Leveling The Playing Field: Challenges Facing Small Business Contracting
Summary
The printed record of a hearing of the Subcommittee on Contracting and Infrastructure of the House Committee on Small Business on challenges facing small business contracting, on February 15, 2024 and published as Small Business Committee Document Number 118-041, with Chairman Nicholas LaLota presiding. Chairman LaLota says the number of small businesses receiving federal contracts has decreased by 50 percent over the past 10 years and that federal acquisition regulations run over 94,000 pages. Ranking Member Hillary Scholten says 5.5 billion defense contracting dollars were spent in Michigan in fiscal year 2022 and points to unfilled procurement center representative posts. The witnesses represent ADDAPT, Lipsky Construction for the Associated General Contractors of America, and Alliant Healthcare. The appendix adds material from NASA, the Women Veterans Business Coalition and others.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
LEVELING THE PLAYING FIELD: CHALLENGES FACING SMALL BUSINESS
CONTRACTING
HEARING
before the
SUBCOMMITTEE ON CONTRACTING AND INFRASTRUCTURE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
FEBRUARY 15, 2024
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 118-041
Available via the GPO Website: www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
54-744 WASHINGTON : 2024
HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
CELESTE MALOY, Utah
NYDIA VELAZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MARIE GLUESENKAMP PEREZ, Washington
SHRI THANEDAR, Michigan
MORGAN MCGARVEY, Kentucky
HILLARY SCHOLTEN, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire
Ben Johnson, Majority Staff Director
Melissa Jung, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Nick LaLota................................................. 1
Hon. Hillary Scholten............................................ 3
WITNESSES
Mr. Joseph Spinosa, Vice Chairman, ADDAPT, Massapequa Park, NY... 5
Mr. Joel Lipsky, President, Lipsky Construction, Bayport, NY,
testifying on behalf of Associated General Contractors of
America........................................................ 7
Mr. Bob Taylor, Owner and Chief Executive Officer, Alliant
Healthcare, Grand Rapids, MI................................... 8
APPENDIX
Prepared Statements:
Mr. Joseph Spinosa, Vice Chairman, ADDAPT, Massapequa Park,
NY......................................................... 25
Mr. Joel Lipsky, President, Lipsky Construction, Bayport, NY,
testifying on behalf of Associated General Contractors of
America.................................................... 29
Mr. Bob Taylor, Owner and Chief Executive Officer, Alliant
Healthcare, Grand Rapids, MI............................... 37
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Associated Builders and Contractors (ABC).................... 41
National Aeronautics and Space Administration (NASA)......... 43
Piliero Mazza................................................ 53
Women Veterans Business Coalition............................ 58
The HUBZone Contractors National Council..................... 59
LEVELING THE PLAYING FIELD: CHALLENGES FACING SMALL BUSINESS
CONTRACTING
----------
THURSDAY, FEBRUARY 15, 2024
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting
and Infrastructure,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:03 [a.m.], in
Room 2360, Rayburn House Office Building, Hon. Nicholas LaLota
[chairman of the Subcommittee] presiding.
Present: Representatives LaLota, Ellzey, Molinaro, Bean,
Maloy, Scholten, McGarvey, and Thanedar.
Chairman LALOTA. Good morning. Before we get started, I
would call on Ranking Member Scholten to lead us in the Pledge
of Allegiance.
Ms. SCHOLTEN. Would you please stand with me.
All. I pledge allegiance to the Flag of the United States
of America, and to the Republic for which it stands, one
nation, under God, indivisible, with liberty and justice for
all.
Chairman LALOTA. Good morning. And welcome to today's Small
Business Subcommittee hearing on leveling the playing field and
challenges facing the small business contracting.
First, I want to thank our witnesses for joining us today,
a few of who have traveled here from the best place in the
country, Long Island. Your time is very much appreciated, and I
look forward to your testimonies, all three of you.
Today our Subcommittee will focus on several critical
issues facing Main Street America.
First, the number of small businesses receiving federal
contracts has decreased by 50 percent over the past 10 years.
Further, nearly 60 percent fewer small businesses are entering
the federal contracting system. Second, the regulatory burden
placed on small businesses that seek to enter federal
contracting is too high. And, finally, third, we intend to
address the systemic failures in the federal acquisition
process which undermines small business participation in
contracting.
But it is not enough that we point out those problems. The
focus here should be on how we solve these three and other
issues, knowing the crucial role that Main Street America and
small businesses play. We want to help increase competition,
innovation, and stimulating our economy through our small
businesses.
It is embarrassing and even shameful that our small
businesses have been systematically squeezed out of federal
contracting for decades, and this decline comes as no surprise
as the administration actively steers our economy and national
security in the wrong direction.
At a time when the country needs a robust defense
industrial base, small businesses are getting pushed out of
government contracts in this very space. Specifically, in my
district, we are the nation's second largest industrial park
after Silicon Valley, in Hauppauge, and, more broadly, Long
Island is home to over 167 defense and aerospace companies
comprising over 3 million square feet of industrial and
commercial space, with 10,000 full-time employees and $3
billion of economic activity.
And with the decline of domestic industrial small- and
medium-size defense contractors, it is vitally important that
we recognize and promote the vital work of our existing
industry, like Long Island's industrial defense industry, whose
contributions keep our military prepared at a moment's notice.
As we look at contracting the Department of Defense, we
must not only consider the primes but also the tiers of
suppliers providing parts for ships, submarines, and planes, or
businesses providing vital services.
The bureaucratic red tape small businesses are forced to
navigate is also extremely harmful and burdensome. Needless to
say, the complexity of these barriers makes it even harder for
small businesses to enter the federal marketplace. For example,
involvement in federal contracting requires a sufficient
understanding of the long and cumbersome regulations related to
federal acquisition, defense federal acquisition, and within
the federal register. Together, these burdensome and
bureaucratic documents are over 94,000 pages long and require
thousands of man hours to read. I am sure that we can all agree
that no small business has the manpower to accomplish this
burden successfully.
Finally, we must examine the systemic failures currently in
the federal acquisition process which consistently undermine
main street. Practices like self-certification and joint
ventures are ripe for exploitation by large companies to the
detriment of small firms when large firms partner with a small
business to gain access to small business contracts. Fraud is
rampant in self-certification, and yet the administration seeks
to expand rather than correct these actions.
I recently joined my colleague from the other side of the
aisle and fellow New Yorker, Ranking Member Velazquez, in
introducing a bill that would phase out self-certified women-
owned small businesses from the governmentwide procurement
goals and protect the integrity of that program.
Just like with any small business program across the
federal government, we must ensure structure and guidance is in
place to ensure firms are accurately represented. Our goal in
this Committee is to create a pathway for small businesses to
succeed, and we must ensure that small business is given the
opportunity to thrive without drowning in bureaucratic red
tape.
Thanks again for everybody joining us today. Our witnesses'
real world experiences, which we will hear shortly, will help
this Committee work to make meaningful improvements to ensure
small businesses are fully utilized in the federal procurement
marketplace. We must work together to stop the decline of small
business contracting and fight to keep main street open for
business.
With that, I yield to my distinguished colleague, the
Ranking Member from Michigan, Ms. Scholten.
Ms. SCHOLTEN. Thank you so much, Mr. Chairman, for holding
today's important hearing.
The premise is simple and straightforward: The federal
government needs to contract with businesses in order to run.
We believe they should be contracting with small businesses.
How and the means through which that happens is what we are
going to be talking about today.
The federal government is spending almost half a trillion
annually on goods and services needed for its daily operation.
In fiscal year 2022, 5.5 billion defense contracting dollars
were spent in Michigan alone. At least 131 million of those
dollars are spent in my district. This money brings well-paying
jobs to west Michigan and stimulates the economy.
