Witness Testimony of Anthony R. Jimenez, MicroTech, LLC, Vienna, VA, President and Chief Executive Officer
Good Afternoon Chairwoman Herseth Sandlin, Ranking Member Boozman, distinguished members of this committee and distinguished guests. It is a privilege to be here today testifying and I want to thank the committee for allowing me to share my thoughts regarding contract bundling and its effect on Veteran-Owned Small Business and Service-Disabled Veteran-Owned Small Business opportunities in the Federal Government.
My name is Anthony (Tony) Jimenez, I am the Founder, and Chief Executive Officer of MicroTech, LLC, a Hispanic-Owned and Service-Disabled Veteran-Owned Small Business (SDVOSB) located in Vienna, Virginia. I retired from the Army in 2003 after serving 24 years on active duty and started MicroTech, LLC in 2004. Today I employ over 50 people and have become a powerful job creation engine and force for economic development in my community and in my state.
MicroTech has over twenty prime contracts with the Federal Government and at least as many sub-contracts. Many of the contracts we support as either a prime contractor or a sub-contractor are contracts that were “bundled.” That is, the contracts were previously satisfied by two or more contractors and were combined to achieve cost savings, price reduction, quality improvements, enhanced performance, or better terms and conditions for the Government. Some of these bundled contracts have done exactly what they were intended to do, and have also provided our SDVOSB with great growth and opportunity; others have not, and were not good candidates for consolidation.
Contract bundling can occur for a variety of different reasons and can provide a range of benefits to both the government and contracting organizations. One common motivation for contract bundling is that requirements on two or more different contracts become so similar that it doesn’t make sense to have multiple contracts supporting the same requirements. Contract bundling in this situation can save the Government money and eliminate unneeded effort and redundant management oversight by the Government. Other substantial benefits that can be realized when contracts are bundled in these circumstances may include cost savings or price reduction, quality improvements that will save time or improve or enhance performance or efficiency, reductions in acquisition cycle times, and better terms and conditions for both the Government and the contractor (a win-win). When contract bundling is done for these reasons, I think it makes sense.
The problems occur when contract bundling is done for other reasons, it is not properly managed, requirements are poorly defined, the plan for capturing performance/cost savings are not properly documented in the procurement strategy or small business goals are not considered.
As a former Contracting Officer for the Federal Government, I was involved in a number of contract consolidation initiatives. Many of those initiatives started off as great plans that took all the procurement management factors into consideration and established aggressive small business goals that could reasonably be met with appropriate effort and attention . Those plans included steps for cost savings, quality improvements, reductions in acquisition cycle times, and better terms and conditions. However, in many cases, by the time these initiatives became a Request for Proposal (RFP) they had been stripped of all socioeconomic small business goals and there was no mention of any requirement to subcontract to Veteran or Service-Disabled Veteran Small Business.
The normal procedures for contract bundling requires agencies to provide justification for bundling decisions and have the decisions reviewed at higher levels. The problem with this procedure is that the decision is often made in a vacuum and the affected small businesses have no means to object to a bundling decision and are at the mercy of the decision maker. In most of these cases the small businesses do not even know the decision is being made. Instead, most of the time the small businesses don’t find out their contract has been bundled with a larger requirement until just before the RFP comes out. By then is too late to do anything except agree with the decision and figure out how to stay involved in the bid.
The argument in support of contract bundling and strategic sourcing is that it saves the Government money in the end. That may be true some of the time, but not in every case. It has been my experience that while contract bundling may save the Contracting Officers time and effort and reduce government overhead; those dollars are often offset by the higher costs that can be associated with large businesses. This is especially true when you consider the added costs associated with large businesses when it becomes necessary for them to subcontract work that is more difficult to staff or perform to small business, which regularly happens on large complex contracts requiring diverse skill sets to perform.
Perhaps the most overlooked contract bundling problem for small businesses is the myth that big businesses who receive these very large bundled contracts will make it up to the small businesses in their subcontracting plans. Large businesses are almost always required to provide small business subcontracting plans as part of any bid they submit. These plans are supposed to match the small business goals laid out in the FAR: twenty-three percent (23%) for small business divided among the different socio-economic categories. So far, so good. However, in a number of cases, these small business goals are not reached.
Even in instances where the small business subcontracting plan is in place and small business is getting 23% or more of the work, the question remains to be asked: what type of work are they doing? Is it work that will allow the small business to grow its work force, develop its capabilities and one day prime a contract of the same scope and magnitude themselves?
Today, there is no current standard by which large businesses are measured and graded with respect to their actual subcontracting plan or goals and I know of no case where liquidated damages have ever been assessed against a large business for failing to make a good faith effort to comply with its subcontracting plans in accordance with Federal Acquisition Regulation (FAR) 52-219-16.
