[House Hearing, 107 Congress] [From the U.S. Government Publishing Office] ENCOURAGING THE GROWTH OF MINORITY-OWNED SMALL BUSINESSES AND MINORITY ENTREPRENEURSHIP ======================================================================= FIELD HEARING before the COMMITTEE ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS FIRST SESSION __________ ALBUQUERQUE, NM, AUGUST 27, 2001 __________ Serial No. 107-26 __________ Printed for the use of the Committee on Small Business U.S. GOVERNMENT PRINTING OFFICE 77-174 WASHINGTON : 2002 ____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 COMMITTEE ON SMALL BUSINESS DONALD MANZULLO, Illinois, Chairman LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD, California ROSCOE G. BARTLETT, Maryland DANNY K. DAVIS, Illinois FRANK A. LoBIONDO, New Jersey BILL PASCRELL, Jr., New Jersey SUE W. KELLY, New York DONNA M. CHRISTENSEN, Virgin Islands STEVE CHABOT, Ohio ROBERT A. BRADY, Pennsylvania PATRICK J. TOOMEY, Pennsylvania TOM UDALL, New Mexico JIM DeMINT, South Carolina STEPHANIE TUBBS JONES, Ohio JOHN R. THUNE, South Dakota CHARLES A. GONZALEZ, Texas MICHAEL PENCE, Indiana DAVID D. PHELPS, Illinois MIKE FERGUSON, New Jersey GRACE F. NAPOLITANO, California DARRELL E. ISSA, California BRIAN BAIRD, Washington SAM GRAVES, Missouri MARK UDALL, Colorado EDWARD L. SCHROCK, Virginia JAMES R. LANGEVIN, Rhode Island FELIX J. GRUCCI, Jr., New York MIKE ROSS, Arkansas TODD W. AKIN, Missouri BRAD CARSON, Oklahoma SHELLEY MOORE CAPITO, West Virginia ANIBAL ACEVEDO-VILA, Puerto Rico BILL SHUSTER, Pennsylvania Doug Thomas, Staff Director Phil Eskeland, Deputy Staff Director Michael Day, Minority Staff Director C O N T E N T S ---------- Page Hearing held on August 27, 2001.................................. 1 WITNESSES Cordova, Tina, President, Queston Construction, Inc.............. 8 Muller, Anna, President, NEDA Business Consultants, Inc.......... 10 Bonano, Evaristo, President, Beta Corporation International...... 12 Schlueter, Joan, President/CEO, On Site Hiring Consultants....... 14 Powdrell, Joe, Owner, Mr. Powdrells Barbeque of NM............... 17 Furtivo, Don, Commercial Loans, SBA Division..................... 19 Canfield, Michael, President/CEO, Valliant Enterprises, Inc...... 21 Rios, Miguel, CEO, ORION International Technologies, Inc......... 23 APPENDIX Opening statements: Manzullo, Hon. Donald........................................ 37 Prepared statements: Cordova, Tina................................................ 39 Muller, Anna................................................. 55 Bonano, Evaristo............................................. 60 Schlueter, Joan.............................................. 67 Powdrell, Joe................................................ 73 Furtivo, Don................................................. 74 Canfield, Michael............................................ 79 Rios, Miguel................................................. 83 ENCOURAGING THE GROWTH OF MINORITY-OWNED SMALL BUSINESSES AND MINORITY ENTREPRENEURSHIP ---------- MONDAY, AUGUST 27, 2001 House of Representatives, Committee on Small Business, Washington, DC. The Committee met, pursuant to call, at 2:00 p.m., at the TVI Workforce Training Center, 5600 Eagle Rock Road, NE, Albuquerque, New Mexico, Hon. Donald A. Manzullo [chair of the Committee] presiding. Chairman Manzullo. The House of Representatives Small Business Committee will come to order. We welcome you to our hearing. Are we missing somebody down there at the end? Miguel Rios. He'll get here. Annually, the federal government spends about $200 billion in services purchased from the private sector. It's a large marketplace, one in which our committee is committed to ensure the small business community is treated fairly and the federal agencies obey the law. In the past, small businesses have had major problems with the way the federal government does business with small businesses. I see some smiles and some frowns. You should have been with us in Santa Fe. We had quite a hearing, didn't we, Mr. Udall? Mr. Udall. We sure did. We also introduced you to green chile. Chairman Manzullo. I know some people have corn in the west, but chiles are a little bit different. The problems with the federal government include failure to meet procurement goals. Bundling of contracts will diminish the number of contracts going to small businesses. These are key issues for the small business community. The first session of this Congress, the committee is focused on making procurement practices in the Pentagon more small business friendly because of the large dollar volume of purchasing the Pentagon does annually. The Pentagon buys over $26 billion each year in goods and services from small businesses. One of our hearings involved the purchase of black berets for the US Army from foreign manufacturers and not from US small businesses. In fact, the Small Business Committee was the only committee in the entire Congress to have a hearing on the whole issue of procurement of black berets. It was our committee that stopped American men and women from wearing black berets made in China and elsewhere. The hearing focused on the decision of the Defense Supply Agency to purchase black berets for the US Army from foreign sources. This committee has both legislative and oversight jurisdiction to ensure that small businesses are not bypassed in the federal procurement process. The hearing uncovered gross disregard for the procurement rules, severely impacting textile manufacturers, apparel and shoe manufacturers in this country. The paramount issue of this hearing was why couldn't these black berets be manufactured in the United States. The result of the hearing was the Pentagon canceled the contracts with most foreign manufacturers and no US soldier will have to wear a black beret made in China. There was a further result of this hearing. The Defense Logistics Agency has announced the following on beret procurement, which is going to be over $50 million, that is will be set aside solely for small businesses. You can be sure, as chairman of this committee, I'll use subpoena powers to bring federal officials before the committee to answer why they have failed to follow the law or to treat small businesses fairly. Thank you. We're all excited, and we haven't even started the hearing yet. I represent the 16th district of Illinois, which runs from the Mississippi River on the west, all the way across the top of the state, to within one county of Lake Michigan. I don't know anything about cactus, but I do know something about corn, and we have a huge industrial area. We have the two fastest growing counties in the state. We have an area that has a tremendous number of farmers, and it's a very, very interesting congressional district. I got to know your congresswoman the first day that she was sworn in as a member of Congress, and she was acting very lost. That happens, especially when you come in midterm, as Heather did, and the very first day she was a member of Congress, I had the opportunity or the honor to have dinner with her. I'll tell you that this is a tremendous member of Congress that you have representing you. You can applaud. She's done a great job. We're joined here, also, by another great congressman from this tremendous state of yours, Tom Udall. He and I spent last night together, and then we had quite a hearing this morning in Santa Fe, and Tom is also doing a tremendous job for the people of the enchanted state of New Mexico. Mrs. Wilson. Thank you. Chairman Manzullo. Congressman Roscoe Bartlett and I came in in the same class of the 100th Congress back in January of 1993, and Roscoe has a Ph.D. in science. He's the vice-chairman of the Small Business Committee. He's also chairman of the energy subcommittee. He's on the Science Committee, and he really is going to lend a tremendous amount of expertise, especially when we talk about the labs. So that's the only opening statement I've got. Let me give it to you, Heather. Mrs. Wilson. Thank you, Mr. Chairman. I appreciate very much your willingness to come here, and I think one of the great strengths of the Small Business Committee is, it gets out into America's mainstream and finds out what's really going on with America's small businesses, and I very much appreciate you coming here to New Mexico, because we have such a vibrant small business community here, many of whose members you're going to hear very shortly. I also wanted to introduce Nancy Renner and Ron Johnson, who are kind of the owners--not really the owners, but they run the workforce development center here, which is brand new, and they run it in a way that's responsive to business, and it's not yet another government-supported endeavor. They actually are self-supporting here, so they are very connected to the business community and very responsive, and I wanted to thank them for letting us come here. I know Senator Kent Cravens is here. I wanted to thank him for coming. He's a state senator. And I think I saw Aggie, from the commissioner's staff is here. Thank you. And I want to thank you very much for coming down and doing your service on the Small Business Committee. Small business is important in New Mexico, and it's good we have a New Mexican, besides you've got to keep Don in line. Mr. Udall. Yes. Mrs. Wilson. And I particularly wanted to thank Roscoe for coming, Roscoe Bartlett, who I've worked with, as well, on the Armed Services Committee, but the real reason I'm glad he'shere is because we expect to see him back frequently, since his son was just hired to do supercomputer modeling at Sandia Labs, so we'll take him as kind of an honorary constituent. I wanted to thank all of you for coming today, as well as those of you who came to listen about how the government does business with small businesses. What are the programs that work in the Small Business Administration, what are the subcontracting problems that we have in New Mexico? It's a huge government contractor. We're talking about $200 billion, nationally, being contracted by the federal government. Well, when you take into account we have three military bases and two national labs here, and less than 1 percent of the country's population, the federal government has a disproportionate impact on the state of New Mexico, and also has a disproportionate impact on small and minority-owned businesses. We have a disproportionate number of small minority businesses here in New Mexico, and some of the most successful ones in the country are here in New Mexico, and some of the leaders of those companies, we will have an opportunity to hear from. 99.7 percent of the employers in this country are small businesses, and they employ half of the employees in this country. For women-owned businesses, 15 million Americans are employed by women-owned companies, and minority-owned business and women-owned businesses are growing much faster than large businesses. This is where the jobs are coming from, this is where the innovation is coming from, and as a state and a country, we need to pay attention to small businesses. If the economy falters a little, as it has for the last 13 months, it's small business that's going to bring us back. We surely need to pay attention to that. I'll be very interested to hear the discussion--and I have reviewed the written testimony--I'm very interested in the discussion, give and take, on some important issues, like funding, like how to make the 8(a) program work, like how to expand creative management programs, other things that are important and just the hassle, sometimes, of doing business with the government. I know about that hassle, because, before I knew I was going to be laboring away in state government, I started and ran a small business here and did work for both of our national laboratories, as well as large other government contractors, and it certainly keeps you awake at night not knowing whether they are going to cut that check for the 60, 90, 120 days accounts receivable that you're carrying on your back, and you're wondering whether you're going to be able to meet payroll this month without taking another covering loan, because somebody in accounts payable hasn't got the paperwork done, and that's not the burden you should be putting on a small business. So I want to thank all of you for coming. Particularly, I want to thank the chairman and members of the committee for joining us here today, and look forward to a lively and interesting discussion. And thank all of you. Mr. Udall. Thank you very much. Chairman Manzullo, let me say it's a pleasure to be here and have the Small Business Committee be here, and Heather, the first congresswoman in that district, I know that, from her hard work, she cares very much about small business, she cares about the job growth, and she wants to make sure that small businessmen and women are not lost in the shuffle when it comes to government programs and all the other things that are going on out there. So it's a pleasure, Heather, to be here with you. My colleagues and I on the Small Business Committee have long recognized the barriers that have affected minority small business entrepreneurs. The last session of Congress, our Small Business Committee passed 27 bills, 20 of which were signed by the President, making our committee one of the more productive, Mr. Chairman, in the 106th Congress. We were able to accomplish that by working with the bipartisan Congress members, checking our ideologies at the door, and keeping in mind one simple goal: How do we help small businesses? And at this time, we call on all members of Congress to join us. Much of what we accomplished last Congress will significantly benefit minority businesses in all aspects. We were successful in lowering the cost of loans to startup businesses, most of whom are minorities. This will enable thousands of business owners across New Mexico, who cannot access affordable capital, to do so, and grow their businesses. We also created the first ever venture capital technical assistance program. In terms of opening the federal marketplace to small