The U.S. Government remains a consistent and reliable
client, yet the federal marketplace can be a hard space to
survive, especially for small businesses. Small businesses
experience challenges, including lag time between the speed of
approvals and the speed of acquisitions, lack of uniform
requirements across agencies, and inconsistent contract
windows. These issues threaten the health of the industrial
base and those businesses participating in it.
If anything, we should be able to agree that the economic
security and national security of our country is dependent upon
a strong industrial base fueled by secure supply chains. Small
businesses play a critical role in making sure that happens.
To that end, I am glad that this Committee is examining the
ways to empower our agencies to establish clear guidelines that
would spare businesses the costs of associating with compliance
with varying redundant and antiquated reporting requirements.
The ability of small businesses to compete in the federal
marketplace has also been adversely affected by the lack of
staff in critical roles. Our witnesses here today may not be
surprised to learn that there are openings in the role of
procurement center representatives and commercial market
representatives overseeing millions of contracting actions.
Those delays result in attendant delays down the chain. Small
businesses cannot be adequately advocated for with such few
numbers promoting their use and ensuring the agencies are
following the small business contracting procedures.
Lastly, the government has taken steps, such as in the SBA
taking over the certification process for Service-Disabled
Veteran-Owned Small Businesses from the Department of Veterans
Affairs, to streamline the certification process and eliminate
unnecessary redundancies. I welcome discussions like today so
we can build on success like this and identify additional
factors challenging our small contractors and develop
thoughtful, effective solutions.
What is important for this Committee to keep in mind is
that the testimony we hear today is part of the bigger picture,
which is that the federal procurement marketplace is always
evolving, and it is incumbent upon our agencies to remain
agile, responsive, and accountable to the partner small
business community that they work with. Small firms bring new
ideas to the table, which in turn generate new jobs, new
solutions, and, again, secure our industrial base. We must take
steps to ensure that they can thrive and navigate the federal
marketplace.
I want to thank all of the witnesses for being here today,
including our constituent business represented by Mr. Bob
Taylor here today.
And I yield back the balance of my time.
Chairman LALOTA. Thanks so much.
One of the responsibilities of both the Chair and the
Ranking Member of the Committee is to identify and invite
qualified witnesses to help us identify those issues and to
help to provide solutions.
And I am thrilled to introduce our first witness here
today, hailing all the way from my neck of the woods on Long
Island, Mr. Joe Spinosa.
Thanks for being with us today, sir.
Mr. SPINOSA. Thank you.
Chairman LALOTA. Mr. Spinosa is the Vice Chair of ADDAPT
and former co-owner and vice president of business development
at East/West Industries located in Ronkonkoma. Mr. Spinosa has
an amazing 44-year track record of success in business
development with his contributions including designing,
developing, and manufacturing aircraft subsystems.
As the Cold War is ending, ADDAPT was formed in 1991 in
response to reductions in defense spending by the federal
government. ADDAPT's focus is on promoting the interests of New
York companies adversely affected by consolidations among prime
contractors and downsizing throughout the aerospace and defense
industry.
Mr. Spinosa graduated from Fordham University with a
bachelor of arts degrees in economics and applied psychology.
Thanks again for joining us today, Mr. Spinosa, and we look
forward to the conversation ahead.
Our next witness here today is also a very qualified Long
Islander too, Mr. Joel Lipsky. And Mr. Lipsky is president of
Lipsky Construction located in Bayport, New York. Lipsky
Construction was founded in 1955 when Herbert Lipsky founded
the Levittown carpentry program, earning its reputation by
transforming hundreds of Cape Cod models into expanded
Colonials. Now Mr. Lipsky serves as president of his own third-
generation family business. Prior to working for his family
business, Mr. Lipsky worked for the Haskell Company and the
Turner Construction Company.
Mr. Lipsky graduated from the University of North Florida
with a bachelor's degree in construction management.
Thanks so much for joining us here today, and we look
forward to the conversation ahead.
And I am going to yield to the Ranking Member for our final
introduction.
Ms. SCHOLTEN. Thank you so much, Mr. Chairman.
It is truly my pleasure to introduce our final witness
today, Mr. Bob Taylor. Mr. Taylor is a decorated veteran of the
U.S. Air Force and is the founder, CEO, and sole owner of
Alliant Healthcare Products which is based in my district,
Grand Rapids, Michigan. Alliant specializes in manufacturing
lifesaving and life-improving healthcare products that help our
Active Duty military and veterans every day.
Mr. Taylor earned his bachelor's of science degree from
Michigan State University. Go Green.
Since founding Alliant in 2002, he has successfully grown
his company, navigated an evolving federal marketplace, and
established strong relationships with the Department of Defense
and Department of Veterans Affairs. In 2019, the SBA's Michigan
chapter recognized his efforts in naming Alliant as the
Veteran-Owned Small Business of the Year.
I am thrilled to have you here, Mr. Taylor, and look
forward to your testimony. Thank you for being here and thank
you for your service to our country.
Chairman LALOTA. And thank you. Appreciate, Mr. Spinosa,
Mr. Lipsky, Mr. Taylor, all three of you, for making the trek
to Washington to help inform us on this important conversation
here today.
Before I formally recognize you for your testimony, I want
to remind you that your oral testimony is restricted to 5
minutes in length. If you see the red light in front of you
come on, it means that your 5 minutes has concluded, and that
is go time. That is time to wrap it up.
And we want to recognize first, Mr. Spinosa, for your 5-
minute opening remarks, sir.
STATEMENTS OF MR. JOE SPINOSA, VICE CHAIR, ADDAPT; MR. JOEL
LIPSKY, PRESIDENT, LIPSKY CONSTRUCTION; AND MR. BOB TAYLOR,
OWNER AND CEO, ALLIANT HEALTHCARE
STATEMENT OF MR. JOE SPINOSA
Mr. SPINOSA. Thank you very much, Chairman and
Congresswoman. Thank you for allowing ADDAPT to testify today.
I will be presenting points which have been collected from
member companies of ADDAPT, over 120. They represent tiers 1, 2
and 3 of the supply chain.
In order to set a baseline, let me reference the following
points that were made in a message by Secretary of Defense
Austin. Small businesses account for 99 percent of all employer
firms, 44 percent of our nation's economic activity. Small
businesses comprise more than 70 percent of the companies that
do business with DOD. They keep our military forces combat
ready with critical parts, cutting edge technology, and top
notch services. They fortify our defense supply chains in times
of crisis. They ensure the military has the best capabilities
to keep us safe.
The most innovative minds in the country come from smaller
companies. Despite efforts, though, the defense industrial base
has declined by over 40 percent in the past decade. If we do
not work to reverse the decline of small business contracting,
then the industrial base that equips our military will weaken.
If we do not take action, we risk losing mission-critical
domestic capabilities, stifling competition and innovation, and
potentially weakening the supply chains.
From ADDAPT's perspective, in fact, small businesses that
support aerospace and defense efforts are struggling to survive
and stay relevant. Small businesses are faced with many
challenges. We have categorized our presentation of challenges
in two basic categories: overarching or primary issues and
breakdown of system or secondary issues. Today I will cover my
oral only the primary issues.
Regulations are many and complicated, leading to the need
to hire costly attorneys and translate regulations for small
business owners. Small business owners do not employ full-time
attorneys on staff. Many small businesses agree to contractual
terms and conditions that are onerous or risk-intense because
they have no choice.
Financial issues arising from the economic environment
resulting in high interest rates and limiting access to
capital.
