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Federal Procurement and the Three Percent Set Aside.

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JULY 12, 2007

SERIAL No. 110-34

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BOB FILNER, California, Chairman


VIC SNYDER, Arkansas
JOHN J. HALL, New York
PHIL HARE, Illinois
MICHAEL F. DOYLE, Pennsylvania
TIMOTHY J. WALZ, Minnesota

STEVE BUYER,  Indiana, Ranking
HENRY E. BROWN, JR., South Carolina
BRIAN P. BILBRAY, California




Malcom A. Shorter, Staff Director


JOHN J. HALL, New York
JOHN BOOZMAN, Arkansas, Ranking

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Veterans' Affairs are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.



July 12, 2007

Federal Procurement and the Three-Percent Set Aside


Chairwoman Stephanie Herseth Sandlin
        Prepared statement of Chairwoman Herseth Sandlin
Hon. John Boozman, Ranking Republican Member
        Prepared statement of Congressman Boozman


U.S. Small Business Administration:
    William D. Elmore, Associate Administrator, Office of Veterans Business Development
        Prepared statement of Mr. Elmore
     Louis J. Celli, Jr., Chairman, Advisory Committee for Veterans Business Affairs,
    and Chief Executive Officer, Northeast Veterans Business Resource Center
        Prepared statement of Mr. Celli
U.S. Department of Veterans Affairs, Scott F. Denniston, Director, Office of Small and Disadvantaged Business Utilization and Center for Veterans Enterprise
        Prepared statement of Mr. Denniston
Office of Management and Budget, Paul A. Denett, Administrator, Office of Federal Procurement Policy
        Prepared statement of Mr. Denett
U.S. Department of Defense, Charles Cervantes, Special Assistant to the Director, Office of Small Business Programs, Office of the Under Secretary of Defense for Acquisition, Technology and Logistics
        Prepared statement of Mr. Cervantes

American Legion, Joseph C. Sharpe, Jr., Deputy Director, Economic Commission
        Prepared statement of Mr. Sharpe
MCB Lighting and Electrical, Owings, MD, Charles Maurice Baker, President and Chief Executive Officer, and Board of Directors, Veterans Enterprise Training and Services Group, Inc. (VETS Group), and Member, Veterans Entrepreneurship Task Force (VET-Force)
        Prepared statement of Mr. Baker
MicroTech, LLC, Vienna, VA, Anthony R. Jimenez, President and Chief Executive Officer
        Prepared statement of Mr. Jimenez
Oak Grove Technologies, Raleigh, NC, Mark J. Gross, President and Chief Executive Officer
        Prepared statement of Mr. Gross
Veterans Enterprise Training and Service Group, Inc. (VETS Group), Joe Wynn, President, and Member, Veterans Entrepreneurship Task Force (VET-Force), and National Association for Black Veterans
        Prepared statement of Mr. Wynn
Veterans of Foreign Wars of the United States, Eric A. Hilleman, Deputy Director, National Legislative Service
        Prepared statement of Mr. Hilleman


Veteran Corps of America, John R. Wheeler, Vice President, statement
Vietnam Veterans of America, Richard F. Weidman, Executive Director for Policy and Government Affairs, statement


Post-Hearing Questions and Responses for the Record:

Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on Economic Opportunity, Committee on Veterans' Affairs, to Paul A. Denett, Administrator, Office of Federal Procurement Policy, Office of Management and Budget, letter dated August 7, 2007

Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on Economic Opportunity, Committee on Veterans' Affairs, to Anthony R. Martoccia, Office of Small Business Programs, U.S. Department of Defense, letter dated August 2, 2007


Thursday, July 12, 2007
U. S. House of Representatives,
Subcommittee on Economic Opportunity,
Committee on Veterans' Affairs,
Washington, DC.

The Subcommittee met, pursuant to notice, at 2:05 p.m., in Room 334, Cannon House Office Building, Hon. Stephanie Herseth Sandlin [Chairwoman of the Subcommittee] presiding.

Present:  Representatives Herseth Sandlin, Hall, Boozman.


Ms. HERSETH SANDLIN.  Good afternoon ladies and gentlemen.  The Veterans' Affairs Economic Opportunity Subcommittee hearing on Federal Procurement and the Three-Percent Set Aside will now come to order.

Before I begin with my opening statement, I'd like to call attention to the fact that Mr. John Wheeler, Vice President of the Veterans Corps of America has asked to submit a written statement for the hearing record.  If there is no objection, I would like to ask for unanimous consent that his statement be entered for the record.  Hearing no objection, so entered. 

Some of the panelists may recall that we held a hearing in May on the subject of veterans entrepreneurship and self employment.  During that hearing, many of our panelists expressed concerns over Federal procurement opportunities and the three-percent set aside rule for Federal agencies.

Today’s hearing will follow up on those concerns as we explore the current state of Federal procurement and the problems that are being faced by veterans.

Veterans of our armed forces have been, and continue to be, vital to securing our Nation's economic prosperity and development.  When given the opportunity to start and manage their own small businesses, these brave men and women add tremendous value to the success of our economy, as they strive to lead a successful life back in the civilian workforce.  Time and again, we have seen these veterans, many disabled, return home to live out the American dream that they so bravely fought to protect.

With over 17,000 veteran-owned small businesses back in my home State of

South Dakota , I want to ensure that they, as well as all veteran entrepreneurs, are given proper assistance to expand their small business enterprises and are given the opportunities to secure more contracts with the government.