businesses, our committee continues to work to ensure contracts are of manageable size so that small businesses can compete for contracts. Mr. Chairman, you know, as we covered in Santa Fe, we've created a new women's contracting program that will allow women-owned businesses in historically underrepresented industries, like technology or construction, to have a level playing field and compete for contracts. But probably our most critical victory was saving the 8(a) program, which has been systematically under attack during the last few years. We were successful in stopping moves, by some in Congress, who failed to recognize, even in this day and age, racial bias still exists. We've been successful in maintaining the 8(a) program, allowing them to continue as a viable vehicle for minority business opportunities. For my part as the ranking Democratic member for the rural enterprises, agriculture and technology subcommittee, I recently worked with Chairman Manzullo to pass my Native Entrepreneurial Development Act. This legislation will help develop one of our most underutilized sectors of the local economy, the tribal businesses, by extending the successful network of small business development centers to create a new business center whose sole focus will be to work with local tribal businesses to increase startup and expand existing firms. These are just a few steps, and I believe our committee should continue to work in helping minority businesses to grow, and I know the entire New Mexico delegation will join me in this endeavor. With that, let me thank all the panelists for being here. I look forward to hearing from the panelists and from others that the chairman might recognize. Thank you. Chairman Manzullo. Roscoe. Mr. Bartlett. Thank you very much. I'm very pleased to be here, and I'm very very pleased to be a constituent of Heather. She agrees with me on about as many issues as my wife. I've served with Heather both on the Small Business and on the Armed Services Committee, and you are represented by a very thoughtful, hard working representative, and you're lucky. I hope you continue to be lucky, to have her represent you. In a former life, I worked on both sides of the issues that we're going to be talking about today. I worked for government and was involved in letting contracts. Then I was a small business person, one of maybe 35 in the Congress, belonged to NFIB, sought government contracts, poring over the Business Commerce Weekly, daily. I guess it came out to that. Small business is the engine that drives our economy. Heather mentioned that women-owned small businesses are growing at twice the rate of male-owned small businesses, and bankers need to listen up, because although the women-owned small businesses have difficulty in attracting capital, there is a lower bankruptcy, failure rate for women-owned small businesses than there is for male-owned small businesses. Also, women-owned small businesses have better employee relations. That doesn't surpriseme. Women are different than men. Our military is having some trouble figuring that out, by the way, but they are different. Women are more compassionate, more empathetic, able to pay more attention to detail, make better employers, their companies are better corporate citizens. For the same reasons they are better employers, those same qualities make them better corporate citizens, and they are more involved in the community. I'm pleased to be here at this hearing. Most of the new innovations in our country, most of the patents--and I was lucky enough to be awarded 20 patents, and I know the kind of environment it takes for a person to be creative, and that environment is not produced in government, and it's not produced in large businesses. Most of the new innovations that push the envelope, really, is what happens in small business, and when we come out of a recession, most of the jobs we've created are created by small business, so we need to do whatever we can to make sure that the government benefits, not just in small business, although that's certainly--you know, my interest is also in spending the taxpayers' dollars in the most productive way, and the most productive way to spend those dollars is to involve small business more, rather than less. So I'm pleased to be at this hearing today. Chairman Manzullo. Thank you very much. Nelson, could you put this mike in the middle. The four of us can share these mikes. Okay, before Congressman Wilson introduces the panel, let me give you just a couple of basic rules. The little light in front of you, we try to limit your testimony to five minutes, and if I go like this, you know you're coming up on the five minutes. If I get more energetic, you know, it's time to wind it up, because I want to leave plenty of time for interaction among the panel with questions of the members of Congress. All statements of the members of Congress and the witnesses will be part of the record, and if anybody here in the audience wishes to submit written testimony, you can do so within 28 days of this hearing. I would suggest that you get all of your written statements--can you give them your office address here, Heather? Mrs. Wilson. If you send it to our office in Albuquerque-- there's an address for the office. Chairman Manzullo. If you'll get those in within 28 days. Congresswoman Wilson, do you want to introduce the panel? Mrs. Wilson. I'd be honored to do so. Tina Cordova is the founder and president of Queston Construction Company. She started, in 1990, a company that does general construction, as well as roofing. One of the neat things about her business, which nobody in the business can imagine women working on construction, including her. She's one of the top 25 women-owned businesses in New Mexico, and in the year 2000, she was small business person of the year for New Mexico, honored by the Small Business Administration for that, and she currently serves on the board of directors of the United States Hispanic Chamber of Commerce. Anna Muller is the president of NEDA Business Consultants, Incorporated. She's been working with small minority business for 30 years now---- Ms. Muller. 31. Mrs. Wilson. 31, and she is very well known to the business community here as a determined advocate for small and minority business, and a great representative of her clients. She has been very active in the community, including the New Mexico 8(a) & Minority Business Association, Latin American Management Association Board of Directors, and has worked very closely with Sandia National Laboratory on the Supplier Community Advisory Council to improve small business and minority business contracting. She's also one of those who constantly shares her knowledge with me, and I wanted to thank her for that, for her help. Dr. Evaristo Bonano is president and chief executive officer of Beta Corporation. Beta Corporation is an environmental engineering and management firm that does work on risk assessment, risk management and decision analysis with respect to environmental and waste management problems. He's received numerous awards, including the US Small Business Administration Small Business Exporter of the Year, for New Mexico, in 1999, and also was Minority Exporter of the Year, Hispanic Engineer National Achievement Award, and Entrepreneur of the Year for the year 2000. He's currently serving as president of the New Mexico 8(a) & Minority Business Association. Joan Schlueter is the owner of On Site Hiring Consulting. I worked with her in the past as an active member of the Association of Women Business Owners, and she's just completed a three-year term on the board of the National Association of Women Business Owners, and is the current chapter president of the National Association of Women Business Owners, here locally. She's also the founding partner of Women Impacting Public Policy, which I kind of like the sound of. Joe Powdrell is the owner of Mr. Powdrell's Barbeque House, and he started his business in 1978. He's gained a rather good reputation in this community as a wise and fair and good businessman, good in the best sense of that term. He contributes to our community as the president of the African- American Business Council and the Governor's Business Advisory Group. His great praise in our household comes from my in-laws, because whenever they come to town from Ohio, they have to stop by Powdrell's Barbeque on the way to the house, because they can't stay away. He makes a great barbeque recipe. Don Furtivo, specialist of Matrix Capital Bank, and his role here, since August of 2000, is to open a branch of a major bank here in New Mexico and develop the New Mexico region for SBA guaranteed commercial loans. He retired from the US Small Business Administration in 1998 after 27 years of service. With the SBA, he was responsible for the SBA commercial loan portfolio. He's got a great deal of knowledge and experience, and I look forward to working with him in the community and hearing what he has to say about how we can expand access to capital for small businesses in New Mexico. Michael Canfield is the president of Valliant Enterprises, Inc. He became a small business owner in 1989, and later purchased the company in 1993. Valliant Enterprises provides a variety of economic development and human resources development for Native American tribes with an imaging division providing scanning and archiving products and services, which has been the long-time basis of the company that he bought. Michael took a sabbatical from Valliant from 1996 to 1998 to manage Laguna Industries, a tribally-owned manufacturing company, and he's a member of the Laguna Indian Tribe. He's also a board member of the Albuquerque Chamber of Commerce and the Indian Pueblo Cultural Center. And last, but not least, Dr. Miguel Rios, who's the founder and chief executive officer of ORION International, was recently named interim CEO of the National Center for Genome Resources, which is up in Tom's district, just south of Santa Fe. He established ORION International Technologies in 1985, and ORION Information Technologies in the year 2000. Over the past 16 years, the company has grown to over 200 employees, headquartered here in Albuquerque, New Mexico, and is consistently in the list oftop national and Hispanic-owned businesses. The company provides engineering services and research and development support to the Department of Defense, Department of Transportation, national laboratories and large federal prime contractors. His companies that he owns, and he personally, have received commendations and awards, including the year 2000 Department of Energy Minority Business Summit Excellence Award, listed in 1999 and 2000 among the 100 most influential Hispanics in America, and the 1999 Small Business Administration National Prime Contractor of the Year Award. I don't think there's anybody who comes from Illinois or Maryland who can say that New Mexico isn't very well represented with national leaders in small business and minority-owned businesses. We have some great companies here, and I want to thank all of you for your participation and insights and sharing your wisdom and knowledge with us today. Chairman Manzullo. Thank you. The first witness will be Tina Cordova. Tina, do you want to put the mike down there. STATEMENT OF TINA M. CORDOVA, PRESIDENT, QUESTON CONSTRUCTION, INC. Ms. Cordova. Congressman Manzullo, Congressman Udall, Congressman Bartlett, Congresswoman Wilson, I am honored and proud to have this opportunity to testify before you today as a representative of the small business community of New Mexico, and the United States. My name is Tina Cordova, and I'm the founder and president of Queston Construction, Inc. I am a general commercial construction contractor---- Chairman Manzullo. Hang on a second. It shows red on there. It should be green. [Discussion held off the record.] Chairman Manzullo. We'll start the clock all over again and just continue. Ms. Cordova. Thank you. Chairman Manzullo. One of the rules, you can't get nervous in testifying. Nobody is on the ropes. You know, this is not the type of hearing that gets real wild, like we have in Washington. We're here to listen to you all and get information. Ms. Cordova. If I get nervous, just give me a signal. Chairman Manzullo. If I go like this, that means five minutes are up, please. Ms. Cordova. I'm a general construction contractor, with a division of my company devoted to roofing. I've been in business for 11 years, and my company is a small, woman-owned, minority-owned business. We work all over the state of New Mexico, and have had contracts with most of the government agencies that work in New Mexico. I'm currently working on my 8(a) application. We've always met the criteria for becoming 8(a) certified, but I wanted to feel comfortable that my company was ready. That's why I have waited, and we are indeed ready. Aside from my work, I also serve on the board of directors of the United States Hispanic Chamber of Commerce, where I'm the legislative chairperson. Locally, I'm on the executive board, as well as the board in general, of the Albuquerque Hispano Chamber of Commerce, and also serve on the advisory board to the TVI Small Business Development Center that is located in this building. I believe I'm very much in touch with the business community at large and most specifically the minority business community, as I spend most of my spare time in an advocacy role for the same. I am passionately devoted to exploring the issue of procurement opportunities for small, women- and minority-owned businesses. It is the lifeblood of our existence and, yet, there remains much to be done to reach parity. In March of this year, the US Department of Commerce Census Bureau released data that placed New Mexico as the per capita leader in the nation when it comes to the number of Hispanic- owned businesses. 