There is a need for equitable adjustments to be available
for multiyear fixed price contracts to counter the
unprecedented inflation increase and drastic changes to the
markets of raw material, process and finishing, and power.
Consideration should be made for interest costs to be
considered as allowable costs, where progress payments have not
been extended as part of the contract consideration. It is
difficult for small businesses to be extended progress payments
or milestone payments as part of contracts from the government
or primes.
There is a need to maintain the waiver on progress payment
rates and encourage prime OEMs to extend that to tier 1
suppliers. Also request the progress payment threshold to
remain at 95 percent for small businesses.
Cybersecurity has added a new wrinkle to the challenges. We
understand and support that this is a required effort, but it
is expensive to implement for a small business. According to
our Members, to accomplish and implement CMMC for a small
business can run from $200,000 to $500,000. For the average
small business, this is a considerable amount and is growing.
This is just to be allowed entry into the system to provide a
quote to the prime or the government.
Who will ultimately bear the cost for this? If it is added
to the cost of items being quoted, will the small business be
deemed noncompetitive? Furthermore, at the lowest levels of the
supply chain, having to implement CMMC can be too expensive or
beyond their capabilities, leading to a death spiral in the
defense industrial base. Is there a right size solution to
protect small business of the DIB while still protecting data
integrity of the warfighting apparatus? Will there be
sufficient numbers of assessors on hand to perform the
certification to address the demand?
Workforce development is another issue. Pandemic effects
have reduced the workforce. In order to recover, defense
manufacturers need programs that encourage and assist those
that wish to be employed in the industry. Grants for training,
certification, and transportation are needed to develop that
workforce.
As we have seen, there are many issues that challenge small
businesses. It has become very difficult for small businesses
in the aerospace and defense industry to make a good living and
continue to invest in their companies to provide the kind of
stabilities and capacities we need as the country moves into
the future.
Once again, ADDAPT thanks you for this opportunity to
testify.
Chairman LALOTA. Thank you.
And I now recognize Mr. Lipsky for his 5-minute opening
statement.
STATEMENT OF MR. JOEL LIPSKY
Mr. LIPSKY. Chairman LaLota, Ranking Member Scholten, and
Members of the Committee on Small Business, Subcommittee on
Contracting and Infrastructure, thank you for inviting me here
to testify today. It is an honor to be in your presence.
My name is Joel Lipsky, and I am president of Lipsky
Construction located in Long Island, New York. Lipsky
Construction is a third-generation commercial contracting
company started by my grandfather in Levittown. Since my
brother and business partner, Alex, and myself succeeded the
company from my father and my uncle only a few short years ago,
our organization has grown to over 12 construction management
professionals who currently work with us today. We work in
collaboration with some of the region's most respected design
professionals in the New York area, and our work covers both
the private and public sector.
I am testifying on behalf of the Associated General
Contractors of America, otherwise known as the AGC. The AGC is
the leading association in the construction industry,
representing more than 27,000 firms and their employees,
including some of America's leading small business construction
firms. It must be noted that more than 90 percent of firms
within the construction industry have 20 or fewer employees.
The AGC appreciates and thanks the Subcommittee for its
continued efforts to help improve our nation's infrastructure
and help develop small businesses.
One of the greatest challenges contractors face with
federal agencies is the disruption of cash flow on a
construction project. Cash flow is critical, and without
sufficient cash flow, a construction project would never start.
Government projects rarely provide any deposit to initiate
services and largely do not release funds for any type of early
material procurement, leaving the onus on the prime contractor
to manage those expenses.
Oftentimes to keep the project moving, small businesses
self-finance government projects. Lipsky Construction and other
small contractors like myself can only self-finance these
projects for so long. Slow payments impact not only the prime
contractor but all lower tier subcontractors and suppliers as
well.
It must be noted, Chairman LaLota, as a prime contractor,
we at times put the burden on the second- and third-tier
subcontractors and suppliers to self-finance their portions of
the work. And for Lipsky Construction, this includes putting
that financial burden on many of the contractors who are your
constituents, as a large portion of my subcontractors who I
work with live within your district.
The result is a decrease in competition for federal
projects and fewer opportunities for small businesses.
Additionally, these barriers prevent potential construction
companies from ever even wanting to enter the federal market.
Construction has been a well-regulated industry, and
transparency is important to providing accountability to the
American people. While there are many benefits to regulation,
there is a balance between regulation and overregulation. This
issue becomes particularly hard for small businesses with fewer
than 15 employees.
As the owner of such business, I frequently navigate the
challenges by deploying my support staff in very diverse roles.
One day my office manager might be handling phone reception.
The next day she might be engaged in tasks like minority- and
women-owned reporting, and another day she might be doing
Section 8 labor outreach, all of which are required to work on
federal projects.
For the construction industry, labor shortage is still one
of our biggest challenges. Despite increase in pay and
benefits, the construction industry's labor shortage remains. A
2023 AGC survey found that 93 percent of construction firms
have open positions that they are struggling to fulfill, not
only skilled labor but also skilled construction professionals.
I want to thank you again for inviting me and the AGC to
testify before the Subcommittee today. I look forward to
answering any questions you may have.
Chairman LALOTA. Thank you.
I now recognize Mr. Taylor for his 5 minutes of remarks.
STATEMENT OF MR. BOB TAYLOR
Mr. TAYLOR. Good morning, Chairman LaLota, Ranking Member
Scholten, and distinguished Members of this Committee. Thank
you. It is my honor to provide my testimony to this Committee
about the way that my small business can work with the federal
government in a more effective and efficient manner.
My name is Bob Taylor, and I am testifying on behalf of the
three businesses that I have in Grand Rapids, Michigan, where I
employ 71 people. I am the 100 percent owner of Alliant
Healthcare Products, a verified Service-Disabled Veteran-Owned
Small Business, which sells healthcare products to the VA and
U.S. military hospitals throughout the world, its sister
company, Medisurge, a contract medical manufacturer, and
Alliant Biotech, an orthopedic company focused on knee
implants.
As background, I had a 17-year military career leading to
the rank of major. I served my first 6 years in the Air Force
on Active Duty as a B-52 navigator and radar navigator. As a
first lieutenant, I flew 11 combat missions during the first
Gulf war.
I wrote a book which was published earlier this year called
``From Service to Success.'' The book reflects on my combat
experience, the challenges I faced, and provides a roadmap for
how veterans can overcome these challenges and not only survive
but to find the greatest success of their lives.
Since starting Alliant Healthcare almost 22 years ago, we
have earned a strong reputation as an exceptional federal
market expert who provides value throughout the supply chain.
Small businesses are vital to this space. If we have learned
anything from our time with COVID it is that our supply chain
is fragile, and it is imperative to our national security and
the welfare of our citizens that we maintain a vibrant and
diversified supply base which focuses on small business.
Our small business has streamlined the process for helping
the VA military hospitals in acquiring 200,000 different
healthcare products from over 40 different manufacturers
through 60,000 annual purchase orders. In addition, our most
important benefit to the government is that we do not mark up
prices for approximately 90 percent of the products we provide.
We allow contracting officers to negotiate fair and reasonable
pricing as though they are buying directly from the
manufacturer, and then we honor those prices. In the words of
one contracting officer, ``We love working with Alliant because
you offer the same exact pricing and your team understands the
government procurement process better than the manufacturers,''
unquote.
Challenges? My understanding is this Committee wants to
understand a little bit better about how small businesses are
exiting this space. I think I can provide some insight.
Our major challenge in dealing with the federal government
is the time and data required prior to obtaining necessary
contracts to meet the government's need. The impact is
significant. It costs our company in lost revenue and lost
profit. But it also delays lifesaving and life-improving
healthcare for our nation's warfighters and veterans. The
delays are not measured in weeks or months. It is measured in
years.