I understand that while some agencies may be meeting the three-percent set aside goal, most agencies are not.  I, along with my colleagues on this Subcommittee, am troubled by the lack of progress and effort on behalf of most Federal agencies.

As you know, Public Law 106-50 was signed by President William J. Clinton on August 17, 1999, to increase veteran participation in Federal procurement.  This was then followed by Executive Order 13360 from President George Bush on October 20, 2004.  These measures have not brought about the changes that we were expecting for veteran-owned businesses.  While we applaud the Federal agencies that have met the three-percent set aside goal, we are concerned by the lack of progress and effort by others.

I look forward to hearing from our distinguished panelists on how we can best overcome these hurdles.  I am grateful to have the opportunity to work with Ranking Member Boozman and members of this Subcommittee to focus our efforts on meeting the needs of our Nation's veterans and the challenges they face.

I now recognize Mr. Boozman for any opening remarks he may have.

[The statement of Chairwoman Herseth Sandlin appears in the Appendix.]


Mr. BOOZMAN.  Thank you, Madam Chair.  It is no small secret that the Federal Government as a whole has done a poor job of meeting the requirements set forth in Public Law 106-50, 108-183, and Executive Order 13360.  In which three percent of all Federal—contract dollars are to be set aside for businesses owned by service-disabled veterans.

In the fiscal year 2005, the last year for which the U.S. Small Business Administration (SBA) has complete data, the Federal Government has spent a paltry six tenths of one percent of all procurement with service-disabled veteran-owned businesses (SDVOBs).  This is about one fifth of what the law and the Executive Order requires. 

In 2005, only the Committee for the Purchasing from Blind and Other Severely Handicapped, the Defense Nuclear Safety Agency, Federal Emergency Management Agency, and the National Science Foundation were in compliance. 

Notably absent were the U.S. Department of Veterans Affairs (VA) and  U.S. Department of Defense (DoD).  In VA's defense, I understand they exceeded the goal in fiscal year 2006, which is great. 

While there is no entitlement to a contract for any set aside group, for obvious reasons, the Federal Government plays a special role in promoting veterans who choose the entrepreneurial path for veterans who are unique and that they earned whatever advantage the Federal Government provides, unlike all the other set aside categories of small business. 

Public Law 106-50, 108-183, and 13 through 60, are fairly straightforward.  Let us consider the requirements laid out in the President's directive. 

Its main features are relative to promoting disabled, veteran-owned businesses.  Agency heads shall develop a strategy, report annually to the SBA, designate a senior official to implement the strategy, and include contracting with the service-disabled veteran-owned businesses in the performance evaluations of appropriate agency staff. 

An agency strategy must include plans to implement SDVOB set asides encouraging that participation, encouraging prime subcontracts with SDVOBs, and training agency personnel.  These plans are important, because if you don't have a valid roadmap, it is difficult to achieve the three-percent goal. 

I note that Mr. Wynn's testimony states that over half the plans were incomplete and some were poorly developed.  I hope Mr. Elmore will address that statement. 

The President also set very specific duties for SBA, VA, the General Services Administration (GSA), and the DoD.  What I am most interested today is learning from agency representatives how they are meeting the President's directions.

I am especially impressed with the testimonies of Louis Celli and his approach to promoting service-disabled veteran-owned business by reinvigorating the Small Business Administration.  I think this makes eminent good sense given the controversy surrounding other efforts to improve Federal assistance to SDVOSB. 

I fully support providing SBA with the resources to improve their services to SDVOBs.  And holding them accountable for meeting their mandate included in the public laws, which we have cited and the Executive Order. 

In an opposite vein, I do not agree with the statement in Mr. Cervantes' written testimony.  He states that DoD could not strategize on reaching these goals until the passage of Public Law 108-183. 

The Defense Department never seems to have problems strategizing for other types of operational issues.  In fact, that is what they get paid to do, figure out how to get things planned, including back-up plans for the back-up plan.  In fact, DoD's failure to meet the three-percent goal is a major factor in the overall failure in the performance of the Federal Government. 

Madam Chair, also I would just note that we have a lot of witnesses today.  And I think you and I are very familiar with the laws. 

So in your testimony, if you would help us in the sense that this is very important.  It is a very important hearing.  If you will not refrain to so much, as to what has gone on.  We really understand that.  If you will just kind of give us the meat of your testimony, it would be greatly appreciated. 

Thank you very much.

[The statement of Congressman Boozman appears in the Appendix.]

Ms. HERSETH SANDLIN.  Thank you, Mr. Boozman.  I think that is a very good suggestion.  Some of our witnesses have been before our Subcommittee a number of times.  So if we can focus your opening remarks.  And we too will focus our questions on the heart of the matter as to where we are today so that we can continue to do the important follow-up, which is one of the reasons we are having this hearing today to acquire more of that information.

I want to welcome our panelists testifying before this Subcommittee today.  Joining us on our first panel, if they could make their way up as I am introducing them, we have Mr. Charles Baker, President and Chief Executive Officer (CEO) of MCB Lighting and Electrical; Mr. Mark Gross, President and Chief Executive Officer of Oak Grove Technologies; and Mr. Anthony Jimenez, President and Chief Executive Officer of Micro Tech, LLC. 

Mr. Jimenez and Mr. Gross, welcome back to the Subcommittee.  Mr. Baker, we welcome you.  We will go ahead and start with your testimony. 