22 percent of the businesses in New Mexico are owned by Hispanics. This is not surprising, when you take a look at the fact that the year 2000 census figures place Hispanics at 42 percent of the total population of New Mexico. However, the same census bureau data indicates that the 22 percent of businesses owned by Hispanics in New Mexico only account for 5 percent of the state's business receipts. These numbers speak to the disparity that remains today in the year 2001, across this great country of ours, when it comes to opportunities for Hispanic business owners. When you examine where the growth has been in the overall numbers of small businesses in the last ten years, the data indicates that the number of Hispanic-owned businesses has grown 232 percent. Much of this growth can be attributed to the increase in Hispanic women-owned businesses. There are well over two million Hispanic-owned businesses in the US today. From an economic standpoint, it only makes sense that we should protect the success of these businesses. We should reduce barriers and shore up programs that assist minority businesses in their quest for opportunities. In that regard, and as the chair of the legislative committee of the United States Hispanic Chamber of Commerce, I present to you, and have attached a copy of, our legislative plan for the year 2001. It is a comprehensive plan assembled by the USHCC every two years. We poll our constituency, and from the input we receive, we address the areas of utmost concern. Many of you have seen the plan, as the USHCC made every effort to distribute it widely in Congress. This is a great opportunity for me to more formally present it to you, and I ask that it be made part of the record. Please review it at your leisure. This year, the priorities of the plan focus on four main areas: Access to capital, procurement, e-commerce, and finally, business education and training. I want to focus on one area today, and that is procurement. The 8(a) program, as most of you know, has assisted many small Hispanic-owned businesses in competing for federal contract dollars. This program is essential, and I believe it should be protected as a vehicle to achieving the parity that I spoke of earlier. Attempts to circumvent or dilute the 8(a) program should be avoided. I believe the HUB zone program is an example of a plan that circumvents the 8(a) program. There are problems within the 8(a) program. One problem is that Hispanic firms have been significantly underrepresented in the 8(a) portfolio. This problem has existed since the inception of the program. Hispanic-owned businesses account for well over 40 percent of the total minority population in this country, yet we only account for 24 percent of the firms in the 8(a) portfolio and 21 percent of the total value of the 8(a) contracts. We must be equitably represented to achieve parity. To resolve this problem, a thorough review of the 8(a) portfolio must be undertaken and a recruiting effort made to reach out to Hispanic woman-owned businesses. Finally, I would be remiss if I didn't address the issue of contract bundling and the negative effect it has on all small business owners. Contract bundling takes away from small business, period. The statistics are clear on this. As small business owners, we have very littleopportunity to participate in these bundled contracts. Contract bundling goes against all the efforts made to bring parity in the federal contracting arena. Make no mistake, it doesn't save money, and it's wrong. The USHCC publishes a newsletter, quarterly, called ``Networking.'' The spring 2001 issue had an article I wrote on contract bundling. I have attached that article for your review and to be made part of the record. I thank you for the opportunity to testify here today. I applaud your attention and interest in the small business community, and most specifically, the small Hispanic business community. I ask you to continue to work hard on behalf of small business issues like those presented here today, and I personally look forward to future opportunities to provide this committee with input. Thank you. [Ms. Cordova's statement may be found in appendix.] Chairman Manzullo. Thank you very much. Our next witness is Anna--is it Muller? Anna, if you want to, speak into the microphone there. Mrs. Wilson. Someone else came in that I just wanted to acknowledge she's here. Ramsay Gorham, who represents the North Valley, is also here and I want to thank her very much for coming. Chairman Manzullo. Ms. Muller. STATEMENT OF ANNA MULLER, PRESIDENT, NEDA BUSINESS CONSULTANTS, INC. Ms. Muller. Honorable Congressman Bartlett, Honorable Heather Wilson, congresswoman, and Congressman Manzullo--am I pronouncing it right? Chairman Manzullo. You probably wondered whether there should be a tilde on the end. Italian names don't have tildes. Ms. Muller. No? And, of course, in northern New Mexico, where I'm from, Congressman Udall, thank you for describing what I do to earn my daily tortillas. I've been a consultant to the minority business community for 31 years. I'm into decades these days, and I'm into three decades. I also participate nationally on the Latin American Management Association Board of Directors, and I'm the only one out of the beltway that is serving as vice president of the National Alliance of Minority Business Associations. I'm going to really confine my remarks to the decline of 8(a) procurement centers, because they have absolutely been-- it's not an exaggeration to say they are precipitous, and one of the reasons is, obviously, contract bundling, which my esteemed colleague, Tito Bonano, will be addressing more thoroughly. But you all have seen the latest report from the Federal Procurement Data Center, which clearly demonstrates the federal departments and agencies have produced mediocre results, and Congresswoman Velazquez' report cards will be coming out soon, and I'm sure most of those agencies will be getting Ds and Fs, at the very best, and it's no secret that those numbers have declined, as I said, precipitously. I have provided you all with the New Mexico numbers, and there's a graph in here that shows that from 1995 to the year 2000, 8(a) sales have gone from, in 1995, 220 million to 51 million. I mean, if that isn't precipitous, I don't know what is. And this, by the way, New Mexico activity is just a microcosm of what's happening all over the United States. Now, there's a whole litany of reasons for this, you know, contract bundling, acquisition contracts, utilization of GSA schedules, government-wide acquisition contracts, GWACS, impact cards, the addition of different categories, you know, HUB zones and veterans programs. The pie isn't getting any bigger, so the pie is getting split up with all these additional categories. We had always been able to sell the fact that the 8(a) program is the most--the fastest contracting mechanism for procurement officials. Well, we can no longer claim that, because 8(a) contracting is not faster than any other contracting method. A contracting officer can use that GSA schedule, ``boom,'' there you are. It is absolutely a much lighter-on-its-feet contracting mechanism. So with that and the GWACS, which is also a very onerous vehicle that is impacting how much business is going to small minority and women-owned companies, GWACS can now allow agencies to buy off of each other's contract schedules. The FAR regulations are giving it an order of precedence, and this type of contract is above all commercial contracts. And this means that an agency must order from a GWACS prior to ordering any other way. And due to the ease of all of these new contracting programs, the 8(a) program now is seen as a slow-moving program, and it's in competition with all of these other contracting mechanisms. So it's no wonder that we are now finding ourselves behind the 8 ball, in terms of being able to sell that 8(a) is the fastest and easiest contracting vehicle. Now, I have some recommendations that I'd like to make; and by the way, I really want to thank Congresswoman Velazquez' office--Michael, please thank the congresswoman for me--your staff helped me pull my thoughts together on these recommendations. We need to track the dollars that are going to GWACS to determine whether small business opportunities are being lost and by how much. That's going to take some quantitative analysis. I'd like to make some comments about the net worth of 8(a) firms having to stay at $750,000. That's ludicrous. I mean, we should be building wealth in this country. You're not wealthy at $750,000. Firms are having to cap their assets in their businesses, because the net worth cannot exceed $750,000. You're encouraged to get into a double taxation situation. And, by the way, the house and senate passage of House Bill 1234, the Small Business Contract Equity Act of 2000, and thank you, Congressman Udall, for cosponsoring that with Congresswoman Velazquez, this will not only add an important quality evaluation to contract bundling, but it will put teeth into small business goals by disallowing that bundling for those agencies that don't meet their small business goals. And I'm going to let Tito talk about contract bundling, but another area that I'd like to see changed, we need to increase those small business size categories. In most of the industries, they are still too small, and we need to raise that competitive 8(a) threshold. $3 million is just too small a number. And with that, I'd like to thank you. [Ms. Muller's statement may be found in appendix.] Chairman Manzullo. Thank you very much. Mr. Bonano. Mr. Bonano. You can call me Tito. Chairman Manzullo. Tito. Mr. Bonano. Tito Bonano. Chairman Manzullo. Okay, Tito, I had your testimony and I read it on the plane. I don't have it now. Do you have copies of it? Tito, we look forward to your testimony. Mr. Bonano. Chairman Manzullo, Vice-Chairman Bartlett, Representative Wilson, Representative Udall, I thank you. Chairman Manzullo. Hang on a second. Do we have more copies of it? That's MichaelCanfield's. Can you imagine a government committee lacking paperwork? Tito, please go ahead. STATEMENT OF EVARISTO J. BONANO, PHD., PRESIDENT OF BETA CORPORATION INTERNATIONAL Mr. Bonano. Thank you. Chairman Manzullo, Vice-Chairman Bartlett, Representative Wilson, Representative Udall, I thank you for the opportunity to testify before this committee. My remarks this afternoon reflect my views and concerns both as the owner of a small minority business and as president of the New Mexico 8(a) & Minority Business Association. There are numerous obstacles that small businesses, in general, and minority businesses, in particular, need to overcome daily just to survive. Some of those have already been mentioned here by both Ms. Cordova and Ms. Muller. Each day these obstacles seem to become more formidable, and therefore, they are becoming a major threat to our country's economic well-being. In the interest of time, I'll address only one of those obstacles: Contract bundling. Notwithstanding the regulation enacted in December of 1999 restricting contract bundling, contract bundling seems to be on the increase in federal procurement. In fact, the increase in contract bundling was the clear message sent by representatives of NASA, the Health and Human Services Department, and the Veterans Affairs Department, to small businesses attending the Jet Propulsion Laboratory's conference, a small business conference, earlier this year. Contract bundling it not restricted to the federal government. State and local governments are also embracing the practice. The ongoing procurement for concession packages at the Albuquerque International Sunport is an example of a local government using contract bundling to the detriment of small businesses. The argument is that it's a more efficient way of doing business, that eventually will result in significant savings to the government. However, there seems to be little evidence indicating that significant cost savings have been realized, so far, from bundled contracts. Moreover, there may be some costs that are not being accounted for in estimating the cost of bundled contracts. In the meantime, contract bundling is considered a key factor for the decline in the number of contracts awarded by the federal government to small and minority-owned businesses, according to a July 2000 report issued by Representative Velazquez, the ranking Democrat on this committee. In practice, contract bundling can be considered a set- aside procurement program for large businesses, because it effectively hinders competition. Our businesses are generally precluded from being prime contractors for large bundled contracts because we cannot meet an often mandatory criterion contained in such contracts: Demonstrated past experience in contracts of similar size and complexity. In some cases, government agencies are bundling smaller existing prime contracts, held by small businesses, into considerably larger contracts. Consequently, small businesses are being forced to step down from prime contractors into subcontractors, just to be able to participate in the procurement and retain at least some fraction of the business. When small businesses are forced into a subcontractor role, they are at the mercy of the prime contractor. Few large businesses truly help their small business subcontractors grow in capacity and experience by assigning them meaningful tasks. Finally, contract bundling increases the demand on small businesses to secure more working capital. It is a well-known fact that securing the needed working capital is becoming increasingly difficult for small businesses. In order to raise the necessary working capital to perform the contracts, many small business owners have been left with no recourse but to sell equity in and relinquish some of their control of their companies to their partners. Choosing the right partner must be done very carefully, because the consequences of making the wrong choice can be disastrous. Let me conclude by stating that I, personally, and the New Mexico 8(a) & Minority Business Association strongly oppose contract bundling. It is a clear and present threat to all small businesses. The detrimental impacts from contract bundling on small businesses, and hence, on our nation's economic well-being