As examples, our products need to be on multiple different
contracting tools, such as the Federal Supply Schedule, ECAT,
IDIQs, DAPA, MSPVs, HTMEs, among others. All require hundreds
of thousands of transactional data, and most do not require the
same data. And if one contracting officer determines that our
prices are fair and reasonable, the others do not recognize
that determination. Each submission takes 12 to 18 months or
longer. The process of their analysis can take so much that we
have to resubmit data, which causes more delays. The
requirements are daunting.
Our challenges also include government payments. Alliant
Healthcare currently has $7.4 million in receivables from the
government. Of that, approximately $4.2 million is past due.
The government is not paying in a timely manner. What is
interesting is Congress passed laws to ensure timely payments
to small businesses described in FAR Part 32.009, but the
agencies are not adhering to the law.
Congress also passed laws to require prime contractors to
subcontract with SDVOSBs, but are allowed to achieve
subcontracting goals that are far below the requirements. For
example, the law requires 3 percent subcontracting, but the
numbers are an order of magnitude below that.
In conclusion, Alliant offers the military and VA hospitals
the ability to acquire healthcare products in a streamlined and
efficient manner. We could do more with greater efficiency, but
we need to work together to solve these challenges. The
government needs to realign its contracting tools to
consolidate the required data required for awarding contracts,
and the agencies also need to follow the laws already in place.
This concludes my testimony. And I have provided nine items
as recommended improvements.
Chairman LALOTA. Thank you, Mr. Taylor. I suspect we will
be talking about some of those nine here coming up soon.
We are going to now move to the Member questions under the
5-minute rule, and I will start by recognizing myself for 5
minutes.
Mr. Spinosa, thanks again for being here.
Prior to being and serving as the Vice Chairman of ADDAPT,
you have had 44 years of success in your industry, including
being the co-owner and vice president of business development
at East/West Industries. And we have said how the federal
bureaucracy can be very difficult, 94,000 pages of rules and
regulations for businesses like the ones that you represent.
Mr. Spinosa, in your experience, what are some of the
unique challenges that small businesses encounter when
navigating the Department of Defense procurement process?
Mr. SPINOSA. Thank you, Chairman. The challenges are, as
have been stated by other testimony here, daunting. You run a
small business. You do the best you can to get everything
together. These regulations that come in, as I said, require
attorneys to come in and help translate from legal speak to
business speak and execution. And, you know, small businesses
don't have attorneys on staff. It is expensive to do that and
even bring attorneys in to go through this.
And in the end, you are trying to figure out--at times
people come in and quote, irregardless of what the regulations
have in place, they ignore some of the regulations. And the
government doesn't pick that up.
You need to be able to have the regulations readily
identifiable and clear to the businesses so that they adhere to
that and everybody is on a level playing field. That is really
what it boils down to.
Sometimes the businesses go through looking at it and
signing on to contracts, as I said, that were onerous or have a
lot of risk associated with it, and it is--I am going to put it
in this kind of fashion. Sometimes you need to step up to those
to be competitive and land the business. You need to keep the
business going, because when the big gorilla in the room comes
in, they sit wherever they want to sit. And that is, you know,
the challenge to the regulation side of stuff.
It is also staying on top of those regulations. My feeling
about the regulations is a lot of them are designed to rein in
large business, and large business has a tremendous amount of
resources to apply to that. The small businesses don't, and
that is almost--not that there should be two different. I
understand where some of the regulations are going to regulate
the industry, but the onerous part of it is just driving
nonvalue-added cost into the system.
If we go to the folks at the pointy end of the spear, the
warfighters, and ask them, ``How does this affect you?'' they
look at that and say, ``What are we even spending money on this
for? We need to spend it in the right places to get the right
equipment, the right services, the right technology.''
Chairman LALOTA. So small businesses like the ones that you
represent don't typically have an attorney on staff to help
chew through those 94,000 pages of regulation?
Mr. SPINOSA. They do not. They do not. And, you know, a
side note, I worked in the time early on when everything was
paper, and the books that we would bring in were huge to go
look through regulations and stuff. Electronic maybe makes it a
little bit easier, but it doesn't change the issue of taking
legal speak and moving it into plain language.
Chairman LALOTA. So when you have to spend money to hire
counsel to help chew through those 94,000 pages worth of
regulations, where do you pass those costs off to?
Mr. SPINOSA. It has got to get passed back through the
parts or, you know, through the nonrecurring costs. It has got
to go somewhere.
Chairman LALOTA. So with the less than a minute I have
remaining in this round of questioning, what is the best
solution to that?
Mr. SPINOSA. The solution, to me, is the regulation has to
become more plain language. It is just too legalese.
Chairman LALOTA. And we are going to stick with costs. And,
Mr. Lipsky, sir, can you discuss some of the costs associated
with a company like yours when you are bidding for a federal
contract?
Mr. LIPSKY. Similar to my colleague here, we spend a
tremendous amount of time just qualifying for the bid
opportunity without any assurances that we are actually going
to be awarded that project. And I think that is what he was
trying to say is that just to get in to submit a price, there
is tremendous burden and overhead that is not guaranteed to be
recovered that goes back to the corporation's overhead.
I also do not have an attorney on standby, although the
joke in my office is that she is the second highest employee
within my company.
Chairman LALOTA. Thanks.
My time has expired.
I now yield 5 minutes to my colleague from Michigan, the
Ranking Member, Ms. Scholten.
Ms. SCHOLTEN. Thank you so much, Mr. Chairman.
Just as a point of privilege, Mr. Spinosa, I could not
relate more readily to your fervent insistence on plain
language. My team knows, everyone who has ever worked with me
knows, I am a firm believer, if you can't explain a concept in
plain language, you don't really know what you are talking
about. I am with you 100 percent. The SBA needs to just put
these regulations in much more easily understandable terms. Why
say it in 94,000 pages when you can say it in one?
Again, I just want to thank all the witnesses for being
here today. As the Ranking Member of this Subcommittee, one of
my top priorities is to ensure that Service-Disabled Veteran-
Owned Small Businesses like Alliant are able to navigate and
grow in the federal contracting marketplace. They served our
country. Now it is our responsibility to serve them. As such, I
am committed to improving the process with which agencies award
contracts and pay our hardworking small businesses what they
are owed in a timely manner.
Mr. Taylor, in your testimony, you explained your company
has $7.4 million in receivables from the federal government
and, of that, $4.2 million is past due. I am so sorry about
that.
As a business delivering lifesaving and life-improving
technologies to VA and military hospitals, how do delays in
payments impact your business and our servicemen and women?
Mr. TAYLOR. Thank you, Ranking Member Scholten. The issue
is that it impacts us disproportionately to how it impacts
larger businesses that have access to larger credit facilities.
What happens is, when we deliver a product, say, an operating
room table, it gets received, but then the documentation
doesn't get processed in a timely manner. And it can take a
month to get someone to fill out the documentation before their
clock starts. So the clock doesn't start when the operating
room table shows up. It starts when they have gone through the
bureaucracy of receiving it.
So it is an unfair position for the government to take.
They have received the products. We have already paid for the
products, and we are under tremendous pressure from our
suppliers to pay on time. And so we have to borrow millions of
dollars so that we can pay our suppliers in a timely manner so
that we can continue to do business. And all of that detracts
us. That cash is going to payables rather than innovation. It
is going to payables instead of new salaries.
And so that is where it impacts us is in how can we provide
better, more cost effective, and streamlined service to the
government.
Ms. SCHOLTEN. Thank you. That is incredibly helpful.
