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Witness Testimony of Lieutenant Colonel James A. Blanco, Office of Small Business Programs, Assistant to the Director, Department of the Army, U.S. Department of Defense

Chairwoman Herseth Sandlin, Ranking Member Boozman and distinguished members of the committee: on behalf of Department of the Army, thank you for the opportunity to appear before you to talk about the Army's Service-Disabled Veteran-Owned Small Business (SDVOSB) Program and to provide testimony on the impact of contract bundling.

The Army Office of Small Business Programs (OSBP), whom I represent here today, has responsibility under the Small Business Act to promote contracting opportunities for all small businesses.  The Director, Ms. Tracey L. Pinson, reports directly to the Secretary of the Army.  Bundling policy is not the responsibility of our office; however, we play a key role in recommending acquisition strategies that mitigate the impact of contract bundling on small businesses.

We are an Army at war and the Army leadership is committed to supporting our soldiers, their families, our wounded warriors, and all Veterans who have served in defense of our Nation.  Consistent with that commitment, the Army is dedicated to developing an SDVOSB procurement program that not only meets, but exceeds the three percent goal mandated by Public Law 106-50.  Since Public Law 108-183 was implemented through the Federal Acquisition Regulation in May of 2004, the Army has awarded the highest number of contracts and dollars to SDVOSBs in the Federal Government.  Between FY2003 and FY2006, the dollar amount awarded annually to SDVOSBs by the Army increased from $100 million to $691 million (preliminary).  As a further commitment to the program, the Army OSBP recently published a forecast of over $1.7 billion in potential set-asides for SDVOSBs. 

Our strategy is to significantly increase the number of capable SDVOSBs doing business with the Army, through a proactive Business Development Program delivered both virtually and by our over 250 full-time and part-time small business specialists located throughout the Army.  Identifying and growing SDVOSBs that possess core capabilities to meet Army requirements is the most important factor in reaching the three percent goal.  Our office also invests in meaningful training and focused outreach to educate both the Army acquisition community and SDVOSBs to maximize opportunities for SDVOSBs while delivering "best value" solutions to the warfighter.

We are proud of our accomplishments in support of the SDVOSB Program.  The Army was the first Department of Defense (DoD) agency to approve a Mentor-Protégé agreement with an SDVOSB, between Oak Grove Technologies and SAIC.  This relationship received the Nunn-Perry Award for excellence in the program.  Three years ago, the Army founded the National Veteran Small Business Conference, which has become the largest Veteran Entrepreneur Conference in the Nation attracting more than 1300 attendees.  This year the conference was co-sponsored by 11 other Federal and DoD agencies, including our major partner the Department of Veterans Affairs.  In an effort to train the Army leadership on the value of utilizing SDVOSBs, we recently released a senior leader training video that provides guidance on the SDVOSB procurement program and solicits their support for the program.

The Army faces unique challenges in meeting the three percent goal for awards to SDVOSBs.  Although the dollars awarded to SDVOSBs and other small businesses have increased exponentially over the years, the Army's contracting base is also increasing.  Much of this increase is attributable to the purchase of high dollar military hardware and services in support of the Global War on Terrorism.  Also, in some instances where the Army provides direct support of domestic disaster relief missions, such as Hurricane Katrina, awards to SDVOSBs are impacted by statutory requirements to use local businesses.  Additionally, mandated small business market research is forfeited for expediency to support mission requirements.

 Bundling does impact contract awards to SDVOSBs and is an overall concern to the small business community.  Bundling is the practice of consolidating two or more requirements for supplies or services, previously provided or performed under separate contracts by small business, into a single contract requirement likely to be unsuitable for a small business award.  The potential adverse impact of this practice is significant.  Due to the negative impact of bundling on small business, the Army OSBP generally opposes this practice.  

While the Army has taken a proactive approach to mitigate the impact of bundling on small business, we believe that the dollar amount of realized savings required to justify bundling is unrealistically low.  For example, to justify bundling a contracting officer must demonstrate a realized savings of ten percent of the estimated contract or order value if the value is $86 million or less; or five percent of the estimated contract value if the contract value exceeds $86 million. 

The DoD Benefit Analysis Guidebook provides direction for avoiding or mitigating the impact of bundling, and how to a conduct benefit analysis.  To supplement the DoD Benefit Analysis Guidebook, the Army OSBP published a policy letter providing direction and guidance to ensure compliance related to contract bundling and consolidation.  The policy outlines the criteria for bundling and the required review procedures.  It mandates coordination with the assigned small business specialist and the Small Business Administration Procurement Center Representative for review of the proposed acquisition strategy and bundling justification.  More importantly, it requires the identification of alternative acquisition strategies to the proposed bundling of contracts. Written justifications are required when alternative strategies are not adopted.  To verify compliance with these procedures, Army OSBP conducts program reviews of all of our buying commands.  Findings are communicated and reported through Command channels for corrective action if appropriate.  

When bundling is justified in accordance with the Federal Acquisition Regulation, Army OSBP takes proactive measures to advocate the interest of small business participation by facilitating partnering and teaming among small business contractors to compete for bundled contracts.  The teaming strategy proved successful for a bundled requirement for ammunition when a small business team was awarded a $1.5 billion contract representing the largest small business set-aside in the history of our program.  Successful practices such as this are documented and shared during small business training and on the Army OSBP website.  The Army OSBP has identified teaming and partnering as a major component of the Army SDVOSB strategic plan.

In acquisitions where bundling is deemed necessary and the requirement is not likely to be awarded to a small business prime contractor, Army OSBP advocates aggressive subcontracting procedures to ensure that small businesses are provided a fair and equitable opportunity to participate in the performance of the contract.  The Army OSBP reviews acquisition strategies and makes recommendations on subcontracting goals based on market research.  Subcontracting requirements are incorporated into the source selection plan and evaluated as a factor for award.  Many contracts include incentives, both monetary and increased contract length, for meeting subcontracting goals.  These concepts have proved successful in terms of accountability and enforcement of subcontracting requirements.

Overall, while there are instances where bundling occurs and will probably continue to occur, the Army OSBP takes the necessary action to ensure that there is compliance with regulations justifying bundling.  We are proactive in recommending acquisition strategies that mitigate the impact of bundling on small businesses.  We are an advocate for small business and we work very closely with the acquisition community responsible for awarding contracts, to accomplish our statutory goals.  The Army believes that this is a healthy relationship and the main reason why a considerable amount of requirements are committed to the small business program.

In conclusion, men and women who have served in uniform and sacrificed on behalf of our Nation deserve the opportunity to do business with the Army, Department of Defense and the Federal Government.  Important to the Army, these business owners bring unique skills and leadership vital to our success in winning the Global War on Terrorism.  The Army is committed to leveraging these vital resources and remains dedicated to meeting the three percent goal for companies owned by service-disabled Veterans.