especially when you are looking at a rural constituency like the community we serve. Mr. Smith. Debra Murphy. Ms. Murphy. Debra Murphy with the Library of Congress. Our budget approaches basically $250 million a year so a $75- million threshold is pretty high relative to our budget. But what we do have is a commitment. We are averaging roughly about 60 percent of our awards going to small businesses. In the context of individual development, individual Indefinite Delivery Type Contracts (IDTCs) and multi-awards and all of the different types of contractual instruments that we have, many of them as Tracey Pinson has indicated, are going to small businesses. We are in the process of implementing a supplier diversity program where we plan on encouraging small business participation by way of teaming for a lot more of our more sophisticated projects for our exhibits. But I just wanted to say that while $75 million is a tremendous threshold, it certainly does not diminish the challenge that we all have in terms of balancing contributions and participation on the part of the small business community with the needs of our program managers. Mr. Smith. Thank you. I apologize to the rest of you. I think in order to stay on time we are going to have to move on to the next segment. So I apologize for moving on before everyone has had a chance to comment. Now, I want to go ahead and raise the issue of where OSDBUS fit into this process because that is obviously something that you all know better than I do and anyone else for that matter. I put up the chart over here of what it says is in section 15(k). You have this also in your packet if you cannot see the large chart. [The chart follows:] [GRAPHIC] [TIFF OMITTED] T8451.092 Mr. Smith. It is from the Small Business Act on OSDBUs--or SADBUs as the case may be--of identifying proposed solicitations and trying to find ways for small business to get into the process and work with reforming solicitations to make them better and so forth. We raised a question earlier, in the context of the procurement center representatives, about how they find out about potential bundlings. It looked like in some cases agencies had learned that it was in their best interest, in order to get an acquisition out the door, to work with the PCRs early on rather than wait until late in the game and having to go through an appeal process. Some of you had, I think, Joe Capuano, you were the one who mentioned about a PCR with whom you had very good working relationship and brought him into the process very early on. What is your experience as OSDBUs? The regulation itself does not mention OSDBUs in particular, it just mentions the PCRs. My supposition is that a lot of contracting probably occurs by rushing to try to get it out the door before you hear about it. How do you hear about procurements that are happening in your agency? When do you get the opportunity to intervene? How much of what your agency does do you actually get to see? Ms. Harris. Ms. Harris. At one time at the USDA we had a threshold that any requirement over $100,000 needed clearance through the OSDBU office if the acquisition strategy had not been to set the requirement aside. Now we have run into fierce competition among our procurement council members because part of what they do is negotiate. Part of what the small business reps in our different bureaus would do is negotiate when they can get an award set aside but some they would have to give up. So right now we suspended that strategy because of the challenges that we were getting and went to a more cooperative effort to encourage the business reps to reach their goals and then be given a waiver. So we are in a resting stage for that but that was one of the ways we tried to identify requirements that were not targeted for set-aside. And we set a threshold to do so. Now what has happened, though, is a number of agencies utilize instruments that will allow them to circumvent even making that requirement available. They may use a GWAC instrument. They may use a Federal Supply Schedule instrument or an interagency agreement of some type so that when they have requirements, another agency is going to procure for them. So it is a tug-of- war to really get a strategy in place that works effectively. Mr. Smith. Scott Denniston. Mr. Denniston. A couple of things. I have been sort of quiet today because, after my first comment and hearing all the rest of how great the PCRs are, I did not want to put a negative tone on this meeting. But I would suggest to you that Tony DeLuca's comment about small business job growth--I cannot dispute that. Yet the SBA tells us we have 20-million small businesses in the United States, but if we look at the Federal Procurement Data System (FPDS) statistics, we have only have about 5,000 small businesses on a yearly basis that do business with the Government. So my point is, we are looking at a small universe compared to the 20 million. I think that is a problem. If we look at FPDS statistics over the last 6 years, even though we know that the percentage of the total procurement going to small businesses stayed about the same, the number of actions that have gone to small businesses in any category--whether it be small, SDB, women, 8(a)--has been cut in half. I would suggest that that gets back to Stan McCall's questions about what