Another issue that I consistently hear about as an
impediment to small businesses contracting is agency unique
requirements. These can be barriers to growth for companies
already in the market but who don't have the capacity to meet
requirements for new agencies, even though they are already a
government contractor.
I'll be very brief, and you all can be brief as well. This
is for all of you, but beginning with Mr. Taylor, can you speak
to your experiences in meeting the specific requirements when
contracting with different agencies?
Mr. TAYLOR. Congresswoman, the issue is that it is not only
agency specific, it is contracting tool specific, and then it
is contracting officer specific. So each contracting officer is
allowed to interpret the language in the federal regulations
independently of others, and each contracting tool has separate
regulations and requirements separate from others. So there is
no consistency at all on how to work with each federal
contracting or contracting officer.
Ms. SCHOLTEN. Thank you.
Mr. Lipsky.
Mr. LIPSKY. So I am a builder, and we build for multiple
agencies. It just behooves me that if I build for one agency,
that the procurement, the payment terms, the change order
process vary from agency to agency. As soon as I figure out one
agency--and we are having a similar problem with New York State
where I just don't understand why it is not a unilateral way to
do a change order or unilateral way to get a procurement.
Everyone does it a little differently. And to my colleague's
credit, different agencies handle it better and pay faster than
others.
I will yield my time to Mr. Spinosa.
Ms. SCHOLTEN. Do you have a few thoughts in the remaining
seconds?
Mr. SPINOSA. I can only say--I will give an example. In the
test area, you always look at the assessors and find out are
they out there to do a gotcha or are they out there as a
learning and move forward and keep the system moving forward.
I will give an example. You go to different folks where you
have a part that you have been making for years, and it should
go right through the whole procurement process and the
production lead time, et cetera, testing. You go to some folks,
and they delay and delay, delay getting stuff in that you have
been making for decades. And to what end? It just adds cost and
cost and cost to the system going back and forth.
Ms. SCHOLTEN. Thank you.
Chairman LALOTA. Thank you.
I now recognize Representative Ellzey from the great State
of Texas for 5 minutes.
Mr. ELLZEY. Thank you, Chairman LaLota, my shipmate from
the Naval Academy. Thanks for having this hearing today. And
thank you all for being here today.
Small businesses make up 50 percent--nearly 50 percent of
all jobs in the United States. And despite claims from agencies
that they are prioritizing small businesses, the numbers show
otherwise.
While the total value of contracts issued to small
businesses has generally increased over time, since 2010, the
number of small businesses receiving prime contracts from the
federal government decreased by more than 50 percent. In that
same period, the number of small businesses entering the
federal contracting system has also decreased by 60 percent.
The Biden administration has only made things worse. And in
2021, 27 percent--27.2 percent of contracts went to small
businesses, while in 2022, only 26.5 percent of contracts were
issued to small businesses.
Bureaucratic regulations and red tape hurt small
businesses. Small business contractors play a vital role in
America's industrial base and national security apparatus, and
stifling red tape has caused a number of small businesses
receiving federal contracts to significantly decrease.
And while I mentioned the Biden administration, I want to
point out that after administration after administration, it
doesn't matter which party they are from, they stay. They
outlive those of us at this dais and they outlive
administrations. And the only reason they exist is, as I said
yesterday, a self-licking ice cream cone, and they get ahead by
adding more burdens to you because they are getting a paycheck
every 2 weeks. So they don't make it easier for small
businesses to succeed.
And when the balloon goes up, as we are looking at a time
of unprecedented--at least since 1938--potential for worldwide
conflict, the primes have their roles to play in providing for
our military and industrial might. However, they rely on the
subs, like you, to make sure that on-time delivery of those
weapon systems is ensured.
In my own district in Red Oak, Texas, is Qarbon Aerospace,
which is providing the fuselage and the wings for the Boeing T-
7. Boeing is the prime, but without Qarbon Aerospace, they
couldn't get it done. Without that workforce, they couldn't get
that done. Without the materials that they are responsible for
the supply chain of achieving, they wouldn't get that done.
Now, Qarbon Aerospace can afford those attorneys that we
have talked about and the manpower and the ability to navigate
this extremely expensive process of providing for our nation's
infrastructure, but you guys don't.
And so while the bureaucracy lives on administration to
administration, you guys struggle to try to even turn a living.
But when the balloon goes up--and, by God, I hope it doesn't.
But if it does, the only people who are going to be able to
scale up to provide increased production of any weapon system
we have is going to be relying on you because the primes are
already tapped out.
So pulling back, clawing back what the SBA does, what the
banking industry does is essential to success of American
businesses, because we are from the government and everything
looks like a nail, and all those nails are the same size. So
when you talk about the banking industry and too big to fail
and the big boys up high adhering to the Basel Endgame and they
can provide for lawyers to negotiate that, our small community
banks can't. And it is exactly the same way in government
contracting, specifically for our military.
So access to capital is great for the big guys and for the
primes, and it is almost impossible for you because we have
made life so difficult for the small banks that you bank at,
your community banks, you can't get capital to provide these
subcontracts that you have signed up for. So this is a real
problem that we have to get through.
And I would like to ask, Mr. Spinosa, can you explain the
importance of subs to national defense very quickly, 30
seconds?
Mr. SPINOSA. Subs to the primes are their primary blood
flow of parts. Whatever prime you pick, the small businesses
are probably 60 to 70 percent of what they are seeing, similar
to what DOD sees, because it is the same type of stuff, the
same type of parts, the same type of services.
Mr. ELLZEY. Mr. Taylor, I know that you are the so-called
Democrat witness here today, but I see three men up here with
small businesses whose job is for them to provide for their
families and for their communities.
First of all, thank you for your 17 years in the Air Force.
I am not sure why it wasn't 20, but thank you for doing it. And
I see a man who is trying to make money and provide for his
small family. So there is not a chasm here of Republican versus
Democrat or Biden administration versus any other. You have a
bureaucracy issue that prevents you from providing in a way
that would add real value to our nation's economy and to your
bottom line.
And so I would like to thank all of you for being here, and
this is something we need to address sooner rather than later
so that you all can be successful and so can our economy.
Mr. Chairman, I yield back.
Chairman LALOTA. Thank you, shipmate.
I now recognize my colleague from Kentucky, Representative
McGarvey, for 5 minutes.
Mr. MCGARVEY. Thank you, Mr. Chairman.
I want to thank everybody for being here today. Really
highlighted the challenges you all face and giving us insight
in this Committee and do what we want to do, which is improve
contracting for small business owners.
We hear over and over again--and I know I hear it from
constituents in Louisville, Kentucky, these business owners--
the procurement processes for these business owners can be
incredibly burdensome. And that is because when the small
businesses apply for the federal contracts, they have to spend
incredibly valuable time, expend limited resources, and parse
each agency's prerequisites necessary for certifications and
required skill sets to even determine their eligibility. It is
only after you do all of those things that then you get to
write up your formal proposal.
And so, Mr. Taylor, you mentioned how tough it is to find
the time and resources to do all the work you need to do even
to have the opportunity to apply. You also talked about how
federal agencies fail to meet the contracting goals for
service-disabled veterans, who I am sure face additional
barriers to applying.
So, Mr. Taylor, when the SBA recently took over
certifications for service-disabled veteran small business
owners from the Department of Veterans Affairs, how was your
experience with that transition and what is the SBA's process
like?
Mr. TAYLOR. Congressman, I have a very recent experience
with the transition. This was probably our sixth certification
process as an SDVOSB, and we just went through the process in
January, and we submitted our data and all of the information.
It was quite a bit of information that they wanted, but we are
happy to supply it. And, shockingly, we received our
certification in 2 weeks. And so that is months improved over
what it was when it was in the VA.