You are now recognized for five minutes.



Mr. BAKER.  Thank you.  Good afternoon Chairwoman Herseth Sandlin, and Ranking Member Boozman, and other Members of the Subcommittee, fellow veterans, and guests.

I would like to thank this Subcommittee for allowing me to contribute my perspective and voice to this very demanding challenge.  That is, I won't burden my testimony revisiting a group of problems that have been well documented over the last—past eight years.

I will focus my testimony on a set of solutions that my unique background as a servicemember, liaison to Federal employees, and business owner qualifies me to suggest. 

A more detailed explanation of my suggested approach is included in my written statement, which I have included for the Committee record. 

From my humble perspective, we need to employ the intent of existing procurement laws associated with the implementation of the rules of procurement that are not being followed today.

Not following the in-place rules and policies are one of the primary reasons why we are having problems with Federal procurement in not meeting the goals.

If the current rules and policies were enforced to the maximum, practical utilization, SDVOB spending would dramatically improve.

 Many of us believe procurement needs to be overhauled to correct this any many other problems.  Before 1984, it was thought contracting needed to be overhauled.  So the Federal Acquisition Regulation (FAR) was created and the Competition in Contracting Act was created. 

In 1994, the Federal Acquisition Streamlined Procurement Act was supposed to overhaul contracting.  But it created a bigger mess, utilizing GSA, the Defense Logistics Agency, and other Federal schedules.  And now in 2007, everybody wants to fix contracting again.

I am using my voice to suggest break this—break this cycle of insanity by doing things a little different this time.  In the business world, I have heard insanity defined as doing the same thing over and over, while expecting a different result. 

My suggestion is that we simply following the existing rules and comply with intent of existing laws and policies first.  Let us promote a culture within Federal procurement that promotes creativity and innovative within the boundaries of our current rules.

I suggest—I am suggesting a culture that passionately drives the best interest of the government first and not the best interest of a single individual or group, large business, or Federal employees seeking to find an easy way to get the job done.  Or small business seeking a—to secure a contract they are not qualified to receive.

If we want to make a humongous impact on contracting, it must be done where the business transformation makes the most sense.  And that is—and that has the—I am sorry.  And that has the most—it has the most impact on the government.  We must address the workload issue.

 Ninety percent of all transactions in Federal procurement are under $100,000.  Yet, they are only 10 percent of the total dollars spent.

From a management agenda perspective, this must be addressed promptly.  In my statement, I suggest an innovative approach to make an immediate, demonstrative impact on the mission.  This mission impact will save money and increase our mission readiness to support all requirements under the $100,000 threshold. 

This approach would decrease costs and shorten acquisition time, all while making a demonstrative impact on the mission, and giving the majority of the work to small business as intended by law. 

The overall mission of government in its critical internal elements, are the key to good contracting.  Since current simplified acquisition rules are having a negative—oh, I am sorry. 

Under the $100,000—the under $100,000 category of product and services, is critical for all small business to be—to include the SDVOB.  We must make sure that FAR Part 13 and 19, which exclusively reserves—which was exclusively reserved for small business, but doesn't happen, is followed.  Smaller contracts are the foundation or starting point for creating economic viability for the service-disabled vet and other small businesses.  We must be allowed the opportunity to become a viable, sustainable, competitive company by getting a constant flow of work and get paid in a timely manner, because, yes, even today there are still horror stories of veterans not being paid for as long as 12 months.  We cannot subject veterans to this type of financial irresponsibility. 

And in closing, I would just like to say one of the key parts that I see under the $100,000 threshold happens to be a loophole that is in the FAR.  The loophole is FAR Part 8.404, which allows big business under GSA schedule to be able to compete under the $100,000 threshold. 

And I believe that this—if this was fixed and if we focused more on from a developmental side, letting small businesses to include veterans be able to compete more for contracts under the $100,000, as you can see which is 90 percent of all our transactions, I believe that we would be a lot more successful

And thank you.

[The statement of Mr. Baker appears in the Appendix.]

Ms. HERSETH SANDLIN.   Thank you, Mr. Baker.

Mr.—do you pronounce it Gross or "Grass"?

Mr. GROSS.  It is "Gross."

Ms. HERSETH SANDLIN.  "Gross."  I remembered that from the last hearing.  A few people referred to you as Mr. "Grass."  So I apologize.  We will now recognize you for five minutes.


Mr. GROSS.  Thank you.  Good afternoon Madam Chair Herseth Sandlin, Ranking Member Boozman, and Members of this Subcommittee. 

First I want to thank you for an invitation back to—how is that?  Is that better?  I would like to thank you for the invitation to come back before you today and share some of my experiences in the veteran business community and to discuss the three-percent Federal procurement goal for Service-Disabled Veteran-Owned Small Businesses.

As a veteran of the United States Army, I am CEO of Oak Grove Technologies.  We are a Service-Disabled Veteran-Owned small business.  I founded the company at my kitchen table five years ago this coming August.

Today, I am proud to say, I employ over 140 employees, over 70 percent are veterans, 16 percent of those are service-disabled veterans.  And geographically, we are dispersed across 16 States and support both Operation Enduring Freedom (OEF) and Operation Iraqi Freedom (OIF) in both and .

In my opinion, the climate has changed considerably in the past few years.  If you look at some of the trends today, you will see that many agencies are improving in making awards to service-disabled veteran-owned business.  Although I believe we still have a way to go.