Many of the Contracting Officers I have worked with and know feel that any effort to penalize a large business for “Failure to make a good faith effort to comply with the subcontracting plan” as required in FAR 52-219-16 would be a waste of time. What is a good faith effort? How do you establish whether a good faith effort was made? If you are a Contracting Officer with more work than time, are you interested in fighting a battle you cannot win?
The objective for the Government should be to find ways to use the power of procurement reforms to help small businesses while at the same time seeking out way to perform services and purchase products more efficiently and for a lower price. One of the unbundling strategies calls for the Small Business Administration (SBA) to collect and disseminate examples of successful strategies for maximizing small business opportunities. I think possible solutions are:
- Consolidate contracts so small businesses can share the benefits of bundling This allows the Government to continue to take advantage of cost savings, price reductions, quality improvements (that will save time or improve or enhance performance or efficiency), reduced acquisition cycle times, and better terms and conditions for both the Government and the contractor. Make a fair portion of these bundled contracts small business opportunities and don’t assume that because it has been bundled that it has to be a large business opportunity. In most cases, making it an SDVOSB opportunity will get you the same team as a full and open opportunity, but when it is made an SDVOSB opportunity the Government gets a better distribution of the work among the small and large businesses, SDVOSBs are guaranteed a fair portion of the work, and SDVOSBs will have the ability to grow and someday compete at the large business level.
- Place orders under a small business GWAC. The Veteran Technology Services (VETS) Governmentwide Acquisition Contract (GWAC) and the Solutions for Enterprise-Wide Procurement (SEWP) GWAC are two excellent examples of Governmentwide Acquisition Contracts (GWACs) that offers multiple award contracts with highly qualified Veteran-Owned Small Businesses and Service-Disabled Veteran-Owned Small Businesses. US Department of Veteran Affairs (VA) has done an outstanding job of using both of these GWACs. VA’s policies for using GWACs with Veteran-Owned and Service-Disabled Veteran-Owned Small Business primes (such as VETS and SEWP) is an outstanding example of their commitment to Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses. This approach should be duplicated throughout the Federal Government.
- Solicit quotes for GSA Federal Supply Service orders only from small businesses, or socio economic small business groups. Small business set asides are not authorized under Federal Supply Schedule, but it is permissible to limit consideration for an order to small businesses and socio economic small businesses (SDVOSB, 8(a), WOSB, HubZone, etc.). Once again, the US Department of Veteran Affairs (VA) has done an outstanding job using GSA’s Federal Supply Service and limiting consideration to Service-Disabled Veteran-Owned Small Businesses.
- Create a small business participation enforcement team. Consider taking a portion of the savings realized through contract bundling and implement a small business plan enforcement team that enforces small business participation in accordance with the Request for Proposal (RFP).
- Consider hybrid contract bundling. Small businesses could partner with large businesses using a Contractor Teaming Arrangement (CTA), similar to those used by GSA. The terms and conditions of the CTA are defined up front, payment goes into an escrow account, and disbursements are made based on the agreement in the CTA (51% small business and 49% large business).
- Establish a Mentor Protégé program at the Small Business Administration (SBA) for Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses. The benefits of establishing a program at SBA that mirrors the 8(a) Mentor Protégé program are:
- A mentor and protégé could joint venture as a small business for any government procurement, including procurements less than half the size standard corresponding to the assigned SIC code and sole source contracts, provided both the mentor and the protégé qualify as small for the procurement and, for purposes of sole source requirements, the protégé has not reached the dollar limit.
- Notwithstanding the requirements, in order to raise capital for the protégé firm, the mentor could own an equity interest of up to 40% in the protégé firm.
- Notwithstanding the mentor/protégé relationship, a protégé firm could qualify for other assistance as a small business, including SBA financial assistance.
- No determination of affiliation or control may be found between a protégé firm and its mentor based on the mentor/protégé agreement or any assistance provided pursuant to the agreement
The Federal Acquisition Regulation (FAR) already includes provisions intended to help small business in the event that bundling occurs. The FAR does not include enforcement mechanisms nor does it include reward or punishment mechanisms. If the FAR or Code of Federal Regulations (CFR) were as to include mandatory enforcement, that would go a long way toward assisting small business. When it comes to the FAR requirements for contract bundling, the FAR makes a good start but fails to follow through with the most important part. Bundled contracts are often made so complex that small businesses are precluded from competing for them. FAR Part 7 addresses contract bundling and the requirements for how and when it may be done.
FAR 7.103 states that when considering a bundled acquisition the head of an agency must
“Structure contract requirements to facilitate competition by and among small business concerns; and [a]void unnecessary and unjustified bundling that precludes small business participation as contractors.”
That is much harder done than said. Any time either disparate services are bundled or two or more requirements are combined Contracting Officers make it more difficult for small businesses to compete.
FAR 7.107(c)(2) states that when bundling contracts agency officials must assure, “[t]he acquisition strategy provides for maximum practicable participation by small business concerns.” Again, this is nice in theory, but who is ensuring that the strategy becomes certainty?