are too great to ignore. I'm also a realist and accept the fact that some contract bundling is inevitable and, perhaps, even necessary. However, there needs to be assurances that contract bundling should be the exception, not the rule. I urge this committee to take immediate action to halt the detrimental effect that contract bundling is having on small, disadvantaged businesses, and to ensure that the antibundling regulation of December 1999 has the intended impact. A moratorium on contract bundling is needed now until a process can be established to, one, decide whether a proposed bundled contract has been properly justified, and the interests of small and small disadvantaged businesses have been adequately protected; and two, SBA and the other federal agencies have the necessary resources available to ensure enforcement of the antibundling regulation. I have taken the liberty, in my written testimony, to suggest some specific criteria that could be implemented for achieving these goals. The New Mexico 8(a) & Minority Business Association stands ready to work with this committee and address the contract bundling issue, as well as others affecting our businesses. Once again, I thank you for the opportunity to offer this testimony. [Mr. Bonano's statement may be found in appendix.] Chairman Manzullo. Thank you very much, Tito. We were interested, in the hearing we had in Santa Fe, regarding Los Alamos, which is, well, into big-time contract bundling. I was displeased with what's going on there, and the complete lack of accountability on the part of the University of California and others that are engaged in running the laboratory. And I appreciate your testimony. Joan Schlueter. Do you have some Schlueters, who are relatives in Chicago, Illinois? Ms. Schlueter. Well, my father-in-law was one of 18 children, so I probably do. Chairman Manzullo. These things happen. Ms. Schlueter. I'm from Illinois, originally. Chairman Manzullo. Where? Ms. Schlueter. Northwest suburbs, Park Ridge. Chairman Manzullo. Okay. That's outside the district I represent, but it's in the right state. Ms. Schlueter. It's now New Mexico. I chose to move to New Mexico. Chairman Manzullo. I'm looking forward to your testimony here. I've got it. Does everybody have her testimony? STATEMENT OF MS. JOAN E. SCHLUETER, PRESIDENT AND CEO, ONSITE HIRING CONSULTANTS Ms. Schlueter. Good afternoon, Chairman Manzullo, Vice- Chairman Bartlett, Representative Wilson and Representative Udall. The women business owners of New Mexico welcome you, and I appreciate this opportunity to talk to all of you. I'm Joan Schlueter, owner of On Site Hiring Consultants of Albuquerque. As a founding partner of Women Impacting Public Policy, WIPP, a national organization representing women business owners, and having just completed three years on the national board of the National Association of Women Business Owners, I have contact with women business owners across America. In the last 18 months, I have visited 30 NAWBO chapters. My numerous awards include the 1999 SBA Women in Business Advocate for New Mexico and Region VI. There are 9.1 million women business owners in the U.S. that generate $3.6 trillion and employ 27.5 million. New Mexico, a state with only a million-and-a-half population, has over 60,000 women business owners, which employ over 120,000 and generate over a $11 billion. My experiences put me face to face with many of the problems. I'd like to share some. One of WIPP's members, Deb Naybor, owner of Naybor Land and Surveys in New York, who, after working on government contracts for 13 years, recently made the choice of getting out of government programs because of time, effort and low profitability. Her allowable overhead on government projects is 25 percent lower than on private clients, her allowable fixed fee is 10 percent to 20 percent lower, and it takes an average of 120 days to get paid, whereas, her private clients pay within 40 days, leaving her with no choice. Another WIPP member, Lori DeVito, owner of AET Environmental, in Colorado, has been running in circles since 1995, trying to solicit business from the Rocky Flats site in Golden, operated by Kaiser Hill. And after several failed attempts, she gave up. When people at the DOE Marketing Conference in Denver, in 2000, encouraged her to try again, she did, only to be told by the Kaiser project manager that they only deal with large companies. Another example is Mary Kay Bruns, owner of Contractor Quality Management, who did construction contracting with the US Navy and Army in New Jersey. The trend to pull together some contracts that had already been put out to bid and award them in a bundle put her out of business in 2000. Finally, there is Kathleen Diamond, who recently testified before you. As owner of a full-service language company in D.C., she's been getting training contracts for over 20 years with the Pentagon and other DoD agencies. She was not successful when competing for a translation contract because she was compelled to team with a ``wired'' engineering company that would be the prime contractor, even though the scope of the work was primarily language service. I decided early in my business that I would not work with the labs here because of the time needed to do paperwork and the low profitability. Having presented you with some women business owners' experiences with government contracts, on behalf of WIPP, I offer you some solutions. The interest of government and women business owners would be better served if procurement officials and contract officers were held accountable to current legislation already in place, such as the 5 percent goal established by the Federal Acquisitions Streamlining Act of 1994. What you did, Chairman Manzullo, on the black beret procurement issue, that was brought to the committee's attention, I have that testimony from the Women Business Owners Association in Arizona, and your comments, and was brought to the attention of your committee in May, is what should happen for all women seeking government contracts. The Women in Contracting Act was passed by Congress last December. The SBA should have the rules ready in three to six months. I urge you to push Congress to implement this act. The time frame for requests for proposals must be shortened to 90 days for approval of proposals, with ramp-up of 30 days after the submission deadline for fulfillment of contracts. The Prompt Pay Act must include all contracts, including cost-plus contracts. The approval process must be streamlined. Access to capital is another huge problem. USA Today, August 14th, 2001, focused on this issue, commenting that a woman's work is rarely funded. It continues, ``Women received only 4.4 percent of the most important source of investor dollars last year. That percentage has been flat or down since 97, while VC funding has soared, says major research group VentureOne.''. The article quotes Patricia Greene, a University of Missouri professor, who studies women and financing, ``. . . Jump-starting women's entrepreneurship is critical. There's a lot of glowing embers here, we just need to fan those flames.''. The SBA should be urged to work closely with more local banks to help women like NAWBO member Elissa Breitbard of Betty's Bath & Day Spa in Albuquerque, who, even after getting preapproved by the SBA, was rejected by six banks before finally getting her loan. Thank you, Chairman, for your advocacy of association health plans. It's very important to us. We hope this ends up as final legislation. And thank you, Chairman Manzullo and Congressmen Udall and Bartlett for your time today. And a special thank you to Congresswoman Wilson, who, as a former business owner, understands and supports many of our issues, and for putting forth my name to speak to all of you today. [Ms. Schlueter's statement may be found in appendix.] Chairman Manzullo. Thank you, Joan. I would like you to get a hold of Lori DeVito. If she'll get us a letter, on her letterhead, explaining to the DOE--the DOE has got to get a minus in the manner in which they treat not only minority, women-owned small businesses, but all small businesses across the board. Ms. Schlueter. I have about three or four pages of details of what she's done. Chairman Manzullo. If you could get me the letter--if you could get it to Nelson Crowther, Nelson is the attorney on our behalf, Michael Day is the staff director for the minority side of our committee--if you could get the letter to them, we'll forward the letter on to DOE, and we'll ask them for a response, and if they don't respond to it, then we'll subpoena them. Ms. Schlueter. You're wonderful. Chairman Manzullo. I've had it with those clowns. What we heard about three hours ago, it was a disgrace. I've never seen a federal agency act as carelessly and recklessly and totally without any form of organization in trying to, essentially, pander the small business community by bringing up figures that absolutely do not make sense. So we're here to do some things for the small business people. And when Tom, of course, mentioned to me, then Heather mentioned to me, later on, about what was happening with the small business community and the national labs--not the one here; Sandia is a little different, they don't have prime contracts, but with Los Alamos, I could not believe that I actually listened to the weakest testimony this morning. It was remarkable. Ms. Schlueter. I could give you four hours of that. Chairman Manzullo. Don't need that. The next witness is Joe Powdrell. Mrs. Wilson. Before Joe begins, I also noticed that Loretta Armenta, president of the Hispano Chamber of Commerce here in Albuquerque, is also here in the room. Chairman Manzullo. Have her stand up. There she is. Did you bring some samples of your barbeque sauce? Mr. Powdrell. You know, I was hoping you wouldn't say that, but that can be arranged. STATEMENT OF JOE A. POWDRELL, MR. POWDRELL'S BARBEQUE HOUSE Mr. Powdrell. My testimony--I didn't pass it out. First of all, let me say that it is more than an honor and a privilege to be able to serve in this capacity, Chairman Manzullo, Vice-Chairman Bartlett, and Mr. Udall, and the beauty among the beasts, Ms. Wilson. This is indeed an honor, and salutations come from my parents, Mr. And Mrs. Powdrell, who are founders of a company that's been in business in Albuquerque just about 41 years, and we represent a community that is a minority. We make up about 2 percent---- Chairman Manzullo. Joe, could you put the mike in front of you. Mr. Powdrell. Sorry. We represent a state whose population is around 50- to 60,000 African-American. Statewide, there are about 325 African-American businesses, ranging from hairdressers, all the way to government programs. It is difficult to be Afro-American lineage in the state of New Mexico. I don't want to come here to cry, that's not a story that my family likes to tell. I've learned a lot the last ten years, having formed the African-American Development--African- American Business Council, on how we exist in New Mexico and what kind of struggles that we're having. A lot of the problems that people at this table are having, we don't have those problems, because we haven't positioned ourselves--we haven't been positioned to have them. Most of the 8(a) applicants, of African-Americans, find it too difficult to be certified. We lose people as a result of that. They find it too difficult to do business in New Mexico. Another gentleman, who should have been here today, left here, is going to Houston to find another job. There are a number of things that I'm supposed to say in representation of this particular portion of the community. We're having a difficult time accessing capital. I have checked with a number of people to see how many other African-Americans do I know that have received an SBA loan, and in ten years, I've met not one. And I'm not sure what that says. There's a lot of things that can be read into that, but that should not be the case. I talked to a major car dealer yesterday, in an effort--in preparation for this meeting today. He said to me that when African-Americans ask for money on the other side of a half- million dollars, you become categorized as a very high risk, and that suggests that that might be the sentiment that X number of people are feeling. We wish good business to the other portions of the minority community, hoping that, as they progress, they will look back and try to pick up those who are of a lesser representation. It is significant that Hispanics, male, female, tall, short, do well, because we have strength there; we have possibilities there. We're losing lots of our young people to a climate that does not receive them well. Most of these young people coming out of school, educated well, are leaving New Mexico to go to other states. There are some suggestions I'd like to see: We need to watch the banking industry. It's changing so fast. One of the reasons Powdrell's Barbeque has had success is because we have such a strong relationship with this community. Now, that doesn't mean that we can't be turned down, but it's difficult to turn your back on a company who is so notorious. But we have been turned down. My mother says that accessing capital is too high, and we have had people, and Ms. Schlueter can tell you, who have worked with us real well, kept us from getting frustrated. We almost gave up on them, and that was 20 years ago. I really want to emphasize there are some critical things we need to think about. There needs to be some incentive given to other financial institutions, other than banks. We need to probably think about legislating where private investors are given some kind of incentive to assist the creation and the development of small businesses. I don't know if it needs to be a tax incentive or what, but we need to look for some other funding sources to assist the development of minority businesses, particularly the Afro-Americans in this state. Lastly, I think the 8(a) program has been too difficult for us to get into, and we've suffered because of that. There are a number of things I really