I think that Congress has done an outstanding job in passing legislation such as 106-50, 108-183, and 109-461.  All of which establish service-disabled veteran goals and mandates in Federal contracting.

Public Law 109-461, and I include it as an amendment in my testimony, is the Veterans' Benefit Healthcare and Information Technology Act of 2006. 

What I believe the—what I believe some of the problems are today are—is really it comes down to accountability within agencies to meet some of these goals.  I am here to offer my views on what I think can be done to ensure the state of veterans' entrepreneurship within the Federal Government.

Some of the changes, positive changes, I think that will further enable agencies to meet some of these goals are 109-461, which gives the VA special authorization in procurement to veteran and disabled veteran-owned businesses.

Another is a new rule that SBA just published about two weeks ago.  And it is a new recertification rule that requires any company that is—either merges or is acquired by a larger business, to immediately recertify their size standard. 

Now, what that also does is it does not take away the contract from that company.  But what it does do is it does not allow the Federal agency to include that—those contract dollar numbers in their small business reporting plans. 

I offer five recommendations to meet this three-percent goal.

The first is with respect to set asides and sole source, eliminate the "Rule of Two" within—wherein a contracting officer has to know of two or more service-disabled veteran-owned business before an acquisition can be set aside.

Conversely, a service-disabled sole source award can only be made when there is only one service-disabled veteran company that can do the work.

This is the only requirement of any of the three statutory programs.

Create a level playing field between the statutory programs by changing the use of “may” to “shall” when using restricted competition for service-disabled veterans.

Small business subcontracting plans, including all details of the plans required by prime contractors, should be made public and accessible electronically or on forms 294 and 295 upon request.

Mandate that contracting officers impose liquidated damages, as predicated in FAR Part 19.705 through 07 for large companies that fail to demonstrate a good faith effort to fulfill the requirements of the subcontracting plans.

Close the loopholes in the GSA Schedule FAR Part 8, wherein large businesses are allowed to take away business intended for small businesses.  And I believe establishing ombudsmen within agencies to provide procurement oversight.

We are proud to say that we are the first disabled veteran company to be included in the DoD Mentor-Protégé Program, as created by 108-183.  We are equally proud to say we are the first company to be awarded the DoD Nunn-Perry Award this year in 2007.

As an entrepreneur and a veteran, I believe the climate has certainly gotten better in the past seven years.  I still think we have a long way to go.   But I am confident that both the Congress and the Federal agencies such as the Department of the Army, the Department of Veterans Affairs, and SBA are committed to these causes.

I thank you for your time and your efforts to improve the Federal contracting climate for service-disabled veteran-owned business.  And it is a pleasure to be back before you today.

[The statement of Mr. Gross appears in the Appendix.]

Ms. HERSETH SANDLIN.  Thank you very much, Mr. Gross. 

Mr. Jimenez, you are now recognized.


Mr. JIMENEZ.  Thank you.  Good Afternoon Chairwoman Herseth Sandlin, Ranking Member Boozman, and distinguished Members of the Subcommittee, and distinguished guests.

It is a privilege to be here today.  And I want to thank the Subcommittee for allowing me once again to share my thoughts.  This time regarding Federal Procurement and the Three-Percent Set Aside.  I look forward to providing my views.  And hopefully they will be insightful. 

I am going to violate your request, somewhat, in that I know that everybody is familiar with the law.  But I think it is important that you understand the mind set that goes on when people like myself and the rest of the folks here at the table are trying to consider whether to leave a good job, whether to leave the government, whether to actually attempt to become a small business, and that you understand how important these laws are in helping us make a decision at risk.  And more importantly in putting us at risk as we gamble, and I use the word loosely, on an opportunity to obtain the American dream by putting everything, and I mean literally everything at risk.  There is nobody sitting at this table that hasn't risked it all in an attempt to start their own business.

The unfortunate thing is that many of us are aware of the Veterans Entrepreneurship and Small Business Development Act of 1999.  And that was the first true Act that got my attention.  

I was in the military at the time.  And at that point in time, I actually started believing that the opportunity to be able to start my own business was there. 

When it got signed into law on August 17, 1999, it created a government-wide goal that three percent of the total value of prime contracts and subcontracts would be awarded to service-disabled veterans.  Knowing that when I retired, I would be a service-disabled veteran, that obviously, got my attention.

But what I still was unsure of was whether or not, like many laws that have been passed, the government was serious about that law.  So I thought well, I am going to kind of wait it out.  I took a job with a large business.  It was a great job.  It was with a phenomenal company here in the Beltway that had been doing business with the Federal Government for many years.  And I worked with them thinking that I would probably be there long enough to be able to build up a nest egg to actually attempt to do a small business type of operation.

In 2003, the President signed the Veterans Benefits Act or P.L. 108-183.  And it was at that point that I had decided I just couldn't wait any longer.  I had been with this company for a whopping eight months.  But I was chomping at the bit to get out there and actually try my hand at running a small business.

So I decided it was time.  I resigned from what was a phenomenally lucrative position with great upward mobility to go and open my open company, MicroTech, and to pursue my dream of small business ownership.  I did that in April of 2004.  And my partners and I started basically leveraged just about everything we could, including my house. 

On May the 5th, 2004, the SBA and the Federal Acquisition Regulatory Council, the FAR Council, concurrently published interim rules implementing the procedures for the Veterans Benefits Act of 2003.

