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Witness Testimony of Mr. Paul A. Denett, Office of Federal Procurement Policy, Administrator, Office of Management and Budget

Chairwoman Sandlin and Members of the Subcommittee, thank you for the opportunity to appear before you today to discuss the current state of federal procurement and opportunities for veteran-owned small businesses.  My remarks will focus on government-wide efforts to improve opportunities for small businesses, including small businesses owned and controlled by service-disabled veterans, consistent with my responsibilities as Administrator for the Office of Federal Procurement Policy (OFPP). 

Let me begin by assuring you that my office is committed to providing maximum opportunities for small businesses in Federal contracting and subcontracting.   In January 2007, Small Business Administration Administrator Steve Preston and I sent a memorandum to the heads of Departments and agencies, highlighting some of the progress we have made and urging agencies to do more to create contracting opportunities for service-disabled veterans.  I am well aware that small businesses account for nearly half of America’s overall employment and that small businesses create the overwhelming majority of new jobs in this country.  As an Army veteran, one of the first actions I took upon becoming Administrator for Federal Procurement Policy was to create a Deputy Administrator position, with responsibility for small business contracting.   This emphasizes the importance my office places on working with the Small Business Administration (SBA), Departments, and agencies to meet the objectives of the Administration’s small business agenda and to create an environment where small businesses can flourish.  Some of the actions we are taking to achieve these results are described below.

Small Business and Veteran-Owned Small Business Procurement

I am pleased to say that in fiscal year 2005 the federal government awarded a record $79 billion in prime contracts to small businesses.  That represents a $10 billion increase from the previous fiscal year.  Contracting opportunities increased for all statutory types of small businesses.  

In October 2004, the President signed Executive Order 13360, requiring agencies to take several actions to significantly increase contracting opportunities for service-disabled veterans.  In fiscal year 2005, contracts to small businesses owned and controlled by service-disabled veterans (SDVOSBs) increased significantly, reaching $1.9 billion, up from $1.2 billion in fiscal year 2004.  That represents an increase of 58 percent.  Real progress has been made and more efforts are underway.  Although official government-wide small business data has not been released by SBA for fiscal year 2006, we understand that preliminary data indicates that both SBA and the Department of Veterans Affairs exceeded the three percent goal for contracting with SDVOSBs.

The General Services Administration (GSA) recently announced contract awards to forty-four SDVOSBs, with a potential value of over $5 billion, under GSA’s Veterans Technology Services (VETS) government-wide acquisition contract.  This week, I sent a memorandum to Department and agency chief acquisition officers and senior procurement executives (copy attached), urging them to review their agencies’ information technology requirements and the services provided by service-disabled veterans under the VETS contract to determine if the contract can meet their needs.  I recently had the privilege of speaking to service-disabled veterans who were awarded contracts under the VETS GWAC and I was impressed with their diligence and the quality of the services that they provide.  I vowed to encourage Departments and agencies to use these contracts.  I am particularly pleased that the VETS GWAC promotes the development of new and emerging SDVOSBs by encouraging SDVOSBs to form teams and joint ventures that enable them to pool their resources and capabilities to perform larger and more complex tasks.  I understand that six of the VETS GWAC contractors have formed joint ventures while others have developed prime/subcontractor relationships.  VETS GWAC contractors can add additional SDVOSB team partners during the life of their contracts.

We expect federal contracting with service-disabled veterans to continue to increase as Departments and agencies use the VETS contract to meet various information technology requirements.  Agencies are also using other contracts to increase opportunities for service-disabled veterans.  I understand that GSA used its Streamlined Technology Acquisition Resources (STARS) GWAC to award a $200 million contract to Catapult Technology, a service-disabled veteran-owned contractor that also is recognized under SBA’s “8(a)” business development program.  Under that contract, Catapult will create an enterprise-wide technology infrastructure for GSA’s new Federal Acquisition Service.  Catapult was recently awarded a contract under the VETS GWAC as well.