So the change to the SBA for that certification process has
been, in my opinion, one of the best examples of what can be
done.
Mr. MCGARVEY. We like good news up here, so I appreciate
that.
Mr. TAYLOR. That is good news.
Mr. MCGARVEY. I appreciate that. And please let us know how
that continues to work and if it is not.
So looking back in 2021, the Biden administration set a
goal of increasing procurement for disadvantaged small
businesses, aiming for 15 percent by fiscal year 2025, and
requiring agencies to review category management practices,
encourage new entrants in the federal marketplace, and include
small business contracting success and senior official's
performance goals along with some other reforms.
This is for the whole panel. Anybody gets to answer. I
would like any of you to answer who want to. Has this goal
translated into action? And have you and your colleagues in the
industry noticed more opportunities?
Mr. TAYLOR. Congressman, I can speak a little bit.
The SBA and the focus on small business at this level from
legislation has been exceptional, but the agencies do not live
up to those standards and requirements. Just like the
subcontracting goals with SDVOSBs, there is a lack of
authority, it seems, for the small business representatives in
the government to effect the change. So I think the laws and
requirements are there, but the follow-through and the
authority to get large businesses and the government to follow
through isn't sufficient.
Mr. MCGARVEY. Anybody else?
Mr. SPINOSA. I'd like to pass a comment on that, an
example. The SBA works very hard to make things happen. And,
obviously, you look at the metrics of performance are there,
but in terms of what it boils down to, the execution, the
implementation at the agency level, the service level, if you
get a request for a quote that has gone out, full and open
competition, and has a very short fuse on it, response date,
small businesses are challenged to meet that. And to me, my
opinion on it, when that comes out, it is really destined. They
already figured out who they want to award it to. They are just
trying to get the check boxes knocked off for, you know, okay,
I tried. I put it out there. You know, we are going to get some
responses from somebody, but, you know, it is destined for a
large business. Even though they would want to, you know,
destine it for a small business, the service itself doesn't
make that happen.
Mr. MCGARVEY. Thank you.
I see I am out of time. So, Mr. Chairman, I yield back.
Chairman LALOTA. Thanks very much.
Many Long Islanders consider what is north of Yankee
Stadium to be upstate. While that might not be the case,
somebody who truly represents upstate New York, my good friend
from New York, Mr. Molinaro, for 5 minutes.
Mr. MOLINARO. Thank you, Mr. Chairman. Most of us think,
you know, you live on an island. It should likely worry many
that they are surrounded by so many New Yorkers, but I do
appreciate, Mr. Chairman, this hearing today. It is somewhat
timely on a number of fronts.
But for me specifically, yesterday I participated in a
round table discussion with my colleague, Representative Chris
Pappas, along with Department of Defense Office of Small
Business Programs to discuss actually with the providers, the
government entities, the employees within the federal
government expected to administer programs to support small
businesses. We discussed at length ways to better assist small
businesses in navigating DOD's many services, resources, and
contracts.
To a conversation had just a few moments ago, I too, having
served in local government, can appreciate, although not from
the business perspective, but in local government we speak in
plain talk, and we have regulations that are very clear. It is
one of the reasons that I cosponsored and led the POST IT Act,
which is an effort adopted and passed by this Committee in the
House to be more transparent with small businesses so you
understand how to access and navigate very complex federal
regulations.
From the conversation yesterday, it is very clear--and you,
of course, reinforced--the complexity of contracting rules and
regulations. Now, for communities like mine in way upstate New
York, rural and underserved areas like those within upstate New
York, small businesses rely on partnerships with the Small
Business Development Centers and APEX Accelerators. These each
provide necessary lifelines and assistance to small businesses.
In Binghamton alone in my district, the Binghamton SBDC
advised over 26,000 clients, created over 11,000 new jobs, and
accessed nearly $600 million in new capital. It is clear that
SBDCs are really helpful, but we also know that knowledge of
and partnership with SBDCs can become a bit of a challenge.
So to both Mr. Spinosa and Mr. Lipsky, to the extent that
you have had experience with SBDCs--and I know that you have--
what has been that experience? What understanding exists of
what SBDCs provide, and what support do they provide? And then
to the extent you want to offer some recommendations on how
they can approve their work, we welcome that.
Mr. LIPSKY. Yes, I can comment on this.
So associations like the Associated General Contractors
also has the New York State Chapter, which also represents a
lot of the constituents upstate as well. The problem that I see
with small businesses, which are the second tier subcontractors
and suppliers, is that governments have competition to private.
So if there is a opportunity to get a deposit in advance and to
get your money out on something, they are going to go for that
versus entering a State agency or federal contract.
So I think that the SBDC, as far as the partnerships, the
small business partnerships, helps try and bring those people
into the market, but also poses a challenge because you guys
have fierce competition on the private side.
Mr. MOLINARO. Sure.
Mr. Spinosa?
Mr. SPINOSA. Yes. Experience with the SBDCs as well as the
MEPs are important, very important from the manufacturing side.
I believe overall they are trying to do a good job. The problem
we run into is, again, funding disappears to those
organizations very quickly.
I will give a quick example. Cybersecurity, trying to
achieve CMMC evaluation, starting the process to become cyber
secure. I know that the MEPs have run out of funding to put in
to that effort, and that is--Mohawk Valley is a cyber secure
expert area on the MEPs, and they have run into that issue time
over time over time. And that, again, just delays small
businesses getting the process started, getting themselves
ready and entering, because the cybersecurity aspect is being
pushed as a barrier to entry from both the government as well
as the primes. If you don't get yourself cyber secure to 800-
171 or CMMC, you are not going to be able to continue, even if
you have something that you do currently. So----
Mr. MOLINARO. Appreciate that.
My district is home to the Lockheed Martin facility in
Owego, New York. That is in upstate. From my understanding,
there are a number of ADDAPT Members who have worked on two of
Lockheed's Owego's projects, including the Air Force combat
rescue helicopter.
So I just want to restate what we all know: The role of
small businesses as relates to DOD contracting and support for
our defense, our national defense, critically important; 70
percent of new jobs created by existing small businesses
helping navigate the regulatory regime, critically important.
And thank you all for testifying today.
With that, I yield back.
Chairman LALOTA. Thank you very much.
I now recognize a fellow freshman from the free State of
Florida, Mr. Bean, for 5 minutes.
Mr. BEAN. Mr. Chairman, a very good morning to you, and
good morning, Small Business Committee. And to our witnesses,
what an honor it is to welcome you here.
We had a hearing yesterday, had a hearing yesterday, and it
was all about just regulations on small business. And the
National Association of Manufacturers say 12 percent of our
economy--and, of course, small business is the backbone of our
economy--12 percent is based on just trying to comply with
regulations.
So hats off to each of you running small businesses. It is
harder than most people know. You are usually the first one to
get there, you are the last one to leave, last one to get paid.
And nobody sees all the work behind the curtain that you do.
And to listen to how hard it is to apply for a government
contract, what if--how about this? I want you all to just play
along with me. What if there was a world in which the
government had to compete with small businesses and the
government itself had to bid on a project to show that they
could do it better than you? We know they can't, and many times
small business does it better. What if? Wait a minute. There is
such a bill. It is a Bean bill. It is called the Yellow Pages
bill, and it says this: If a government is going to provide a
service and there already is a firm that will provide that
service, then they need to bid themselves, and let's see apples
to apples and see what can be saved.
I have got good news, Committee Members. I have saved--I
have saved a spot for you to cosponsor this legislation. We can
all go hand in hand together. And so check it out, because that
is the world we want to live in if we are ever going to get
spending and just get everything under control.