And a new regulation, which permitted contracting officers to restrict competition on contracts or issue sole source contracts to service-disabled veterans within dollar thresholds.  All of which could be done within the accordance of the statutory requirements.

Importantly, the regulation also established procedures for protesting the status of an service-disabled veterans, which I thought was interesting considering we have all been around long enough to know that sometimes there are people who are not what they claim to be.  And that makes a unique playing field who those of us who are what we claim to be. 

So like many others inside and outside the Federal Government, I was convinced that at last veterans and service-disabled veterans would have a plethora of opportunities that we desperately needed to be successful as small business men and women.

Since that date, to my astonishment, the Federal Government has fallen well short.  So in other words, I got duped.  I put it all into the basket, made the decision to leave the job.  By the way, I am still not paid as well as I was in that job, as I am in my own business.

Now, people will say, "Well, Tony, you have done pretty well."  And I have.  But for every Tony, there are 100 people who haven't done well.  And the fact is that as I tell people, and I hate to use it, because people think that I am actually diminishing my capabilities, but I have been very lucky.  And luck does play an important part when the legislation is not working the way it is intended to work.

Less than 10 percent of the government agencies who are required to meet the mandatory statutory goals have done so.  And only a handful of agencies—when I say a "handful," and I honestly didn't come up attempting to try and give stats.  But the bottom line is the results are dismal.

But what astonishes me the most, and I guess because I am a veteran, is the Department of Defense, which is an agency responsible for creating Service-Disabled Veteran—which is an agency responsible for creating veterans, struggles with the number they are struggling with. 

And I find that astonishing, particularly because I came out of the procurement arena.  And knowing that there are people within the Federal Government who can mandate change.  And if they did, it would happen. 

Right now, the Department of Defense struggles to make one third of the goals that were set.  Right now they have yet to date, that I know of, accomplished even one percent of their set asides to Service-Disabled Veteran Small Businesses.

Good news, and, yes, there is good news, is that there are people in the Federal Government who are doing what they can, both within DoD, outside of DoD.  Particularly within some of the agencies in DoD.  And for one, I am extremely shocked is how hard these people work.  And yet how dismal the numbers seem to be. 

And not being inside, but being outside looking in, I am struggling to understand how it is we can have great guys like Charles Cervantes, and Tracy Penson and, just a number of folks within Department of Defense who are working so incredibly hard for service-disabled veterans.  Yet, we are not reaching the numbers.

And the fact is, and I am speaking freely and on their behalf, and I didn't ask for their permission to speak on their behalf, but I think the bottom line is that they are speaking to people who aren't listening. 

And it frustrates me more than it frustrates them, because I see what they are trying to do for service-disabled veterans.  It is not happening.  It is just not happening, because somebody somewhere at the top is preventing it from happening.

In addition to some of the great folks within the Department of Defense that I think are working aggressively, there are also people in Veteran Affairs who are doing things. 

And the good news is there are people within Veteran Affairs that are listening to those people.  Veteran Affairs has done some wonderful things in the last couple of years.  And I am absolutely amazed at where I think our capabilities as Service-Disabled Veteran Small Businesses will be able to go when we have the sponsorship that VA has allowed us to have.

General Service Administration is another one that I believe has established a very aggressive Service-Disabled Veteran program, from the very top, Lurita Doan, Molly Wilkinson, down to Filipe Mendoza and his people.  All of them understand.  They are all working.  John Phelps, who recently took over oversight of the Vets Contact, are all 100 percent in the corner of veterans.  And are doing everything they can.  And it is changing the opportunities for service-disabled veterans. 

Rather than go through some of this, I am going to kind of jump ahead to the facts that I am sure you are all aware of and that is that there are 13,500 service-disabled veterans registered right now in the Central Contractor Registry.

Yet this morning, I was at an Army Information Technology (IT) conference where once again a contracting officer stood up and stated that they had difficulty finding service-disabled veterans to bid on opportunities. 

Yet when asked, "Well, are you having problem getting 8(a) small businesses to bid on opportunities?" we were told, "No."  And there are only 8,500 8(a)'s registered in the Central Contractor Registration (CCR).  To fully accomplish the objectives of the legislation that we have talked about on this panel, the government agencies have to be held accountable.  Many of those agencies have been called up to the Hill.  And all of them have told you and other Committees Members about the great things they intend to do for service-disabled veterans.  But over the last four years, only a few have turned those words into actions.

What stops them from dusting off the last testimony they gave and giving the exact same testimony the next time you call them up?  What are we, as American citizens, doing to check the progress of these agencies?  My question is, where is their report card?  What is their plan to get from F to A?  And who is responsible? 

Because the responsibility shouldn't lie in the Small Business Office.  It should lie at the very top, at the person who is responsible for managing the Deputy Assistant Secretaries, the Secretaries, the Assistant Secretaries.  Those are the people that need to be held accountable.

Here are my recommendations for those agencies.  And here is how I would fix it if I was made person in charge for a day:

One, I would protect the dollars.  The last time I testified before this Subcommittee, it was recommended that those dollars be set aside.  I believe it was Congressman Hall that recommended that.  I agree with that recommendation.  Make contracting officers have to ask for those dollars.  And they will.