Federal Acquisition Regulation (FAR) Small Business Team

On March 2, 2007, we formed a FAR Small Business Team to focus on small business issues and coordinate with SBA on concurrent SBA and FAR rulemaking.  Changes to small business procurement rules oftentimes require amending two sets of regulations (i.e., SBA’s rules in Title 13 of the Code of Federal Regulations (CFR) and the FAR, which is codified in Title 48 of the CFR).  This is necessary because SBA has jurisdiction over various small business programs under the Small Business Act, and the FAR Council has statutory jurisdiction over the FAR.  Even though SBA implements small business policy in its regulations, small business procurement policy is not ultimately effective until issuance of a corresponding FAR amendment.  Usually, in the past, corresponding SBA and FAR rules were promulgated consecutively.  This lengthened the rulemaking process, sometimes doubling it. 

We created the FAR Small Business Team to reduce the time necessary to issue a FAR final rule, thus effectively implementing both SBA and FAR policy.  We expect the FAR Small Business Team to work on all significant small business procurement regulations.  SBA will work with the Team to identify, as early as possible in the regulatory process, any SBA regulations that may require simultaneous implementation in the FAR.

Small Business Procurement Scorecard

My office has been working with SBA to develop a scorecard to help agencies focus on increasing small business opportunities.  Last November, SBA Administrator Steve Preston and I sent letters to the heads of Departments and major procuring agencies – announcing the Small Business Procurement Scorecard, and advising agencies that their progress and status on small business contracting would be scored in fiscal year 2007.  Since that time, SBA has been working with various Departments and agencies to improve small business procurement data accuracy, prior to using the data to help “score” agencies.  I worked with Administrator Preston to increase the number of SBA’s procurement center representatives (PCRs).  This should give agencies more opportunities to improve their scoring, since PCRs help agencies to create and develop more small business opportunities.  I understand that SBA plans on using the Scorecard and data to “score” agencies on their small business procurement achievements this summer.

Small Business Data

 We rely upon data submitted by Departments and agencies to the Federal Procurement Data System (FPDS), the official repository for Federal procurement and small business contracting information.  Each Department and agency is responsible for submitting accurate data to FPDS and verifying the accuracy of such data.  On March 9, 2007, I sent a memorandum to agency Chief Acquisition Officers requiring that they establish agency-wide, statistically-valid, procurement data verification and validation procedures and provide a certification of data accuracy and completeness to GSA each year.  To further emphasize the importance of data integrity, I asked agencies to send their first annual statements of data verification and validation to OFPP by December 15, 2007.  We are currently working to place this new certification requirement in the FAR.

Additionally, SBA Administrator Stephen Preston and I issued a memorandum to the heads of Departments and agencies on September 26, 2006 asking that they work closely with SBA to correct or reconcile apparent data inaccuracies and reporting discrepancies.  To help improve future small business data, SBA and my office developed a regulation that requires small businesses to recertify their size status during the performance of a contract (SBA’s recertification regulation).

SBA’s Recertification Regulation

SBA’s recertification regulation was published in the Federal Register on November 15, 2006, with an effective date of June 30, 2007.   Historically, SBA’s regulations called for determination of small business size status when firms submitted their initial offers.  Firms maintained their size status for the duration of contracts.  However, agencies are increasingly using long-term contracts that, with options, can extend for up to twenty years.  SBA’s recertification regulation applies to these long-term contracts.  The regulation requires a small business holding a contract over five years to recertify its size status after the fifth year and any option extensions thereafter.  If a business becomes large at the time of recertification, the firm does not lose the contract.  However, the contracting agency no longer receives small business credit for that contract.  The SBA regulation also requires that small businesses – regardless of the length of their contracts – recertify their size status if the small businesses are merged with, or are acquired by, other businesses.

Conclusion

Madam Chairwoman and Members of the Subcommittee, the Administration is committed to providing maximum opportunities for small businesses in Federal contracting and subcontracting.  The federal government awarded a record $79 billion to small businesses, with $1.9 billion awarded to small businesses owned by service-disabled veterans.  While this is a significant increase, we know that more needs to be done.  We will continue to work with Departments and agencies to ensure that they increase their contracting with small businesses, including businesses owned by service-disabled veterans.  This concludes my prepared remarks.  I am happy to answer any questions you might have.