I asked yesterday, I asked yesterday to the firms there,
has it ever been this bad? That answer yesterday--well, in
fact, I will tell you what they said yesterday after I hear
from you guys. I don't want to spoil the answer of what these
firms from across America told me yesterday, unless you watch
C-SPAN, which you probably don't.
But let's start with Mr. Lipsky. Mr. Lipsky, you are an
outlier, because most people that are from New York move to
Florida, but you were in Florida and then went back to New
York. I totally understand because you went to school in
Jacksonville, and hats off--I went to Jacksonville. You went to
the University of North Florida. We are kind of archrivals. I
will bow down. You won the River City Rumble this time.
Has it ever been this bad, in your opinion?
Mr. LIPSKY. It is pretty bad. You know, just qualifying for
some of these programs--I mean, we just heard one niche, which
is cybersecurity, to get even entered into submitting a
proposal is pretty bad.
So I will yield my time to some of my other colleagues who
might be able to weigh in----
Mr. BEAN. Mr. Spinosa--so, for the record, you said it is
pretty bad. So we will take that as an answer.
Mr. Spinosa, what say you? What say you? Has it ever been
this bad, regulatory----
Mr. SPINOSA. It has not been this bad.
Mr. BEAN. It has not?
Mr. SPINOSA. It has not been this bad. It is hard to
explain. The confluence of all the different things that are
happening--and to go towards your bill for a moment----
Mr. BEAN. Yeah.
Mr. SPINOSA.--the government has tried to come out and do
things and say, oh, we are going to do this better than
industry can do. And every time they have gone through that,
they found that they can't do it as innovatively, as
effectively, as economically.
Mr. BEAN. Yeah.
Mr. SPINOSA. And the flip side is the organizations
themselves try to show obvious--you don't want to show failure
on things, so they try and make it look like a success.
Mr. BEAN. Yeah. So if you were a Member, you would sign on
to that bill is what you are saying?
Mr. SPINOSA. Absolutely, absolutely.
Mr. BEAN. And in small business you look at every little
number. You look at every little number, and that is why you
run a tight ship.
Mr. Taylor, what say you, my friend? Has it been this bad
before?
Mr. TAYLOR. So I've been doing this for 20 years. I have
seen a lot of ebbs and flows, and--I'm sorry. And so I think
the--the one thing that makes this period worse----
Mr. BEAN. Yeah.
Mr. TAYLOR.--is the direction that we are going. We seem to
be heading in an even more difficult direction, and that--
that's what causes me the greatest concern.
Mr. BEAN. Gotcha. Let me tell you what they said yesterday.
Yesterday, all of the firms that were represented--and they
were small oil and gas providing energy--they said it has never
been this bad, and they have been in business a long time.
I am almost out of time, and I talk way too much. I
appreciate you all coming forward, appreciate you all standing
firm. You represent--I know some of you represent--right now
you are representing just thousands of small businesses across
America that are struggling to make it. You are fighting supply
chain, getting good help, you are fighting inflation. And so we
are proud of you. Hang in there. Help is on the way.
Chairman LALOTA. Will the gentleman yield for a question?
Mr. BEAN. Mr. Chairman, you are the Chairman. I will yield
to the Chairman.
Chairman LALOTA. Mr. Bean, the Bean bill. What is the bill
number, sir?
Mr. BEAN. You would think I would know that.
Chairman LALOTA. We are going to have a second round. Maybe
we can----
Mr. BEAN. 10-4. Thank you, Mr. Chairman. We will get it to
you.
Chairman LALOTA. I now recognize fellow freshman, the
newest Member of the Small Business Committee, but with a
wealth of experience, Ms. Maloy from Utah, for 5 minutes.
Ms. MALOY. Thank you, Mr. Chairman. There is a lot of
freshman energy, a lot of New York energy in this room today. I
don't know if I can rise to the occasion. I am going to do my
best.
I represent Utah, which, for all of you in this room, is
very far west of western New York, also west of Florida. But
Utah is a really entrepreneurial State. We love our small
businesses. We are small business friendly, but I have
concerns.
To Mr. Bean's point, things are harder than they have been
in the past for small businesses. I appreciate you being here
to testify about your experiences and what you are seeing.
I am going to give you a unique opportunity today. We are
the Small Business Committee. We are Congress. I am going to
give you a chance to give Congress a little bit of advice.
I've only been here for 2.5 months, and I know people who
are not in Congress all know how we should be doing our jobs.
So I am going to give you a platform to talk about it.
My first question--and I am just going to go right down the
row--is, how can Congress incentivize prime contractors to
collaborate with small businesses in infrastructure projects?
I know it is tough for small businesses to get into these
federal contracts because the--the prime contractors already
have a lot of the market. What advice would you have for us to
help make that better?
Mr. SPINOSA. Thank you very much, Congresswoman. I would
say that, obviously, the regulations need to be trimmed and--I
am going to say--common language so that the businesses can
address those. But more to the point, I am--there is a--there
is a short-term issue, which is the businesses are in tough
times right now. I'll give you an example. Fixed price
contracts, that--long-term contracts that the government has
done to try and control things, businesses applied normal
incrementing of pricing as you go along based on the--I am
going to say on assumptions. We are in a time of crazy interest
rate increase that is killing small business. And the primes
and the government are not going back and allowing the
businesses to do equitable adjustments based on that.
That is why in my presentation I talked to progress
payments, I talked to allowable interest and equitable
adjustments that are desperately needed by small business to
handle the times that we are in right now.
If you want to adhere to fixed pricing, you have to take
care of areas that are out of the norm. Everyone went together
to put pricing together and quantities together. We put the
facilities in place to do stuff. You can't hold them--hold feet
to the fire and say, oh, you quoted a price based on interest
rates that are long gone. It has got to be handled.
Ms. MALOY. Okay. Thank you, Mr. Spinosa.
Mr. SPINOSA. Thank you.
Ms. MALOY. Mr. Lipsky?
Mr. LIPSKY. Essentially, what I am hearing is, what advice
do you have to fix the problem.
Ms. MALOY. Yes.
Mr. LIPSKY. And my--as much as I can get into cash flow and
regulation tape, I think the two big pieces of advice that I
can contribute today is to continue to have open discussions
with the private sectors and the people who are affected, which
is what we are doing today, and to listen to the partners
such--and the associations, such as the Association of General
Contractors. We are a great resource in order to provide
representation on hundreds of thousands of employees and
their--and their--and all the subcontractors that they
represent. That would be my biggest advice.
Ms. MALOY. I just want to make sure we put a fine point on
what you are saying. So you don't feel like the federal
government is currently listening adequately and responding to
your concerns?
Mr. LIPSKY. I think that this is a very good start. I
haven't personally seen it myself previous to this, but I
appreciate the open invitations to be here today.
Ms. MALOY. I also don't think the federal government is
adequately listening, so thank you for bringing that up.
Mr. Taylor?
Mr. TAYLOR. Congresswoman, the first point I want to make
is I didn't show up here today, nor do other small businesses,
look for handout.
Ms. MALOY. Right.
Mr. TAYLOR. I firmly believe that we offer the federal
government innovation, cost effectiveness, the ability to do
things that large businesses cannot do. We are more responsive,
we are faster, we are more adaptive. I am not asking the
government to say, here, here's something for you.
What I would recommend is that I think there are laws and
goals in place, but the large businesses and primes need to be
held accountable to those. So, for example, if the
subcontracting goal is 3 percent and they are achieving .3
percent, something needs to be done. And it is not just to
throw a favor to me. It is to give me a chance, to give other
small businesses a chance, to compete fairly. That is all I ask
for.