are we doing for the smaller businesses and some of these issues that we have been addressing. They are tough issues. I do not know that any of us have an answer. One of the biggest problems I have, though, is knowing what is going on. We have processes in place, like some of the other agencies where anything over $100,000 is not going to be bought through a small business program. It is supposed to come in to us to review but again we have got a staff of 10 people. We have got 200 buying offices. Quite frankly, the way we find out about what is going on is we review the CBD every day. That is how we know what actions are going on within the agencies, within the Veterans Affairs anyway. As an example, we have a brand new opportunity where the Office of Management and Budget (OMB) is telling us we have got to get out of the business of managing home loans. The private sector can do that better than we can. We are doing it under A- 76. We think a regional strategy would be excellent for small business but I am told that OMB is saying ``no,'' the only way we can do a fair cost comparison is we have got to do it nationwide. That is going to cut out opportunities for small business. Our folks are getting very creative at using GWACs. We have a major push on for Federal Supply Schedules. Even though we are the largest healthcare provider in the United States, we are only about 5 percent of the total contracting dollars that are spent on healthcare in the United States. Quite frankly, we do not have the kind of leverage that I think a lot of folks think we have to impose strong subcontracting goals. We go to a pharmaceutical company and we say we want a subcontracting plan. They say, ``Hey, we are the only game in town. You take what we have got or you do not buy our product.'' When it is healthcare, you know we are going to buy the product. We have the same problem when we spend a tremendous amount of dollars every year with our affiliated teaching institutions, those medical schools around the country that we use. In some instances, depending on the strength of the local management, people will say that the healthcare schools run the VA. We say to them, ``We want a subcontracting plan with opportunities for small business.'' They say, ``Hey, we are not going to play.'' And it is very difficult sometimes to impose some of these requirements. When we do find out about them, do we get involved? Sure, we all do but the dilemma is that as we have new contracting strategies to use it gets more and more difficult for us to get some of that basic information that we are talking about in order to do our jobs. Mr. Smith. When your offices put out the forecast, does it specify a contracting approach or does it just say this is what we expect to buy? Mr. Denniston. Each agency does it a little bit differently. From our standpoint, most of our anticipated requirements we put out with no contracting strategy. The reason we do that is, for instance, we want to make sure everybody has an opportunity. If you find something in our forecast that you think you have the capability to perform, we want to hear from you. So we do not want to say this is going to be a HUBZone, for instance, or this is going to be an 8(a) or this is going to be a small business set-aside because in a lot of instances, especially with the 8(a) program and the HUBZone program, we do not know enough about the capabilities of the firms to make those types of determinations if they do not come to market us. Mr. Smith. The reason I ask that is, obviously for you to prepare the forecast, someone has to let you know what the agency expects to buy. But do they let you know a timetable? Do you have an idea of, well, that in November we will probably buy widgets, therefore I should probably contact this contracting officer to see what is happening or whether they are going to go buy it off the schedule without telling me? How much information does that forecast generate for you in terms of---- Mr. Denniston. For those types of products and services that we buy on a recurring basis, the forecast is pretty accurate because we know when contracts are going to expire. We know what we are going to be competing for. The dilemma that we have is that many times when we put the forecast together the actual budget has not been approved. So when we are talking about new, unique things, especially in the IT world, it is very, very difficult to get people to tell us what they want to do. This is especially because the IT procurement people have all these other contracting vehicles; therefore, they do not need to go through the normal, traditional procurement process. So, quite frankly, not only don't they want us to know, they do not want our contracting people to know where they intend to spend their money because they want total autonomy to make those decisions. Those decisions are made based on who markets them and just because of economies small businesses do not market the same way some of the big guys in the industry do. Mr. Smith. Joe Capuano. Mr. Capuano. I would like to offer a comment on the question of access to information. Please excuse me, I am struggling with a cold. One of the things which--why don't I pass and then come back to me? Mr. Smith. Linda, you have been waiting for quite awhile. Why don't you go? Ms. Williams. I just wanted