Hold Secretaries, agency administrators, and others responsible for agencies responsible for the three-percent goal.  They need to understand that P.L. 106-50 was put in place.  And they need to understand how to reach that goal.  Each department or agency has a director of small business.  But they are not the people who control the acquisition process.  The acquisition process is controlled by Assistant Secretaries for Acquisition, heads of contracting agencies, agency chief acquisitions.  Have the Assistant Secretaries for Acquisition, the head of the contracting agencies, and those agency chiefs testify.  And require that they present a measurable and realistic plan for reaching the three-percent goal.  If after a year, they don't meet the three-percent goal, have them come back in.  Only this time have them come back in with their boss.  And I promise you, you will see a change in the numbers.

Lock down the small business goals for large business contracts.  Often times large businesses will fight to reduce the percentage.  And they do that because it is dollars out of their pocket.  Don't let that happen.  Ensure that all large businesses develop a small business-subcontracting plan that mirrors the requirements in the Federal Government.  And then ensure the large businesses are penalized when they fail to meet their small business subcontracting goals.

Hold procurement officials and contracting officers responsible for meeting the three-percent goal for service-disabled veterans.  Make the three-percent goal for service-disabled veterans a requirement in their performance measures and a condition for their performance award.  If a department or agency does not meet their three-percent goal for service-disabled veterans, then reduce the amount of their award by the percentage they failed to achieve.  In other words if they only achieve 1 percent, 33 percent of the goal, then they only get 33 percent of their performance award.  I guarantee you will see a change.

Madame Chairwoman, distinguished Subcommittee Members, thank you very much for this great opportunity.  This concludes my testimony.  And I will be happy to answer any questions.

[The statement of Mr. Jimenez appears in the Appendix.]

Ms. HERSETH SANDLIN.  Thank you and thanks to all of the panelists.  I do want to start off with a few questions before recognizing the Ranking Member.

Mr. Gross, you stated that the rule of two should be eliminated.  I want to ask Mr. Baker and Mr. Jimenez their thoughts on that same statement.  In your opinion, if the rule of two were eliminated, would this reduce the contract availability or increase competition? 

Explain further what your understanding of the rule of two is intended to do, and why you suggest it be eliminated. 

Mr. GROSS.  Well, Madam Chair, I am not sure what the—what the intent of the rule is.  What I believe is the outcome of the rule is it reduces the amount of opportunities that we have to compete. 

I think, you know, most of the—and I can speak for the two folks here, because we work together on things.  And most of us just want the opportunity to compete.  I mean, it—I mean, we are not looking for—and I don't know of many that have gotten anything given to us.  So we are looking for the opportunity to compete for opportunities. 

The rule of two reduces the amount of opportunities that we have to compete for. 

Ms. HERSETH SANDLIN.  Mr. Baker and Mr. Jimenez, would you agree that the rule of two should be eliminated?

Mr. JIMENEZ.  Yeah, I would.

Mr. BAKER.  Yes.

Ms. HERSETH SANDLIN.  Mr. Baker, and I think possibly both of the other two of you reference this, but just for clarification, the loophole in the GSA schedule that you referenced for Part 8, are you all in agreement that this is problematic because it allows the large businesses to compete for the under $100,000 threshold category?

Mr. BAKER.  Yes.

Mr. JIMENEZ.  Yes.

Mr. GROSS.  Yes.

Ms. HERSETH SANDLIN.  Mr. Jimenez, first, you talked about the Department of Defense, your frustration, and disappointment here.  What do you think is the reason why DoD can meet the other small business goals, like the 8(a), but it is not meeting the veterans set aside goal? 

Other than the folks that you referenced who are doing good work to address these issues, there are other folks that aren't listening.  What efforts are they not undertaking for service-disabled veteran-owned business as it relates to the registry that they are taking for 8(a) requirements?

Mr. JIMENEZ.  Well, it is really funny, because when I have talked to folks in the Department of Defense and the separate agencies, and the question you ask is, "Why," one of the first answers you get is, "Well, remember it took a long time for us to get to our 8(a) goals.  It took a long time for us to be able to do a lot of things.  It took a long time for us to be able to establish."

The fact of the matter is, having worked in the Secretary of the Army's office and having worked at the Office of the Secretary of Defense (OSD), things happen fast when the right people ask them to happen.  If we get commitment from up top, if the right people don't write memos, but put actions behind the words, it will happen.

There is nothing that the people who were appointed in the positions of authority in the Federal Government can't do if they want to do them. 

So my philosophy is I don't feel the commitment.  And I don't think there is anybody that feels the commitment.  The commitment is a matter of showing, not saying. 

And the fact is that we need a champion.  We need somebody who is high up enough the food—who is high enough up in the food chain to be able to say, "This will be done, because I said it will be done.  And if it is not done, you will be in here explaining to me why it is not done." 

And we have all worked for folks who are like that.  And when they ask us to do that, it gets done.  And my feeling is that that hasn't been done.  There is nobody that I feel like I can stand in front of and know that they are 100 percent behind this initiative.

Mr. GROSS.  Further on that, I think—I think what it really comes down to is just, you know, who is accountable?  I mean, who is accountable.  I mean, you know, the Congress can pass great legislation.  The President can put out, you know, Executive Order 13360.  And, you know, three years later, you know, the President says it is a mandate that three percent of the Federal dollars go to service disabled.  But yet the agencies aren't meeting it.

Just the same, I know—I know Dr. Finley, the Under Secretary of Defense for Acquisitions, is a proponent of service disabled, the program.  I mean, the Small Business Program.  I know Secretary Gates has sent—has sent memos to staff, you know, asking to or mandating that they procure three percent to disabled veteran companies. 