want to say, but I'm overpowered by the presence of these people, it's kind of tough, but I'm honored to be a part of this state. I'm concerned about the future. It's tough to live in New Mexico. Again, we represent 2 percent of the state, but we represent 25 percent of the inmate population, and I really want you to take note of that. The business community is the most aggressive portion of the Afro-American community, and it's important we have successes here, because we are, to a large degree, part of the motivating force of progress in our community. Again, I want to thank, particularly, Ms. Wilson for the opportunity to come here. I hope the contributions and thoughts that might have made are taken in a positive nature rather than negative. But these federal programs are in a position to have--by the time it trickles down through the rest of the community in New Mexico, we don't see it. Thank you very much. [Mr. Powdrell's statement may be found in appendix.] Chairman Manzullo. Joe, thank you. I was raised in the restaurant business. My parents went into the food business when I was four years old, and the family business continues today. My brother runs a restaurant that has 13 tables and 13 bar stools, and he works, like you, too many hours a week. He's exchanged his security for something called entrepreneurship. Don Furtivo is with--is it Matrix Bank? Mr. Furtivo. It's Matrix Capital Bank. Chairman Manzullo. Matrix Capital Bank. I'm also a member of the Financial Services Committee. I served on the banking subcommittee, and I noted your background in the 8(a) program of the Small Business Administration. I believe your testimony will be very appropriate. Mr. Furtivo. Thank you, sir. STATEMENT OF DON FURTIVO, MATRIX CAPITAL BANK, COMMERCIAL LOANS, SBA DIVISION Mr. Furtivo. Good afternoon, Mr. Chairman, Mr. Vice- Chairman, Honorable Congresswoman Wilson, and Honorable Congressman Udall. Thank you for the opportunity to speak to you this afternoon regarding these important hearings here in New Mexico. The small business community and its lenders rely on the Small Business Administration guarantee program. Without this program, many lenders would not be able to make loans to the small businesses that they presently participate in and submit to the SBA. The SBA guarantee program is an enhancement that makes it possible for lenders to assist the small businesses thatthey otherwise could not assist. As Senate Small Business Committee Chairman Christopher Bond (phonetic) wrote in his letter of March 16th, 2001, the small business community is dependent on the SBA's programs to obtain long-term financing at a competitive interest rate. Each year, 40,000 or more small business concerns, who cannot obtain credit elsewhere, turn to the 7(a) programs for critical financing. This is especially true here in New Mexico, where approximately 29 out of the 33 counties are deemed rural communities, and a lot of the community banks just do not participate in the SBA programs for any number of reasons, reasons such as fees are too high, the paperwork is too extreme, and they don't have a commercial lender within their organization that can meet the requirements of the SBA application process, and loan volume is dropping in this state. Three years ago, lenders in this state made 308 7(a) loans. Last year, they made 278 7(a) loans, and as of the third quarter ending September 2001, only 146 loans. So that would seem to tie into many of these things that you would like to address. As Mr. Powdrell pointed out, a lot of Afro-Americans, a lot of minorities, other minorities, are unable to obtain the capital here, because the banks just do not want to take the risk of making a high-risk loan, because they're afraid of the SBA program, and afraid if they don't cross the right ``t's'' or dot the appropriate ``i's'' that the SBA is going to pull the guarantee out from under them, and we know that that cannot happen, and we should not let that happen. With this in mind, the fee increases to borrowers and lenders for fiscal 2003 are simply not justified. The present fee structure right now is too high, and based on recent information that was submitted by the General Accounting Office, fees paid by 7(a) program participants on loans from 1992 to 2001 will likely increase from 1.8 billion to $2 billion. The OMB office used a default estimate for loans, fiscal year 2001 loans, saying that estimated default loans were 13.8 percent, but based on statistical data, the General Accounting Office rebuts this, saying that the average defaults are 8.8 percent. So there's a 5 percent differential in there. So it's time to consider reducing the fees on the SBA loans. The SBA loan program should not be run at a profit to the federal government, but it should be run at a subsidy rate that would be more acceptable, and I believe that the three agencies, SBA, OMB and GAO need to get together and settle on a mutual formula to arrive at a reasonable default rate and a subsidy rate, rather than each agency just going its own way, which eventually ends up penalizing the use of the program. We also ask for your support in fees--I'm sorry, we also ask for your support to stop the cuts in the small business development centers. It's estimated to cut that program by, I think, $10 million. Many New Mexico small businesses, especially those in the rural areas, need this resource. They need it to educate themselves on planning and preparing to be small business entrepreneurs. To cut this program of its funding would sever the evolution of small business entrepreneurship and set us back into ambiguity, which is not what I think Congress or the administration wants to do. And I would like to add that we also need the assistance from other resources that are available through the state, with the small business development centers and the micro lenders and other organizations that assist small business; that lenders who participate in the 7(a) program, the SBDC centers and these other organizations need to work more closely together so that we can provide the needed capital that these small businesses need in this state. And with that, I thank you for this opportunity. [Mr. Furtivo's statement may be found in appendix.] Chairman Manzullo. Thank you very much. You might be interested to know that we met in Washington, just before the break, with the new people from OMB, trying to get a true subsidy rate picture. I have more hope now than I did before, that we'll find a subsidy rate, and that the default rate is a lot lower than you think it is. Mr. Furtivo. When I was working in Denver--if I might just add, when I was still working for the agency in Denver, we calculated our own default rate on some loans that were made over a three-year period, and the loans made to small businesses in the state of Colorado, at that time, our default rate was less than 1 percent over three years, and yet the commercial banking rates were 1-and-a-half percent. So small business loans, while people would say that they are risky, they can be less risky if you know how to work with them, and you work with your small business entrepreneurs. Chairman Manzullo. I appreciate that. The next witness is Michael Canfield, and Michael, I also had an opportunity to read your testimony on the plane, but for some reason, I can't find it in front of me. Mr. Canfield. Mr. Chairman, I think I do have some extra copies. If you would like, I'd be happy to provide you with that. Chairman Manzullo. You like that paperwork, don't you, Mike. Mr. Canfield. I love paperwork, yes. Chairman Manzullo. We welcome your testimony. STATEMENT OF MICHAEL CANFIELD, PRESIDENT/CEO, VALLIANT ENTERPRISES, INC. Mr. Canfield. Thank you, Mr. Chairman, Mr. Vice-Chairman, and honorable committee members. Thank you for inviting me here today. I also want to thank you for coming to me instead of me having to go to you. I really appreciate you visiting our community. I would also like to welcome you on behalf of the business community, and the Native American business community, as well, welcomes you here today. I'm really here today to talk to you as a Native American small business owner. My testimony will cover two, maybe three areas, depending on the time. First, I would like to talk about some of the programs that have impacted myself and my business. I think it's important to check out things that are working, as well as things that are not working, but the second part of my discussion today will also be on some of the challenges small business owners have. And then, thirdly, I would like to talk about some of the programs. As for the first part of my testimony, I have to go way back to post high school days, which, as I have to go in decades now, instead of years, but when I got out of high school, I don't think I had the option--I didn't think I had the option, at the time, to go to college. And at the time, there was an option for me here, and that was here in Albuquerque. There's a federally funded and operated school called Southwest Indian Polytechnical Institute. It, at the time, was a technical school for Native Americans. I was able to attend that school for basically no cost, and with the basic education that I received there, I was able to land a job at Xerox Corporation. I was able to stay with Xerox for 14 years, and, of course, I learned a lot about business and leadership from that corporation. In 1989, I decided to become a small business owner; and by the way, the jury is still out on that decision. They'll have to think about that one. I can say, since 1989, I have not seen one dull moment in my life, so that's something to be said for small business ownership. But in 1993, we purchased a struggling printing company here in town and worked very hardto turn it around. As we did, along the way, we came across the opportunity to purchase the building we are in, and not a lot of business owners have that opportunity, but we could not qualify for a loan. We did not have the financial strength to do that. The local SBA office was able to help us, and help us with a guaranteed loan program, and we would not have been able to qualify without their help. So we appreciate the local office here and what they did for us. We have a fantastic loan, if that's not an oxymoron. Maybe it is. I'm not sure. We had a good loan with good terms. It will be a lot better when it's paid off, and we're very pleased to be working with local people here and the help they've given us. The other program that has been mentioned, the 8(a) program, we are a certified 8(a) company at this time. When we became an 8(a) company, I called on a small business person in Washington, D.C., and found out the Government Printing Office doesn't recommend 8(a)s; they don't really recognize the minority program. So, essentially, that didn't do us any good in my printing area business. And recently, we started archiving, and I'm happy to say we received our first 8(a) contract last year, with one of the government agencies here in town. I would also state that, you know, I really recognize the impact that those programs have had on my company and myself. It's hard to say where I would be without some of those things, but there are still many hurdles that we need to overcome as small business owners. And, Mr. Chairman, in your letter, you recognized that small businesses are a significant contributor to our economy. You also mentioned in the letter that small businesses have been job creators and have helped the economy out of hard times. I certainly agree with you on these points. I would also contend small businesses are responsible for providing a significant amount of training that shapes our future work force. Small business owners like myself also donate a significant amount of their time and expertise to the nonprofit organizations to improve our community, and this list, Mr. Chairman, could go on and on, of contributions of the small business owners. I would tell you I feel the burden of these contributions every day, and I feel the burden of paying taxes; I feel the burden of rising healthcare costs; I feel the burden of crime; and I feel the burden of an ill prepared work force. I think it's time for our government to look for ways to ease that burden. I've got an example I'd like to share with you, and that is that I'm the vice-chairman of the state's workforce development board here, and as part of that board, I've come to find out we have approximately $295 million of federal money that comes to this state, in one way or another, to improve our workforce. It's usually set aside for targeted populations, and I understand that that's important, but it's really not set aside. There's really none, that I know of, that's set aside to help and assist small business owners who do the majority of the training of our workforce. I know we hear of in-plant training dollars; we hear of those programs that are usually set aside for the Intels of the world, and the Gateways. I appreciate that, too. That's important for economic development in our state, but maybe we should look for ways to recognize what the contribution of the small business is when it comes to training the workforce. There are two other recommendations I would like to make before I close, and then I'd really like to suggest the committee spend a lot of your time and our money looking into ways to reduce the government bureaucratic regulations on procurement that so many of my colleagues have talked about today. For example, printing regulations. The printing market has changed significantly over the years, and our procurement has not. The Government Printing Office, I will submit to you, that's not the best way for the government to procure printing anymore. Maybe, at one time, it was, but--so please look at those. Finally, I'd like to just mention and leave you with my feelings regarding minority assistance programs. I do believe that the day will come that the business playing field will be level. As Congressman Udall mentioned, I believe the power of diversity will be fully realized and business