to clarify a point you raised earlier, Cordell, as to the mention of the OSDBU directors and the regulations. As you well know most of the OSDBU directors are headquarters-located. We put the responsibilities in the regs on the small business specialists because they are the people that are in the field offices that actually work with the PCRs and the procuring officials to determine the strategies. So that is why we did not mention the OSDBU directors. Instead, we mentioned small business specialists, but they are covered. Mr. Smith. Mr. Neal, I cut you off earlier so why don't you go next and then we will go back to Joe Capuano? Mr. Neal. Very quickly, one of the things that was slighted when you talk about small businesses and our effort, and again this is from our preliminary results from our consolidation study, what we found is from 1994 to 1999 we had an increase in the number of small businesses that DOD does business with. We went from 3,900 small businesses that we would--I am sorry, small disadvantaged businesses that we were doing business with to 4,600 small disadvantaged businesses. And in the area of small businesses we went from 16,000 small businesses to 18,000 small businesses that we are doing business with. Those numbers are from 1994 to 1999. When you look at numbers like that, it gives you results that are counter-intuitive to a lot of the concerns about harming small business. So it gets back to this balance that everyone is trying to strike. There are some things that we are doing very well and maybe there are some areas that we are not doing as well. What I would encourage folks to start looking at is to sit down and really identify what principles we are operating under in terms of acquisition reform and acquisition efficiency, and what principles we are operating under for small business. Then sit down and work out a strategy that melds those two sets of principles together. But that requires a lot of heavy lifting and a lot of work on a number of levels. In particular with the leadership at all of the agencies it is going to be absolutely imperative--and I am talking senior leadership, not SADBUs. We do not sign any contracting documents. We do not make the commitments. The people that are making the commitments for the agencies have to be held accountable. That is where all of this is ultimately going to end up. I mean, although the numbers are going up, the balance has to be struck. But the people that are signing on the dotted lines are the ones that have to strike the balance because we are merely their consciences on their shoulders talking in their ears. Mr. Smith. Mr. Capuano, would you like to try again? Mr. Capuano. Yes. As a matter of fact, Bob Neal gives a good lead-in to this. One of the things which is really important on access to information and on contracts is to really have a good partnership. With Secretary of Transportation, Rodney Slater and Deputy Security of Transportation, Moritimer Downey, one of the things we started in 1995 with our former Director, Luz Hopewell, was to have the small business focus in our strategic plan. It was actually identified in our economic growth outcome. It is equally important in our new plan, but has been refined and has looked at some of the new areas that we need to focus on. The other key point that Mr. Neal mentioned was that the Procurement Center Representatives are very important. However, the procurement management council at DOT has access to those procurements across the department, and that is important in a $50 billion department, 100,000 employees, with a national focus. The relationship that I hope we have at DOT with our procurement management council as a result of the leadership of Luz and others has been excellent. We are actually a member of the council. So with that strategy which was started in 1997 we actually started to move forward anticipating where this was going. Now, we have a long way to go. Like many agencies we are struggling with some of the new requirements coming out, the lack of tools that was mentioned, the rule of one. Those tools at the operational level are critical for small business specialists and procurement officials on the big contracts out there. Those tools may be five times as valuable on the smaller contracts or those that are not being bundled. And so the balance that we look at is a combination of that, but the leadership that Bob mentioned is absolutely critical. I think that is essential across the board. Mr. Smith. Arthuretta Martin and then Esther Aguilera? Ms. Martin. Thank you. I am Arthuretta Martin. I am from the Department of Health and Human Services. I just wanted to respond to the question that was posed here and that was the OSDBU involvement in bundling. At the Department of Health and Human Services we have a process in which procurements are reviewed by both a PCR--we do have a PCR onsite--and also the small business managers. As far as the OSDBU's office involvement in that process, we are only as involved as the small business managers inform us. A small business manager's involvement is only as good as their ability to find out about the requirement. We have had a number of different OSDBU offices, and I hope that you have heard this repeatedly, say we even as small business managers do not always have access to the requirements. I