Ms. MALOY. Thank you. I yield my time, Mr. Chairman.
Chairman LALOTA. Thank you very much. As the gentlelady
said, there is a lot of freshmen energy in this room. And
following that, fellow freshman from Michigan, Mr. Thanedar,
for 5 minutes.
Mr. THANEDAR. Mr. Chair, I am going to pass.
Chairman LALOTA. Excellent. We are going to have a second
round. So lucky you, we can get to you in the second round.
Mr. BEAN. Mr. Chairman?
Chairman LALOTA. The gentleman is not recognized just yet.
Mr. BEAN. 10-4.
Chairman LALOTA. We are going to start a second round for 5
minutes, and I am going to start my 5 minutes by yielding a
minute to the gentleman for the purposes of expanding upon the
bill to which he referred.
Mr. BEAN. Well-played, Mr. Chairman, well-played. Very
nicely done.
It is H.R. 2744. It is called the Freedom from Government
Competition Act. And it just says government needs to verify
that they can do it better than small business. We know they
can't.
So thank you, Mr. Chairman. H.R. 2744.
Chairman LALOTA. The gentleman yields back, and we hope
that at least 10 more co-sponsors are going to come on today.
We do a lot in Congress talking about China. And when we
focus on small business, we don't always think there is a
correlation necessarily between small businesses and China, but
indeed there is, especially with our defense subs.
The defense subs have a great impact--despite being small
businesses, have a great impact upon America's most strategic
competitor, China. And rightfully so, here in Congress, we
spend a lot of time focusing on ways to outperform China. In
fact, later on today in the Armed Services Committee, I have a
hearing on outpacing China through innovation.
And, Mr. Spinosa, back to you. I understand small
businesses are 16 times more likely to create a patent than
their larger competitors. So my question with respect to China,
innovation, patents, how can the DOD better harness the
innovation of small businesses in the defense industrial base?
Mr. SPINOSA. I think it kind of boils down to--I am going
to give you just a couple of words on this. Number one is
transparency. Work together with us. That is the important
aspect there. It is--it is so close to the vest that there are
things there that will, even in the commercial area, that has
application to help things out, and they are not getting there
because there is no transparency.
I think the other aspect--I am going to call it this way:
We--the government needs to be less adversarial. The DOD needs
to be less adversarial with the small businesses and be more
parental with their, look, we have got a problem here we need
to handle, and let's take care of that.
Because when that does happen--and it does happen within
certain--certain groups. There is certain services and their
program offices that have that--that culture. When it happens,
it is wonderful. Things happen quick, happen effectively, and
happen economically.
Chairman LALOTA. Moving back into what we talked about in
the first round with respect to the bureaucratic burdens that
the federal government places upon you, would you agree that if
we relieved you of some of those burdens, we would free you up
to even be more innovative than you already are?
Mr. SPINOSA. Quite simply, if a business is spending X
amount of money just trying to keep up with the regulations and
that kind of stuff, it is money for small business that can't
be applied to its facilities, to getting the right people, the
right engineers, et cetera. As I said, it is nonvalue-added
costs that just don't do anything for our warfighters or the
government or whatever the application.
So it needs to be looked at and said, what do we really
need. As a small business, every day we look at different
costs. We say, is it a--is it a I got it, I need it, or is it a
like, or is it, do I really need it?
Chairman LALOTA. That sounds like some of the dialogue I
have with my three children.
Nevertheless, if we can make one more connection, if we can
agree that relieving you of some of these regulatory burdens
leads to more innovation, would you also agree that more
innovation allows us to greater outpace China?
Mr. SPINOSA. Absolutely. I mean, there is no question about
our innovativeness. As I said in my testimony, most of the
innovative technology comes out of small business. That is
where it is. And we are the ones that are creating it and
keeping things moving forward. Look at the different systems
that are out there.
I will bear one comment on things that kind of hamstring
us. Businesses have been asked to become more commercial in
their approach to build systems that are close to ready or show
the proof of concept to the government. Most recently, the FARA
program, both on Bell's side and Sikorsky's side, they have
come to the small businesses and said, help us invest in the
program, let's go. And I get it. It is a competitive program.
But when it gets cut out right out of the bottom, it hurts
small business.
Chairman LALOTA. Yes.
Mr. SPINOSA. I don't know how they thought about that. You
know, that is that whole supply chain. It is not just the
business itself, but everything that goes on underneath it, the
tier 2s, the tier 3s.
Chairman LALOTA. That is good insight. I appreciate you
sharing it.
My time is about expired. I am going to now yield 5 minutes
to the Ranking Member.
Ms. SCHOLTEN. Thank you so much, Mr. Chairman.
Well, the principal job of this committee is to provide
some oversight to the SBA. My husband will often joke, what did
the SBA do wrong today, when he knows that we have a committee
hearing. We can spend a lot of time on it. But I also find a
lot of value in talking about what's working.
You all are successful small business owners, and the SBA
has played a role in that. What good is the SBA doing and how
can we ensure that it continues to do that good work? We will
start with you, Mr. Taylor.
Mr. TAYLOR. Congresswoman, I think over the years, I have
seen what the SBA does as very positive. I see a lot of good
that comes from the SBA. My only issue is that they don't have
enough authority or standing in the federal agencies to--to
execute the laws and the requirements that they are giving to
the industry. So I don't see a lot of dysfunction in the SBA. I
see them as kind of the beacon in the forest for helping small
businesses.
Ms. SCHOLTEN. Yes.
Mr. TAYLOR. I just wish that they had more authority. And I
don't know if it is a desire, but something needs to happen so
that the voice of the SBA carries more weight.
Ms. SCHOLTEN. Thank you.
Mr. Lipsky?
Mr. LIPSKY. My experience with the SBA is a little limited,
but I will comment on some of the private clients that I have
who use the SBA, one of which is James Bonanno of the Tap Room,
who is--who owns a restaurant on Long Island that you may know
of. He uses the SBA quite effectively in getting his funding to
have his construction projects and restaurants expand in the
Long Island, New York, area.
So I will yield my time to Mr. Spinosa.
Mr. SPINOSA. Congresswoman, I think the SBA is not the one
to blame on this. I think, you know, obviously, regulations--we
would like to see regulations, more plain language.
But more to the point, it is more about the actual
implementation. And, again, that, to me, boils down to my
comments from the Secretary of defense. All the points were
there. The recognition was there. How it gets down to the
troops, how--when I say the troops, the services, the
procurement, the acquisition people--and gets implemented, that
is where it all--the rubber meets the road. Sometimes it is
great and it is wonderful, and other times it is like, oh, my
God, what are we doing here again?
Ms. SCHOLTEN. That is more helpful than you know. Thank
you.
That is it for me.
Chairman LALOTA. Thanks so much. I appreciate you yielding
back.
We are going to wrap things up, but I want to say this. We
spent a good 75 minutes here together having a good dialogue.
This is probably the most effective 75 minutes I have had in
Washington in quite some time, which isn't always saying much.
But truth be told, this dialogue that we are having is quite
important.
I appreciate the witnesses for having taken their time to
prepare their testimony, prepare the issues that are important
to your individual constituencies, and coming here to
Washington to inform this committee of that. I want to say
thanks to the professional staff for preparing as well.
You know, these things don't happen without a lot of folks
on this side. And Grady Austin, my guy back there, helps me out
a lot with things as well. I want to say thanks to him.
And without objection, Members have 5 legislative days to
submit additional materials and written questions for the
witnesses to the Chair which will be then forwarded to the
witnesses. And I ask the witnesses to please respond promptly
should you get that correspondence.
And if there is no further business, without objection, the
Committee is adjourned.
A P P E N D I X
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