I think what it comes down to is who is—who is that one person or that one office within the Federal agencies that is accountable.  And I think that that is a little cloudy.  And I don't think there is one to be—

Mr. JIMENEZ.  When I—

Ms. HERSETH SANDLIN.  Okay.  I want to clarify what the two of you are identifying in terms of the accountability issue,  because where I thought you were going, Mr. Jimenez, is the accountability, separate from an Executive Order from the President. 

That is the highest up the food chain we have gotten to.  When it comes to the actual implementation at the agency level at DoD, you are saying that we need someone high enough up the food chain in the Pentagon as a champion to make this happen.

I think, Mr. Gross, you are saying, "Yeah, but the accountability also has to rest with one agency, say perhaps the SBA."  Is that what you are saying, in terms of monitoring, and tracking, and reporting on all the other agencies?

Mr. GROSS.  Well, or maybe the—you know, maybe the Office of Federal Procurement Policy (OFPP). 


Mr. GROSS.  You know—I mean, I don't believe I am prepared to answer who.

Ms. HERSETH SANDLIN.  No, and we are going to be hearing from both of those offices.

Mr. GROSS.  Well, I mean, you know, I know I have seen memorandums coming from Secretary Gates' office, you know, supporting the three-percent requirement.  I am sure the Secretary is fairly busy.  And probably doesn't have a whole lot of time to provide a lot of oversight there. 

So I know they are—you know, the White House, the Congress, many of the agency heads are in support of the requirement.  I just don't believe when it gets down to the—maybe implementation of that policy.

Ms. HERSETH SANDLIN.  That there has been a clarity of responsibility?

Mr. GROSS.  That there is—there is clearly someone responsible for ensuring that that happens.

Ms. HERSETH SANDLIN.  Okay.  I will come back with some additional questions, but I want to recognize the Ranking Member for questions he has.

Mr. BOOZMAN.  Thank you, Madam Chair.  The only thing I would ask is that I am a little confused on the rule of two.  It looks like if you did away with the rule of two, I understand that what you are arguing.  But you could also argue that that is less opportunity for somebody that is trying to break into the system, because there is the textbook way that things are done.  But the reality is there would be if you are in the system, the procurement officer, is more likely to go to his guy versus having to have to bring in other people.  See what I am saying?

Mr. GROSS.  I do.  And I think—you know, I think what the rule of two adds is just another layer, another process that—you know, our acquisition staff I believe is probably overworked.  I mean, understaffed, and so adding an additional—and I am sure they have an awful lot of work to do.

So, you know, it—I believe it is human nature to sort of take the path of least resistance.  And if you are adding more steps for them to do something, it is going to cause a problem.  And I believe that is what is happening.

Mr. BOOZMAN.  But it does create more opportunity by getting more people theoretically involved in—

Mr. GROSS.  Well, if—

Mr. BOOZMAN.  —the opportunity to acquire the—

Mr. GROSS.  That is correct.  But what—but understanding a set aside is open for competition.  So, you know, what that rule of two is the contracting officer has to be confident there is two companies that can bid that particular opportunity. 

My thought is if there is 8,000 8(a) companies registered in CCR, and there is 10,000 service-disabled in CCR, and you don't have to have the rule of two for the 8(a), why have the rule of two for the service-disabled?  You are—I can pretty much assure you on anything that you set aside service-disabled, you are going to get more than two bids. 

Mr. BOOZMAN.  Okay.

Mr. GROSS.  Anything.

Mr. JIMENEZ.  I think, sir, in honesty, what it is, is a risk issue.  As a contracting officer, there is a tremendous amount of effort that goes on before it ever goes out for bid. 

And the last thing you want to have is to put a bid out and not have two bids, because if you don't have two bids and you only have one bid, you have got to go back to the drawing board and re-procure. 

And when you have 70 or 80 procurements lined up ready to be done in the next six months, the last thing you have time to do is to go back and continue to rebid, because you haven't met the rule of two.

The fact of the matter is that it is a hurdle.  And it is—and what it does is it disincentivizes contracting officers to want to go the route that we are trying to incentivize them to go.  It is a hurdle that is not required in any other set aside procurement.  And it is one more thing that makes the argument against using a Service-Disabled Veteran-Owned small Business. 

And I have heard contracting officers say, "You know what, it is tough setting things aside for a service-disabled veteran, because I don't have time to learn how to do it different than I am doing it for everybody else."

Mr. BOOZMAN.  Okay.  Thank you very much.

Mr. BAKER.  I would like to make a comment about the rule too.

Mr. BOOZMAN.  Yes.

Mr. BAKER.  I agree with what everybody is saying about the rule of two.  The only thing that I see it as a problem and more clarification—actually every small business group has a rule of two. 

Okay, including the 8(a) program.  The 8(a) program has a rule of two over the threshold.  The 8(a) program, for example, has non-competitive procurements under the threshold.  Over the threshold, it has the rule of two.  HUBs don't have the rule of two.  Everybody has the rule of two.  If you have small business set aside, you have rule of two.

What I believe needs to happen is eliminating the words "rule of two," because it is a confusion.  What happened and I will agree with what Tony was saying earlier, what happens with a procurement, if you actually have—if you actually have a limited people—amount of people that is going to be bidding on a contract, the problem that you run into, if you decide to do a sole source on the SDVOB, the issue that you run into is you have to advertise that sole source, just like you do every other sole source. 