think also what was said, and we need to really hear this is: Even the procurement community does not always have access to the requirements. We, as a community, do not have as much control over Federal dollars as we did once upon a time. I think that there is a lot of competition within the procurement community. They are competing from one procurement activity to another to make sure that they get work to do so that they will not become a part of an A-76 study. I think that also within the dollars available, the program officials do have a job to do and they do not want obstacles hindering them from being able to accomplish that. So if they can go to a GSA schedule or another agency's contract to meet their goal, they are going to do it. We have too many competing things going on in this environment to be able to do the job that we have been put here to do. Those contracting officers, when they get a requirement if the program official agrees and is willing to work with him, we can do a lot of work for small business. But it is important that you understand and that the deciding people understand that the person or the individuals that have the most control over this process are the program officials. We need their support. We need their buy-in in order to make this work. Mr. Smith. Esther. Ms. Aguilera. We have a process in our agency where we review contracts of $3 million and above. We are making some changes to that, but what we found is that we are getting them at the end of the process only when some of the key decisions have been made and they want to move with it quickly. So we have been meeting with all the program managers and offices to talk about plans for getting involved in the acquisition planning early on. I think that will make a big difference. But specifically on the role of OSDBUs and this bundling area I am concerned that this has not been mentioned. I think the important thing is, while the Small Business Act does place small business specialists in each of the procuring agencies and offices, the Department of Energy is in 23 States across the country. It is important to understand the role of these offices; how they are empowered or not and our role with them. They report to that program manager. They do not report to me. We do have monthly calls with them. We are constantly involved and engaged with the small business program managers in the field but it is important to understand the role. We had a couple of cases where the field office was involved in a procurement and the SBA and the PCRs contacted the local office to raise some objections and it went forward anyway. We did not find out about it until it was too late, the 11th hour. We could make a bigger difference if we are somehow tied in and we are in the loop. Granted, I think that we have very good PCRs that work with us. Our small business program managers are very committed but they have managers that they report to as well. And unless we want to have some kind of more direct oversight, again in terms of our relationship with them, then I think it is a problem. I think OSDBUs want to help on some of these bundling issues, but we are not involved early enough. What we are looking to consider doing at DOE is try to figure out a way to make sure that my office is alerted about some of these things early on because it is not in the reg. It is not something that automatically happens. Mr. Smith. One quick question. Because the one time when the OSDBUs do get some information at some point is apparently in preparing the forecast. So that does give you some idea of what is coming up. How is that information compiled? Does your office happen to know what you expect because of contracts that are expiring over the next year or do program offices contact you? How does the OSDBU get involved before the forecast is actually developed? Ms. Aguilera. As I mentioned, actually we have two processes. One is the review of the contracts of three million and above. For our forecast we send out a notification asking specific questions of information we need to get to put together the forecast. We do ask about the acquisition method, and when it is going to be procured. And we get a very good response. The forecast has quite a few requirements in it but it does not represent the entire universe of what is happening out there. Our forecast contains maybe opportunities of about $3 billion over 3 years, which is a lot of money both in the prime area and the subcontract area, but it still does not capture everything that is happening out there. There are, I would say, two or three times more activities happening out there than what we capture in the forecast and others. Mr. Smith. We will put a pause on this discussion, on the role of the OSDBUs, because I had a couple of requests that I agreed to honor in terms of a few folks wanting to talk about some miscellaneous issues. So we put some miscellany on the agenda, and then if everyone decides that we wrap that up, we will go back and take some of the additional comments that we have not gotten to hear yet. Mr. Neal, I know you had some things you wanted to call to our attention so please proceed. Mr. Neal. There are two issues that I wanted to bring to the attention of the Committee and to the Members of the Small Business Committee. First of all, I have spent a great deal