opportunities will be available for all Americans, but unfortunately, that day has not arrived. Until that day, I urge you to continue to support the assistance programs out there. We need programs that continue to assist the development of our minority entrepreneurs, as well as programs that groom minorities for leadership in private and government organizations. I thank you, Mr. Chairman and committee members, for having me here today. I'd also like to invite you to the Indian Pueblo Cultural Center, which is down on 12th Street, before you leave. I understand you had some green chile earlier, but we have---- Chairman Manzullo. I think we're supposed to have ribs tonight, so---- Mr. Canfield. I would not suggest that you pass up the Powdrells' ribs, but I invite you to stop by the cultural center. [Mr. Canfield's statement may be found in appendix.] Mrs. Wilson. I also wanted to thank John Garcia, who's the state secretary of economic development here. I always have trouble, because he has a twin brother who works--runs the El Pinto Restaurant down in my neighborhood, so I always have to be careful. I've made that mistake, more than once in my life, introducing one as the other. Chairman Manzullo. Our next witness is Miguel Rios, Jr., chief executive officer of ORION International Technologies, Incorporated. Miguel. STATEMENT OF MIGUEL RIOS, JR., PHD., CEO, ORION INTERNATIONAL TECHNOLOGIES, INC. Mr. Rios. Thank you, Mr. Chairman, and thank you distinguished members of the committee for the opportunity to share some thoughts and experiences and opinions on the status of small business in this country. As Congresswoman Wilson pointed out, I'm the founder and CEO of ORION International Technologies, a firm that has been in business over 16 years, and the summary she gave was a very gracious summary of my business background. I would like to add, however, a little bit about my background. By training, I'm a physicist, postdoctoral work in physics. I spent about four years in academia, I spent ten years at Sandia National Labs before leaving to start ORION an engineering services & R&D company that supports our federal government exclusively. I have been running ORION for 16 years, and have also done a spin-off company to do work in the commercial sector. As Congresswoman Wilson pointed out, I'm currently on assignment from the board of directors of the National Center for Genome Resources as interim president and CEO of the Center in Santa Fe, and I expect to do that for perhaps another five months. So, my experience ranges from fundamental research, academia, the national labs, industries supporting the federal government, and some limited experience in private industry and in the commercial sector, and now nonprofit. So my perspective is predominately from the point of view of high technology engineering services, but certainly I hope some of my comments are relevant to the issues across the board. ORION International Technologies is now an exclusive federal contractor. About 90 percent of our business is Department of Defense, including support to Sandia National Labs. So we areheavily a defense-oriented contractor. About 10 percent of our business is with agencies such as the Federal Aviation Administration. I'm obliged to say that I'm here today as a successful small business entrepreneur because of the 8(a) program, although I must parenthetically add that I constantly tell our folks that success in small business is not permanent. It's not necessarily that I wouldn't be here if it weren't for the program, but the fact of the matter is the 8(a) program afforded me the opportunity to enter the mainstream of American capitalism, and I think I represent one of the success stories of the 8(a) program. ORION was certified in 1985 as an 8(a) contractor, shortly after I left Sandia National Labs and we completed our 8(a) tenure in June of 1994. So we have now been out of the 8(a) program for some seven years. During the period from 1985 through 1992, ORION prospered steadily, growing in annual revenues, basically from zero to about $14 million a year in revenues in 1993. And we leveled off at about 14 million per year in 1995, and then we declined precipitously in 1996 and 97 to about $8 million per year in revenues. I'm happy to report to you today that ORION is growing at a compound annual growth rate of 20 percent since 1998, and we completed fiscal year 2000, last September, with revenues of 12 million and acceptable profits. An entrepreneur is never happy with profits, but I have to admit, by the standards of the industry, it's very acceptable. Further, in October of last year, we did a divisive reorganization of ORION under the IRS rules that allowed us to spin off our nonfederal information technologies work as a tax- free transaction. We expect to complete the fiscal year with between 15 and 16 million dollars in total revenues for both companies and project, quite reliably, for next year, between 18 and 20 million. With the end of the cold war in 1989, it was certainly clear by 1990 that business would change dramatically for defense contractors. The subsequent budget reductions led to facilities closures, elimination of contract requirements, consolidation of contract requirements into large omnibus contracts and GSA schedules. Thus, the end of the cold war, in conjunction with concomitant globalization fueled by the explosion of the internet, and, I do believe, the collapse of the Soviet Union, clearly made the thrust of the globalization we see today, which has resulted in mega mergers, such that services and products are more and more dominated by very few large companies. This, in my opinion, has caused a deep erosion of the small business legacy that historically has been the key element in the robustness and innovation in both the federal and commercial market sectors. Based on my experience and observations over the past ten years--and I straddle this, as I said in my comments, between the federal and the private sector--these are some of the key points that I respectfully offer: Small business suppliers to the federal government are under great duress to prosper and, in all too many cases, to survive. Second, the 8(a) program is ineffective to help disadvantaged entrepreneurs enter the mainstream of American capitalism. The size of what constitutes a small business is now much larger than it was before the end of the cold war, and the precipitous globalization that is occurring, the problem is, how do we get big enough to prosper and survive? Further, the federal market is not a hotbed of entrepreneurship and innovation, although the SBIR program has preserved a small vestige of innovation. Chairman Manzullo. I'd like to take that and put it in neon letters five feet high and just flash that over the skies of Washington. Mr. Rios. I can help supply you with the neon, and we'll give you a discount, Mr. Chairman. Further, tech transfer and partnership programs at the national labs are working much better than they were five years ago, certainly at Sandia they are, but probably, across the board, not nearly as well as they could and should. In addition, conducting commercial work in a company that does federal work is very, very difficult, if not impossible, particularly if the company is focused on cost-reimbursable, high-technology services with DOD and DOE. That's the reason that we did the reorganization, and that's a very good section of the IRS code, by the way. Finally, the tax structure on small businesses appears to me to be very disadvantageous compared to large companies. In summary, Mr. Chairman and members of the committee, I believe you should view the erosion of small business vitality in the federal sector with great concern; not because the government should be primarily responsible for developing small business, minority or otherwise, although I do feel that we have an obligation there, but I don't think that's the main reason that we should be alarmed. I think we should be alarmed because I believe our government and perhaps the private sector are losing the key benefits of a robust community of small businesses that provides the best quality, cost effectiveness, innovativeness, responsiveness, and flexibility to quickly adopt to changing user requirements. It is these characteristics in our small business sector that have been essential to making our country the economic and technological leader in the world. The globalization process is fostering emerging economies that have nascent entrepreneurial classes that will certainly challenge our economic and technological leadership in the future. We can count on it. I respectfully submit, Mr. Chairman and members of the committee, that the health and vitality of American business is so important to our long-term world leadership that the Congress should look into the matter very broadly and in sufficient depth to make bold and comprehensive changes that will help ensure our leadership for a long time. [Mr. Rios's statement may be found in appendix.] Chairman Manzullo. Thank you very much. Before I turn this over to Congresswoman Wilson for questions, let me just explain to you some of the resources that are available to you, in terms of the Small Business Administration, and actually through our committee. We have in our committee, I think about six or seven attorneys that serve as members of the professional staff. Michael Day is an attorney, Nelson Crowther is an attorney, and in regards to our staff, in working in conjunction with the Small Business Administration Office of Advocacy, we have gone to bat for small business people that otherwise would not be able to afford an attorney. Let me give you an example. You'll like this, Michael. During the course of a hearing, it was discovered that the Department of Air Force wanted 107,000 baseball hats made up as part of their official uniform, and they put out no less than six RFPs. The person in charge of procurement did not know what she was doing. There's not much--I mean, a hat is a hat, you know, with the letters you want on there, and the colors and braids and whatever it is. Finally, after the seventh letter from our office, they stated that she had withdrawn it. Michelle Goodman, who runs a small business in Phoenix, Arizona, was discussing this with a colleague who said, ``Don't you know what happened? The Department of Air Force got a contract with the Government Printing Office to make the baseball hats.''. Now, hats are manufactured, they are not printed. And GPO let out a contract, through theirweb site, and none of the people who make baseball hats domestically knew about it. By the time we got involved, they had--GPO had let out the contract to a company in the United States, and guess where those hats were going to be manufactured. China. We stopped the contract; we stopped it cold. Mr. Day, working with our counsel and with the Office of Advocacy fired a letter off, and we stopped that garbage from taking place. So, if you feel, as a small business person, that you've really been beat up by any government agency, get ahold of your member of Congress, and she can work with our staff and with the SBA. Sometimes the small business--do you have an ombudsman. Do you have an ombudsman in New Mexico? Mrs. Wilson. The SBA. Mr. Furtivo. I believe there's one, through the regional center, that's available. Chairman Manzullo. You can call Don; he probably still knows a lot of those people, but the resources are there. There's about 40 people that work in the Office of Advocacy, and they do a terrific job of going after different agencies. There's no politics involved in it at all. It's republicans chasing republicans, democrats chasing democrats. That's to make sure small business people aren't roughed up. Don't hesitate to use us. Mrs. Wilson. Thank you. Listening to the testimony, there are some very good ideas, and good real world experiences and things of that nature, but there were some things that I wanted to ask a couple of you to expand on, if you could. Michael, you mentioned how the printing regulations and the RFPs, and so forth, have not kept pace with technology. Can you give an example, from your experience, of what you mean when you say that. What's happening to you? What do you see that just doesn't make any sense from a 21st century point of view? Mr. Canfield. Well, Mr. Chairman, Congresswoman Wilson, I think, originally--this goes back too many decades for me, but I think the GPO originally started off saying ``We should be doing most of the printing.'' You're doing a lot of printing for the government, and obviously, there's a lot of printing, and that makes sense, but now they hardly do any of the printing, they just sub it out. So it seems to me like there's an extra column there that says they're going through these contracting--they are the contracting folks, so we deal with them, and our customer may be right next door to them, yet we have to go to either Denver or Washington to talk to people about the contract. It hampers the relationships, as well, because we are not dealing with our customer like we should. So, my opinion is that GPO should be taken out of the loop, and we could save a ton of money in dealing direct with---- Mrs. Wilson. If you get a customer at the Department of Energy, have you actually had--where you've had a potential customer that you knew he needed some printing work, but you had to go to talk to somebody in advocacy to get the job? Mr. Canfield. They are primarily long-term contracts that GPO lets out, so they can let it out to whoever they feel like, whether it's on a national or local basis, they can let it out wherever. So you could have people doing printing all over the nation for businesses here, for the federal government here, okay. Mrs. Wilson. Don, you've seen this, now, or seen it from both sides of the SBA loan program, and the numbers you gave were really shocking for how New Mexico is really not taking advantage of, particularly, the 7(a) program. I think that the numbers you gave in the decline of 7(a) loans, we are 45th out of 51 for