The proliferation of long-term indefinite-delivery, indefinite-quantity (IDIQ) contract vehicles has also been a serious determent to many small businesses. More and more federal procurement dollars are being spent through pre-competed IDIQs. These large business IDIQs have the same effect as contract bundling. For example the Army’s Information Technology Enterprise Solutions 2 Services (ITES-2S) contract is an IDIQ contract with sixteen (16) primes. This is the Army’s premier IT services contract. Yet, when the Army competed this contract it did not provide any prime opportunities for Service-Disabled Veteran-Owned Small Businesses, 8(a)s, Women-owned, or HubZone small businesses. Originally, awards were made to twelve (12) large business primes and four (4) small business primes. In the last year, two of those small business primes have been acquired. Now only two (2) of the sixteen (16) primes contractors are small businesses and both are likely to be large businesses before the contract ends.
ITES-2s is a great contract that is doing what it was intended to do - reduce prices, produce cost savings, improve quality, reduce acquisition cycle times, and provide better terms and conditions. ITES-2s happens to have a great deal of small business participation through subcontracting. My company, MicroTech, enjoys a great relationship with General Dynamics who has provided us with a great deal of opportunity on ITES, but because of it’s size and the length of the contract (a nine-year, $20 billion IDIQ) this contract has to be aggressively managed to ensure that all the primes do as good a job of subcontracting to SDVOSBs as General Dynamics is doing and that small business goals are met and that the right opportunities are provided to Veteran and Service-Disabled Veteran-Owned Small Businesses.
Other than Veteran Technology Services (VETS) and Solutions for Enterprise-Wide Procurement (SEWP), there have been very few large indefinite-delivery, indefinite-quantity (IDIQ) contract opportunities for SDVOSBs. The additional few that the Government released were very complex and required a very large investment by the small business to cover the bid and proposal costs, but numerous SDVOSBs still bid.
My company, MicroTech, recently experienced an unfortunate example of this type of solicitation. Tuesday July 17, 2007 MicroTech, was notified that an IDIQ from GovWorks, a Federal Acquisition Center under the Department of the Interior (DOI), had cancelled an IDIQ solicitation that was set aside for 8(a) companies with a preference for Service-Disabled Veteran-Owned Small Businesses. This is not unusual and normally something like this would not be worth mentioning, but this IDIQ contract was cancelled 18 months after it was submitted for evaluation, and over one year after it was supposed to be awarded. The bid and proposal costs to prepare our proposal and ensure it was fully responsive and compliant with the instructions in the RFP were significant – over $50,000 for our firm, plus the costs borne by our partners. Our SDVOSB team spent hours preparing and responding to numerous exchanges with the Contracting Officer and his staff.
The contract (General IT Services solicitation 1406-04-06-RP-60576) was an IDIQ with a $1B limit. It was an 8(a) set-aside that we (MicroTech) worked very hard to ensure included SDVOSBs (additional evaluation preference was given if the 8(a) was also a SDVOSB). The solicitation came out in Nov 2005 and was the first significant step toward identifying an opportunity at Department of Interior (DOI) that would allow SDVOSBs to compete and provide IT services to GovWorks customers and DOI organizations.
Prior to release of the solicitation my Business Development Staff, my Chief Technology Officer and I made several trips to DOI and met with several people in an attempt to open the doors for SDVOSBs and to identify potential opportunities for SDVOSBs. This solicitation was the perfect opportunity and would have provided a desperately needed contracting vehicle for everyone (including VA and DOD) using GovWorks.
Our proposal was submitted in Jan 2006. It was a complex bid, over 100 pages in length, and containing over 200 separately priced labor categories. Our team developed a complete position description and pricing rationale for each labor category. Since then it was reviewed numerous times and was determined to be in the competitive range twice.
Now, after 18 Months of evaluation, two months of proposal preparation, and six months of business development and partner teaming coordination (over two years of hard work) GovWorks and DOI have decided to cancel the solicitation because other contracting vehicles satisfy this requirement. This strikes me as a poor use of both the government’s resources as well as small business resources.
We cannot understand why DOI would cancel a solicitation like the General IT Services Solicitation when they are having so much trouble meeting their SDVOSB goals. Wouldn’t it stand to reason that awarding an IDIQ to qualified 8(a) small businesses who are also SDVOSBs could help them achieve their small business goals quicker, especially when you consider that the cost to put this contracting vehicle in place has already been spent?
Madame Chairwoman and Distinguished Committee Members, I appreciate the time you and the other members of the Committee on Veterans’ Affairs have spent on this and other topics concerning Veteran Entrepreneurship. I think I speak for all the Veteran Entrepreneurs when I say how very proud we are of this committee and the hard work you and your staff members do for Veterans. Thank you for helping to level the playing field and for believing in us and our ability as business men and women to give back to a nation that has given us so much. This concludes my testimony and I would be happy to answer any questions you may have.