of time talking about the preliminary results that we are starting to see from our consolidation study. That study--we are expecting to wrap it up and to have a final report this month that will be available and it reveals some things that surprised us as advocates for small business and also it confirmed some things for us. As we go through the process we think it will be very instructive for Members of the Committee and for members of the small business community to take a look at this study and to take into consideration that this is one of the first times that we have actually had any organization spend the time and the money to develop some statistical measures of what is actually going on with respect to consolidation. It is very insightful for us. As we have looked at it we see some things that are indicating that small businesses are faring very well with consolidations. Then there are some other things that are of concern to us. Those are the types of things that we think we need to start focusing on in addressing the issues where the gaps exist, where we need to devote more resources and to devote our focus to, for example, cost-benefit analysis--being able to do a good job of not only performing the initial cost- benefit analysis but to follow-up on things to find out if the cost savings that were projected were actually achieved. I mean we have that problem across the board whenever we use cost- benefit analysis. Second, I wanted to bring to the attention of everyone here that, in looking at the issues that we are looking at today, we came to realize that we really needed to pull together a team to focus on how we get top level senior management involvement and accountability at every level. Not only is it important for our base commanders who are responsible for executing at the individual bases, but it is also important to have the senior leadership in the secretary's office and the secretary involved in these sort of things. Now when you have agencies that are very large and have very diverse interests, it is not always possible to put those types of things in front of the secretary and get them to spend a consistent amount of time focusing and reminding the management structure of how to do it. What we have come to recognize is that through a rapid improvement team that has met over the last 2 weeks, we have got some very concrete strategies that we are looking at utilizing within the Department of Defense to help focus our management attention and more importantly focus on accountability. We, as SADBUs and small business specialists, do not sign the documents. We do not make the commitments. In order to ensure that people are committed they have to recognize that that is one of the key parts of their jobs as program managers and contracting officers. What we spent the bulk of our time looking at is, how do we ensure that those individuals understand that it is a key function of their responsibility to ensure that small business opportunities are available? As soon as we are able to clear the review process within the Pentagon, we will be very happy to share that with anyone and to talk about how we arrived at those conclusions. We do feel that we are on the right track, that the grades that were handed out by the House Small Business Committee were a wake-up call. Not that we would agree with them in total, but we do believe that it pointed out to us that we could do more as an agency and we are committed to doing more. So the results that you will see as part of our consolidation study and as part of the report of our rapid improvement team will show that the Department of Defense has taken this task on and that we believe that we are going to be very successful. As Tony DeLuca pointed out in looking at the FAST, we are going to be very aggressive in how we address consolidations and insuring that small businesses receive great opportunities as a result of our efforts to consolidate. Mr. Smith. We will look forward to hearing the results of what you are putting together there. I think we are very interested and excited about the way that you have tackled this study. I think you are onto something. There is a lot of--the folks at the top may be aware of the goals and the agency as a whole is responsible for achieving them, but if everyone is responsible, no one is responsible. You need to find a way to get that down to the level of people that are making the day- to-day decisions. So, I think we will be very interested in what you have on that. Mr. Robinson, you had something for us? Mr. Robinson. Yes. In reference to Bob Neal's statement about senior level management involvement and their support, at the GSA we are a part of the leadership; therefore, issues such as these, we have brought the record to the attention of the leadership and we get feedback, direct feedback. One of the questions that I had is, and it may have been addressed prior to my arrival, what do you expect to take place as a result of the things that you are hearing today with this roundtable? In addition to that, what is the timetable involved? Mr. Smith. As to the timetable, I can tackle that first because there are 440 Members of the House and 100 Members of the Senate who feel free to disagree with me on timing. I have never quite been able to understand that. But obviously, realistically