these loans, and that just doesn't make sense to me. What are the one or two things that we could do, as a community, to turn this around so that more small businesses would have access to that capital? What would you do to double that in a year or triple that in a year, as far as the number of loans? Mr. Furtivo. I think perhaps one of the best things to do might be to get the lenders together that participate in the program. Obviously, you have your larger finance banks, like the Wells Fargos and Bank of Americas, et cetera, that are producing the majority of the small business loans in the state, but there's also the smaller banks that have to compete with those larger banks. So I think if we could get maybe a half dozen or so of the banks together and discuss the opportunities there, that perhaps we can help educate these banks that don't participate in the program, at all, or very little, because of the lack of knowledge that they--their commercial lenders don't have, and maybe do a little bit of sharing, because there is enough small businesses, I believe, within this state, that they all don't have to go to the Wells Fargos or the B of As, or they shouldn't have to. Mrs. Wilson. Miguel, when you look at where we are for small businesses--I'm trying to get a baseline of what's happening with small business--how should the Congress go about getting a more in-depth assessment of where we are with the small business programs, to get a better and clearer picture of the reality? Do you have some ideas on that? Mr. Rios. Well, I'm of the firm opinion, Congresswoman Wilson, that the issue is so vital to this country in the long- term, and is so complex, I just mentioned some of the issues, everything from taxes to all the departments of the federal government, innovativeness, et cetera, that--let me give you an example of how the Congress might make a more in depth assessment. In 1987, the Congress chartered a task force to investigate the status of women, minorities and the handicapped in science and technology in this country, and I served on that task force, and it was led by Mr. Jaime Oaxaca, a former vice president of Northrup, and Dr. Ann Reynolds, who's chancellor of the California state university system. We gave a report to the Congress that projected the shortage of scientists and engineers, and I looked up the report on that, because we submitted it in 1989. Sure enough, we see a tremendous shortage of people trained in certain areas. So it's my opinion that this country would do well to charter a blue ribbon commission of perhaps 20 people or so, with some from the federal government, perhaps a couple of people from the SBA, some top-notch procurement people, and a strong component of business people, just a diversity of people, but we must have--if the Congress is to do this--we must have dynamic people, that can think out of the box, to look at this issue comprehensively and come back with a comprehensive approach, with recommendations on changes, because I think that we'd appreciate it. And I respect the staffs and the hearings. I've seen that--I've seen how hard the staffs of the committees work and how good they are, but this is, I think, a notch above doing it in a segmented way, for lack of a better word. So with all due respect, I think Congress should consider chartering a blue ribbon commission on this issue. We do that all the time with the National Academy of Sciences, and it works extremely well, and it could be something very beneficial to this country. I think we need extensive revamping of federal procurement. I don't think we'll ever see the days again that we saw, and perhaps we shouldn't. I think if you do the right things, and I don't know what they are, that's why we need some out-of-the-box thinkers to come back to a comprehensive approach. Mrs. Wilson. Mr. Chairman, I'll yield to my colleagues here. Mr. Udall. Thank you, Mr. Chairman. I want to ask a couple of questions, but I want theother panelists, as she answers them--I'm going to ask her about three--if you also are interested in commenting or adding anything. And as you well know, the 8(a) program was designed for both individual and entrepreneurship, the SBA's HUB zone program was designed as a community renewal program. Clearly, these two programs have different purposes and, yet, the solution is the same, federal contracts. Recently, the SBA reversed itself and now proposes that the 8(a) program no longer have precedence over the HUB zone program, or rather that the two programs have parity, meaning that a contracting officer could choose which program to use. How do you believe that this will affect the 8(a) program? Ms. Muller. First of all, Congressman, as you well know, there was a legal interpretation by the legal staff of the Small Business Administration, and I think your committee needs to look at that decision and see if we can get it reversed; because, as you well know, the HUB zone is place-based, it is not risk-based, so it is absolutely in competition with the 8(a) program. Many of the 8(a) companies cannot become HUB zone certified, because they can't reach that employment criteria. For example, if you look at HUB zones, they're really designed for construction firms, companies such as janitorial companies and firms that have employees who live in HUB zones. So because this is place-based and because you well know it was originally designed to replace the 8(a) program, let's not forget that in our deliberations. I mean, that's where that-- that's why that program was enacted five years ago. So it's what I said earlier, there are all these new categories that are coming up, and they're all in competition, because they all have goals, and the 8(a) goal has got to become statutory. That's part of my presentation. Mr. Udall. Well, you and I both know there's no statutory goal for the 8(a) program, so do you believe that the fact that there isn't a statutory goal makes the 8(a) program less likely to be used by contracting officers? Ms. Muller. Well, that's just one of the reasons why it's not being used as extensively as it was, but it was that whole litany of issues that I went into great detail on. Mr. Udall. The 8(a) program is the primary program to increase minority businesses in the federal government. This program has successfully created over 15,000 businesses. It seems to me that one of the reasons for the decline in 8(a) program dollars might be the fear of the Adarand case, although Adarand did not deem 8(a) to be unconstitutional. Do you have any thoughts on that? Ms. Muller. No. I think the Adarand case has been used as an excuse, and, as you've said, it was not deemed--the 8(a) program was not deemed unconstitutional, and we've got to stop trying to find out--find who to lay that excuse on. Sales are down, it's that simple, and we've got to make sure that procurement sales get increased in the 8(a) program, whatever method that takes. Mr. Udall. Do any of the other panelists have any thoughts on any of these three questions, the HUB zone issue, the Adarand case, or the statutory goal issue? Ms. Cordova. I have some, Congressman Udall. As I presented in my testimony, and as was referenced by Congresswoman Wilson, New Mexico is very dependent on federal government dollars, and the census bureau shows that even though we own 22 percent of the businesses here, we're only receiving 5 percent of the revenues. That speaks to this in a big way. The HUB zone program, I believe--my estimation of the HUB zone program is that it's just a way of circumventing; it's a way of taking away from 8(a), and we need to shore up these programs--we would like to see some parity in what's going on with federal contract dollars. We can not remove from the 8(a) program. We have to shore that program up. I also believe we have a program in place where they assess what their plans were for the coming few years, as far as federal contracting dollars; and the focus was very much on the HUB zone program, and it was very obvious the focuses weren't on doing business with the 8(a) program, and I think it's significantly impacting the growth of Hispanic businesses in New Mexico. Mr. Bonano. Chairman Manzullo, let me add my comments to what both Ms. Muller and Ms. Cordova have shared with you. I'm the owner of a high tech engineering company here in New Mexico, an 8(a) certified company, and frankly, the nature of the business our company does for the national laboratories, some private sector clients, and some other government agencies would not allow us to be HUB zone certified, based upon the mere fact that we have to be located in Albuquerque just to be able to serve our current client base. That is a detriment to our company. I think the same concerns are shared by a number of other companies. I think, in New Mexico, we are blessed, in the sense that many of our 8(a) minority-owned businesses are also high tech companies; however, the HUB zone being on a comparative level with the 8(a) program is a disgrace, and I think Congress should take action on that. Mr. Udall. Thank you. One more question for Don. Earlier this year, as part of President Bush's budget, he proposed to increase the fees on the 7(a) loan program to both the borrower and the lender, resulting in an additional cost of thousands of dollars per loan. How will this increase affect your ability to use the 7(a) program, and what type of effect would it have on the availability of loans to small businesses? Mr. Furtivo. Any increase is certainly going to impact it dramatically. The previous increase was done, well, maybe about five years ago. If you go back and look at the numbers of loans that were produced in the mid 1990s, versus those loans that were produced in the latter 1990s, and into the year 2000, you will see that almost every district office in the United States have had their numbers decline, and there has been a decline in numbers--some of the states or cities, major cities like perhaps Dallas, New York, San Francisco, Los Angeles, of course, are going to keep their numbers pretty much the same, with a very small percentage of decline, but other cities like Albuquerque, Denver, Chicago, et cetera, their numbers are going to drop, because number one, the lenders don't want to pay the fee that they are being required to pay. For example, when they sell a loan on the secondary market, yes, they get some fee income for doing that, but then they have to turn around and pay 50 basis points per loan back to the SBA, which is an additional fee, which means they have got to hire somebody in their institution in order to track those, fill out those loan reports, and then have to balance with the secondary market financial companies out of New York, and that costs money to the banks. So the fees that the banks generate by selling loans on the secondary market are eaten up by other costs of operation. The impact on our ability to make loans--it's going to be difficult, because we cannot--we generally pass these fees on to the borrower, and most small business borrowers can't afford it, especially here in this state. Although the SBA allows a lender to add these fees to the loan, sometimes adding these fees to the loan disqualifies the applicant from obtaining their loan because of the additional burden. Mr. Udall. Thank you. Mr. Chairman. Chairman Manzullo. I would add, those fee increases for the 7(a) loan program are not going into effect. OMB needs to come up with a new subsidy rate on the subject. I am not aware that OMB has come up with a new subsidy rate. If you increase these fees, you make the 7(a) loan program more expensive and less affordable for small businesses. Roscoe, did you have any questions you wanted to ask? Mr. Bartlett. Thank you. I noted that two of you mentioned contract bundling, Ms. Cordova and Evaristo Bonano. Mr. Bonano. That's very good. Mr. Bartlett. I took a couple of years of Spanish about 60 years ago. Just a note. Some of this bundling is a sign of the times. Two of our large government agencies had decided that if they didn't do this, they really couldn't be current. One of those was the Marine Corps and the Navy. They found that if they were buying high tech communications equipment, that they never were state of the art, because the procurement time was so long that when they had the equipment delivered, it was already obsolete. So what they decided to do was to buy performance rather than equipment, and then the private sector person could buy the equipment overnight, where the government would take so long to buy it that it's literally obsolete before it's delivered. That's a compelling argument, and I think that because of the requirement to be current, they probably do need to bundle in this case. Another organization with even more compelling reason to do that was NSA, and clearly they need to be current, and they couldn't be current. Nelson Crowthers and I met with both of those, and they agreed to 35 percent--as a matter of fact, the Navy and Marine Corps relet their RFP to ensure 35 percent small business participation, and 10 percent of the money would be paid directly to small businesses, although, they would be able to negotiate that same thing with NSA. The word obligatory, I think everybody understands. All we want is a fair opportunity for small business, and we think the 35 percent, 10 percent direct pay is reflective of what's now going on in this procurement world, where there are procurement contracts. There's one part of this that bothers me, and you've had experience with this, and that's a practice called bid shopping. Are you familiar with bid shopping? I see some heads nodding. This is where the prime comes in with his response to the RFP, saying, ``We'll do a good job doing this, because I'm as good as there is, I have all these subs who are going to support me, and, gee, they are really good.'' Then, when he gets the contract, he comes back to the subs and says--you know, they have got a contract--that times are tough, ``and you've really got to do better than you did with your pricing; as a matter of fact, I'm going to