It has to be—you have to put it out in the Commerce Business Daily  and the Fair Business Office to say that you only have one service-disabled veterans that is doing this. 

And this is what contracting officers fear.  They go through all this work.  And then you are going to get a bunch of service-disabled vets now saying, "Hey, you are going to do that sole source.  You are going to do that sole source.  We can do it too." 

So that is the problem.  The problem is within in the 8(a) program.  You have an—it is a non-competitive procurement process.  It never gets advertised.  So when you only have one, nobody every knows there is only one.  So, you know, it is a non-competitive process.

What I would like to see is I would like to see the Service-Disabled Veteran Program have a non-competitive vehicle.  Okay.  Which basically eliminates the rule of two.  Okay.  But you also—you not eliminating the rule of two, because over the $3.5 million and $5.5 million, you going to have rule of two within the service-disabled veteran community for everybody to be able to compete.

So it is about the threshold.  Under the threshold, $3.5 million for services, $5.5 million for commodities.  You have a non-compete over the threshold.  You keep rule of two.  And you compete. 

Ms. HERSETH SANDLIN.  I see Mr. Gross nodding.  Maybe the two of you could spend a little bit more time here to clarify a little bit.  We are certainly going to do some follow-up after the hearing, but I want to make sure I know where there is unanimity of opinion among the three of you, given the experiences you bring to the table. 

Is what Mr. Baker just suggested, as it relates to under the threshold, and the non-competitive vehicle that would effectively eliminate the rule of two, a reasonable way to approach it given that that seems to be how all the other programs work?  Therefore, you contracting officers wouldn't be doing anything different for the different set-aside programs?

Mr. JIMENEZ.  Correct.  Streamlines the acquisition process and standardizes it across the board for set asides.

Mr. GROSS.  Yeah.  I agree.  I mean, you know, my personal views are there shouldn't be any sole source for any of the programs, because it does eliminate a little bit of competition I believe.

But by not having the Disabled Veteran Program in that same pool, you create a disadvantage for that—for that program. 

And understand, you know, contracting officers typically aren't sole sourcing millions and millions of dollars to these small businesses.  It is usually not far above the threshold of simplified acquisition, which is 100K.  And it just makes the process move faster.


Mr. GROSS.  And it gives the contracting officer the ability to negotiate.  And they all should be.  I mean, as—

Mr. BAKER.  There are $145 billion that are actually sole sourced in the Federal Government.  But the majority of these dollars that are sole sourced are to big business. 

Mr. GROSS.  I don't believe in sole sourcing it at all.

Ms. HERSETH SANDLIN.  Okay.  Just a couple of other quick questions on the contracting officers, because when we had the hearing in May, I think that the issue of the workload came up. 

I think, from what I sense in the written testimony and some of your verbal testimony today, there is agreement about concerns about the workload of the contracting officers that you have worked with.

Once we streamline and standardize some processes here, there is also the issue of the number of people to do these jobs.  Do you all agree that the workload issue is an issue that needs to be addressed? 

Mr. BAKER.  Yes.

Ms. HERSETH SANDLIN.  How about the training issue?

Mr. BAKER.  I will tell you that it is almost—it is almost a comical thing.  I mean, it is—when I go around and talk to a lot of people in the procurement community, and I don't mean to be negative about this, but I have had people ask me, "What is 8(a)?  What is service-disabled vet?" 

These are people in small business positions.  But yet they don't even understand the program.  They have no knowledge of the program.  They are—I have had agencies with policies, written policies, about competing, 8(a) contracts for example, which is illegal. 

You know, and that is—that is one of things I am talking about is that there is a big misunderstanding when it comes to procurement officers.  You—they—it is—I don't know.  Times are changing. 

When me and Tony were, you know, working with the government and dealing with procurement issues, we had—we had that experience.  But, you know, with the baby boomers coming, we are losing a lot of experience.  And the people you getting in, they getting a lot of people in from private industry.  And they just aren't familiar with, you know, terms.  You know, the government is full of terms.  And they just don't understand it.

I think maybe if they had a one-hour training.  A one-hour training would do amazing results.  Just—let us just bust up the myths in procurement.  I think that would go a long, long way. 

Ms. HERSETH SANDLIN.  Thank you.  Do either of the two of you have any comments to offer, relating to your experience in the training and the knowledge base of all of our contracting officers, to effectively implement these set-aside programs?

Mr. GROSS.  Well, I am not a contracting officers, so I can't really speak to—I mean, I am not sure if like say a lawyer, you know, has a requirement for, you know, continuing legal courses per year.  But I think that if contracting officers had something like that, a requirement where they, you know, take two, three hours a year and maybe, you know, get sort of up to speed on what some of the—what the agency policies are and the—you know, the Federal procurement policies are.  That would probably go a long way, because I agree. 

I mean, I think many, many contracting officers have heard of different programs.  But, you know, really aren't 100 percent up to speed on, you know, how do they implement that?  How is that implemented at their level? 

Ms. HERSETH SANDLIN. That was one of my questions in terms of your experience, awareness, and full understanding of all of the different programs that the contracting officers are working with day in and day out.  We will follow up with the third panel on some of the more specific questions about current training conditions and requirements.

Mr. JIMENEZ.  One of the—

Ms. HERSETH SANDLIN.  Mr. Jimenez?

Mr. JIMENEZ.  One of th