we are probably pretty much out of time in terms of doing anything this year. In terms of how we can improve the goaling process or what improvements, if any, should be made to the contract bundling regulation, I think Michael Gerich raised some valid points about waiting and seeing for a little bit longer. On the other hand, if there are some obvious loopholes they might be worth closing. Those will all be things that we will be looking at very early in the 107th Congress which would be in January 2001. As far as just exactly what we would do, that is going to depend on what we hear about what is actually happening. That is one of the things that this roundtable is designed to help us with and that is to get that information. I did make the commitment very early on that we would not ask you to help us write a new definition for bundling because you are not legislative--your legislative offices probably would not be too happy if I asked you to do that. But the information that you relate to us gives us some idea on how the real world looks at these terms and defines them and maybe gives us some ideas on how to go about making improvements. Mr. Robinson. A follow-up question. The report that you will draft, will that report be brought to the attention of the Committee Members or to this group that is here? Mr. Smith. You mean of this meeting? Mr. Robinson. Yes. Mr. Smith. There will be a transcript prepared and we will be happy to send that to you as soon as it has been published. Allow about 5 to 6 months for that. I mean it is a matter of going back and forth between the GPO and proofreading and typesetting and all that stuff. Mr. Robinson. I want to make sure I am clear on my question. Not the minutes from the proceeding but what will be the next step, the recommendations, et cetera. Mr. Smith. From this? Mr. Robinson. Yes. Mr. Smith. I do not envision that we would actually issue a report per se based on this meeting. It would just be the same as any of our Committee meetings. We come away with information that we would use when we start looking at legislation. I would think the work product would ideally be legislation. But there are more people involved in that question than just me. Ms. Forbes. Basically, I agree with Cordell that we are pretty much out of time. The bills that are going to get done this year are primarily Appropriations bills. There may be some others. We are hoping at least SBA's Reauthorization bill will get done, but it is not going to be anything involving bundling at this point. It is far too late in this year but what this roundtable will do is enable us to decide, when we are planning and discussing with our Senators and our Committee, what do they want for the legislative agenda for next year. This is a very timely date to have this roundtable so that information can be factored in. That is what I see. Also, it would not be concluded in January. We will start working on it in January. As I am sure you know, the Armed Services Committee and the Governmental Affairs Committee are very interested whenever we start focusing on bundling or anything that affects their work. It is a very complicated process. Mr. Smith. Mr. Faithful, you had something for us? Mr. Faithful. I am Bob Faithful, the Director of the Interior Department's OSDBU office. I wanted to come back to a point that Lynn King had made in her reading and I think that as a short-timer among the OSDBUs it has become evident to me that there are actually two government activities here. I think you were right to ask about the level of commitment that was set up. DOD, NASA, GSA and Energy are 4 out of the top 20 organizations that do more than $5 billion a year in business. So you have got 16 of the organizations sitting around here that basically do about $31 billion. However, out of those 16, almost all of them met the 23 percent goal for small business last year. The GSA in particular, if you are looking for a best practices among the larger organizations, was in the top five, I think, in almost every category in terms of looking for how accountability is handled. Also starting with the Departments of Transportation, Interior and State, they led with at least 50 percent of their organization's procurements going to small businesses. Is bundling the same type of issue? Are the standards that are set up correct? The answer is probably ``No'' in terms of what we do. In terms of the threshold of $75 million those are not realistic standards for the majority of Federal agencies that are out here. If you are looking for how small businesses will make contact, it is not always with NASA or, because of the need for security clearances, the Defense Department or with the Energy Department's contractors. The GSA, like I said, is doing a good job so you cannot say anything about the GSA. They are on top of their percentages. The reality is that most small businesses are going to come into contact with the rest of the Federal Government. Oftentimes the regulations are written to handle the large amounts of money, the $152 billion that go through those four Federal agencies. Somehow there has got to be a way to differentiate between the majority of Federal agencies that are sitting here and the rules that we also are trying to work under. Interior has a partnership with our procurement community. We need to