shop around and see if I can't get somebody to do it cheaper than you.'' We took some steps in Small Business to deny contractors of the federal government the opportunity to do that, because, generally, when a bid is accepted, it's not just the prime we are looking at, it's the whole team we are looking at, and if you're still having trouble with bid shopping, we need to know that. Have any of you had any personal experience with that? Mr. Bonano. Chairman Manzullo and Vice Chairman Bartlett, first of all, I do agree with you that, as I stated in my testimony, there are some programmatic requirements in government agencies that do clearly necessitate contract bundling. However, as so eloquently put forth, most of these contracts also have strict subcontract requirements. Let me use an example. My company has suffered this, but let me use a company which is in your home state, called Enercorp Federal Services, Incorporated. It's a company owned by Mr. Steve Ruffin, an African American. The company has less than 15 employees. About 18 months ago, or so, the US Nuclear Regulatory Commission bundled a contract which included as one of the important technical areas criticality safety for facilities. Enercorp is second to none in that area. One of the largest prime contractors in the federal government recruited Enercorp to be their subcontractor and help them write a proposal to the NRC for that contract. The large prime contractor was successful in getting the contract. And then, talking about bid shopping, they decided that it was cheaper to hire individuals, as employees of the prime contractor, to do the criticality safety work than to award the subcontract to Enercorp, that had worked so hard for and was entitled to. As a result of that, Enercorp did not get any work on that contract. Now, shame on the big prime contractor for doing that, but more shame on the NRC for allowing the prime contractor to do that and not enforcing the subcontracting goals as stated in the prime contract. Surely, the subcontracting goal is a performance issue. As a result of that, they should have been dealing with some of the performance issues in that contract. So, yes, we are very familiar with bid shopping. Like I said earlier in my testimony, I do think some contract bundling is perhaps necessary. The programmatic requirements and necessities of a contract needs to be, I think, clearly defined, and the subcontracting goals and requirements under the prime contract have to be abided by and enforced by the client, the NRC in this case. Mr. Bartlett. Thank you. You mentioned the 8(a) program. Two of you indicated--the last two witnesses indicated that the 8(a) program is very helpful to them, they wouldn't have been here without the 8(a) program. Three others mentioned that the 8(a) program was ``too slow,'' ``too difficult,'' were terms that were used. A couple of you gave very specific recommendations as to how to improve the 8(a) program. I wonder if the different experiences relate to the different offices that they dealt with, or did they reflect the histories of the companies that contended for the 8(a) loan. Few of you have had very positive relationships with 8(a), and three of you had somewhat negative relationships, I guess because you felt it was too slow, and indicated how the program can be better, so we'd appreciate your specific recommendations. Do you think that it was the companies' background that came for these loans, or do you think that it was the different departments that you dealt with, or the entity you dealt with? Mr. Rios. Thank you, Mr. Vice-Chairman, for giving me the opportunity to clarify my comments. I clearly indicated that the 8(a) program was a great opportunity for ORION International, my company, and we were very successful from 1985 through 1992, in particular. The contract loan program, being a credit line guarantee, was a very small one for $45,000 on our very first contract. Later, we got advance payments when we got a $4-and-a-half million contract at White Sands Missile Range, and we didn't have the capital to capitalize the contract. So clearly, the 8(a) program and its programs were very good to me. But towards the end, I also said that the 8(a) program is now ineffective for helping disadvantaged people enter the mainstream of American capitalism. What I mean by that is, that the 8(a) program has become ineffective because of the dramatic changes that have occurred in federal procurements. With the end of the cold war, there are virtually no set-asides for small business. Even 200-person companies are in danger of not surviving, because if we loose one major contract, we have a major setback. There's virtually very few 8(a) set-asides. I see companies struggling to get small pieces of work, and so it is not working. It did work for me, but it changed dramatically, as the market changed. Mr. Bartlett. We appreciate your comments, and if you have additional observations onhow the 8(a) program might be improved, we would appreciate getting those. Just one last observation, Mr. Chairman. I noticed that two of you mentioned the availability of venture capital, that it was too limited. I'm not sure how to improve that. We don't want the taxpayers' money to be used on questionable loans, and yet, there are a lot of entrepreneurs out there that have ideas that might produce another Microsoft that--if they only had a chance to get started. I was wondering what your thoughts would be about tax incentives--I'm not a big fan of big government, by the way. I was wondering what your thoughts would possibly be about tax incentives that would permit the private sector to invest in venture capital that would reward them more for high risk loans. You know, very frequently, high risk and high reward go hand-in-hand, don't they, and if you are limiting your loans to low risk opportunities, you're likely to really miss some very big returns on that. How do you feel about, rather than taking your money and doling it out as we see fit, to permit the private sector to make investments, with some appropriate incentives for additional rewards if they are going to invest in high risk loans? Ms. Muller. Since, traditionally, most women business entrepreneurs do not have very much capital, I would be looking for other ways for women to get loans out of the box. That's relative to the fact that women-owned small businesses have a lower bankruptcy or failure rate. We pay our loans back faster, and we have a lower bankruptcy rate. Mr. Bartlett. I guess that the bankers don't know that yet. Ms. Muller. I think it also leads to another point access for some companies of a different nature. I think that there are people who do have money, and they are not rewarded. There are three ways you can get money, three places, right now. The banks are one, and they are changing so fast at the local level, it's not attractive to local people. By the time you get there--I mean, you have one hell of a product, but it's just the points in between. I think venture capital, private investment is another point, but they need to be motivated to invest, and I think taxes is one of the ways to do that. Mr. Bartlett. Thank you, Mr. Chairman. Chairman Manzullo. Tina, did you have a comment? Ms. Cordova. I wanted to respond to Vice-Chairman Bartlett's question on contract bundling. In the construction industry, running that kind of business, bid shopping is a very common practice. It happens all the time. That's unfortunate. The thing about contract bundling, though, is that as a subcontractor, you're always relegated to a position of building the portfolio of a prime contractor, of building their financial wealth, and sometimes at the expense of your own company, when we take a look at contract bundling as a whole, because, to achieve the ability to compete for a prime contract, you have to have the ability to build your own portfolio, and also a lot of these prime contracts have assignments to them that you have to have a certain level of experience on like contracts. If you work as a subcontractor, you never actually get that experience, and so often with these bundled contracts, if you're relegated to a subcontractor, that's where you'll remain, and sometimes, the other thing, too, I would like to point out is, you're also at the mercy of when and how they would like to pay you, and that is very critical as a small business owner, because we would like to receive that money as soon as possible. I have worked as a subcontractor and as a prime contractor on contracts at Los Alamos Labs. I've had very good luck there, I'll say that much, but it's always been much more difficult when I've worked as a subcontractor rather than as a prime contractor. Mr. Bartlett. Yes. I know prime contractors frequently try to use subcontractors as their bank. Ms. Cordova. It happens all the time. Mr. Bartlett. They just want to pay you very slowly. That's the same thing as borrowing money that's interest free. That's unethical. I think that bid shopping is particularly unethical, and I think that for federal procurement, it ought to be united. Ms. Cordova. Another thing I might add, as a subcontractor, what leverage do you have? You want to continue to work with these prime contractors, so often, you can request to get paid, and that would be what you would like to have happen, but you also don't want to upset the apple cart, if you're working with them as a subcontractor. Mr. Bartlett. I understand that, and that's why we need to build into our RFPs the requirement that they pay you promptly. Chairman Manzullo. I want to thank you for coming here. I want to thank Heather for inviting the tremendous witnesses. You know, we hear lots of testimony from people across the country. There's a saying that misery likes company. It helps out. Capital is short for everybody across the nation, I don't care whether it's for your own enterprise or not. We should have a hearing on the lack of availability for capital for any small business person. And sitting on the Financial Services Committee, we're very much interested in why that is. The other side of that is the fact that there has been a lack of demand. Small companies have just been very reticent to try to raise capital because of what they see out there. But what's happening, I assume, with this panel and with the last panel, I think the real focus here is contract bundling in prime contracts. They are hammering everybody. Whether it's a minority-owned business or not a minority-owned business, all small businesses are coming under the hammer of the prime contractors. And as I said to the folks at Los Alamos--I think they know my name now. I think their resorting to prime contractors is just laziness. They don't want to go out and do procurement themselves. They get ahold of the prime contractor, including the University of California, to do their bidding for them and come up with these incentive programs, outreaching to the minorities. If I hear that once more, I'm going to scream, because minority groups are out there, already reaching out, wanting to know where the contract is, and all we hear from the bureaucrats is, they are talking about reaching out to minorities. Reach out with a check, and that will take care of it. And so, we made that point very clear to the folks at Los Alamos. I'm not going to tolerate, as chairman of the Small Business Committee, seeing small business people having to suffer while these bureaucrats don't want to do their job as procurement officers and simply end up with a prime contractor. We have the Defense Logistics Agency, DLA, that does the work for DoD. They have 18,000 procurement officers, 18,000 of them. On the Armed Services Committee, I asked them, I said, ``Why are you getting involved with prime contractors if you have all these procurement officers?'' And I heard some of the most incredible stories about things that have been going on. The problem is that very few congressional committees are willing to dig in and find out exactly what's going on. That's what we're doing with this Small Business Committee, that has very little jurisdiction, except the ability to raise lots of hell. We got involved with those berets because no one else was willing to step up to the plate. Three congressional committees had requested information from the Defense Logistics Agency on those berets, and I soon learned that you don't request anything from those clowns. There are 17 members of Congress that have the powers of subpoena. I'm one of them. And Tom, you're an attorney, you know what that means. I said, ``Fine.'' They stonewalled three congressional committees, bringing documents in in five days, and--they must have worked all weekend putting together all these documents, backdated documents, legal opinions from people that must have graduated from law schools that are still working under the accreditation of 35 years ago. I mean, I looked at this thing and I said, ``What are these people doing? Why isn't anybody being held accountable?'' That's why we've come to you. We're asking you to do your part. When you see these abuses occurring, get us a letter on the letterhead of that company, because I'm convinced we are not going to change this all at once. It's got to be led head by head. You can pass all the procurement laws that you want, but if you can't get sufficient quantity or quality for clothes or appliances--we are in the process of drafting this and serving notice on Congress. And you wouldn't believe the amount of federal procurement that's going offshore. We all pay taxes to the federal government. The federal government turns right around and buys stuff offshore to the exclusion of you that are paying taxes and making possible the jobs. I think I said that right. We have to be very diligent and hold their feet to the fire and don't be afraid to go forward with it. So please work with us on it. It helps. Let's stick some necks out, step on some toes, and we'll have some more fun. Thank you very much for coming. This meeting is adjourned. 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