talk with them. We have a meeting tomorrow. The reality is that with the smaller organizations maybe there is more flexibility, maybe we are different, you know. Maybe we do not have some of the same issues, but I think there has to be a look, by both the House and the Senate, at the real differences between those groups, and the fact that the majority of the Federal Government has been successful in meeting its goals on many of the areas. Women-owned businesses is another area that again we are going to have to take a look at, and find ways to have strategies that are successful such as some of the best practices whether by the State Department or the other organizations. Mr. Smith. In addition to women-owned businesses I would also add HUBZones, which is a major concern for Senator Bond. That is his program and some of you have heard from us lately on this issue. We are very concerned that that program is not getting off the ground as well as we would like. Some people have done really well and some have not done as well as we would like. So it is a mixed bag but we are hoping to make it more on the good side than on the bad side eventually. Lynn King. Ms. King. I would just like to put on my general National Women's Business Council hat. Actually, we do commend the GSA for their efforts on behalf of women businesses. In fact, on Monday we recognized Mirinda Jackson, seated at this table, for her efforts and the GSA's efforts in outreach to women-owned businesses. In terms of tools and in terms of accountability the Small Business Administration has a number of Memoranda of Understandings (MOUs) with Federal departments and agencies for increasing business and contracts to women-owned businesses. There are Federal departments and agencies, Cordell, at this table that have not signed their MOUs. They are out there. Perhaps maybe the Senate Small Business Committee could encourage the Federal departments and agencies to enter into and sign off on those MOUs with the SBA. Of the MOUs that are in place, the only agency has an accountability measure in it, and that at the Department of Transportation. It is not for lack of effort at the SBA trying to get that accountability in there, it is just a lack of people agreeing to sign off and this is, of course, a negotiable instrument. The Department of Transportation is the only one that would sign off on accountability. There are tools that can assist in this outreach and perhaps the Senate Small Business Committee could encourage the use of some of those tools. The final thought that I had was on the GAO report that was issued a couple months ago on contract bundling. It stated that it was unable at that point to determine if the contract bundling had an effect on small businesses. Is there going to be follow-up GAO report requested by the Senate Small Business Committee? Because I hear from the small business community that it does affect them and I hear from a lot of people at the table that it does not and the GAO is in the middle saying we do not know. Mr. Smith. I do not have a letter drafted to commission such a study right now. One of the things we did discover in that report is FPDS needed to make its changes to its computer system to start collecting the data, and they needed the final rules in place to do that and the final rules are out now. Now FPDS can go to work and obviously we would want to be at a point where there are enough data to be useful before we actually commission a study of that. But let me put it in a more general way. Contract bundling is a continuing concern here and it is a continuing concern of Senator Bond. I have got to tell you that of the phone calls I receive, I have not heard anyone say anything good about contract bundling yet. I understand the argument being made and obviously the calls I get are going to be from those who are injured or are perceived to be injured. So obviously, there is concern out there. And if there is a concern out there, then obviously we are concerned, too. Ms. King. On December 8, the GAO will be submitting to Congress their report on women-owned businesses and the barriers that do exist. Mr. Smith. Yes. We like to keep the GAO busy. Tony DeLuca. Mr. DeLuca. I guess just a couple of final thoughts here. I would hope that the Committee just does not get hung up on bundling, that there are other issues that need to be looked at. I mean, if you look at opportunity dollars that we have, opportunity dollars to us are much different than opportunity dollars made with other agencies in terms of the major systems that we procure. If the Congress gives the Department of Defense more dollars for major systems, that is fewer dollars that we could award at the prime contract level. Subcontracting is an issue we need to look at, I agree, but I think Scott's point should be well taken. If the marketplace does not support competition at the prime contract level and you only have one or two large businesses, then our ability to influence subcontracting is going to be very, very difficult. I think that point needs to be made. The other thing I think we cannot lose sight of is what the IMPAC card and credit cards have done to us. When Steve Kelman and OFPP came out and said, ``Let us go ahead and use credit cards,'' everybody said that is really good and everybody likes it. The fact of the matter is last year the Air Force did well over a billion dollars in credit card buys and we do not have any visibility where those dollars go. So one could argue that those dollars should all be small business dollars and we will credit the agencies as if they all are. I will tell you that DOD went well beyond 23 percent. So I think that is another issue that we need to look at. So I guess the message I would give you, Cordell, is that bundling is one of those things that is high interest right now. Should it be the only interest? No. Mr. Smith. I will agree with you on that. It is far from our only interest, and I will say again as long as Senator Bond is Chairman, the HUBZone program is another one-- Mr. DeLuca. And we obviously support him, too. Mr. Smith. Mike Green. Mr. Green. Just one very quick comment. You know if you really want to improve small business numbers--the SBA is concerned about all the numbers, it seems like everybody is concerned about all the numbers, when it might be more contracts going to small businesses but fewer dollars--at least those are the numbers I have seen. If we are concerned about bundling and other issues, I think one major stumbling block that we have is that the OSDBU can recommend a lot of things but they do not have any teeth at all. If in the bundling arena, if I did not do anything, I would require the concurrence of the Director of the Small Business Office for every contract that is bundled. If you do not get that concurrence, then you do not go forward, other than just making a recommendation. Mr. Smith. Other thoughts? Ms. King. I support that. Ms. Brown. Just one more. I think it is important when Bob Neal said that we have a mission to support the small businesses and we try to do that as the OSDBU offices, but again you have to go back to the program offices and the contracting people. Until you recognize that and have that accountability we can serve as advocates all we want but it is not going to happen. We need to look at how we hold that sector accountable to this type of program. They cannot just give us lip service. I had this conversation just this morning with the Deputy Chief of Staff at the EPA. We have problems and we are doing everything we can with outreach and all of those things, but the bottom line is the contracting officer is signing off. The program manager is ultimately making the decision in terms of where those funds are going to go. Until we have a mechanism in place--one of the things that we were talking about was adding performance standards and accountability to the small business program. I think that is something that you really need to consider. Ms. Harris. Sharron Harris, the OSDBU Director of USDA. I will add to that, going back to Bob Neal's comment. The leadership commitment is key because that is going to influence the program manager's strategy for how they are going to put pressure on that contracting officer to support the program. Most of the time they lead to the larger business constituency. They have concern that their project requirement is successful. They do not tend to have the faith or the trust in the small business constituency so they steer that contracting officer's decision as best they can. The leadership support is the critical piece. That is going to affect positively everything. Mr. Smith. Luz Hopewell, then Mirinda Jackson, then Ramona Jones, and then I think we will have to wrap it up. Ms. Hopewell. I echo everybody's comments. It all really comes down to accountability and support from the very top. At DOT, just like Joe Capuano mentioned, the small business program is part of the strategic plan of the whole agency. Because of that, the Secretary is on top of the issues. Everybody's performance plan has criteria for small business participation within each agency. Each buying activity commits to it. Each program person commits to it. So it makes the job of the small business people a lot more manageable because those offices are really very understaffed and they cannot cover every activity. Until we are able to get small business participation as part of a department strategic plan, we are going to continue to have a fight. Mr. Smith. Mirinda. Ms. Jackson. I would like to say that we should hold the procurement executives accountable as well because they play a major role in the procurement world and also they are responsible for the contracting workforce. Mr. Smith. And Ramona. Ms. Jones. At Commerce, part of the evaluations for the chief financial officers is meeting small business goals. They are starting to pay attention. Mr. Smith. I would like to thank everybody again for your participation. I have gotten a note that there are two rollcall votes on the Floor, and I think we are only halfway through the first one so Senator Bond is not going to be able to come back for probably another half-hour to 45 minutes, so we will go ahead and wrap things up. I would like to thank everybody for a very helpful and insightful exchange and for taking time out to visit with us. I look forward to doing this again and I hope we will stay in touch. Your congressional liaisons always hate it when I say this but feel free to call me. I am always happy to talk on an off-the-record basis. So with that this roundtable is adjourned. [Whereupon, at 11:40 a.m. the Committee was adjourned.] <all>