[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.
[Whereupon, at 4:24 p.m., the committee was adjourned.]
[GRAPHIC] [TIFF OMITTED] T7174A.001
[GRAPHIC] [TIFF OMITTED] T7174A.002
[GRAPHIC] [TIFF OMITTED] T7174A.003
[GRAPHIC] [TIFF OMITTED] T7174A.004
[GRAPHIC] [TIFF OMITTED] T7174A.005
[GRAPHIC] [TIFF OMITTED] T7174A.006
[GRAPHIC] [TIFF OMITTED] T7174A.007
[GRAPHIC] [TIFF OMITTED] T7174A.008
[GRAPHIC] [TIFF OMITTED] T7174A.009
[GRAPHIC] [TIFF OMITTED] T7174A.010
[GRAPHIC] [TIFF OMITTED] T7174A.011
[GRAPHIC] [TIFF OMITTED] T7174A.012
[GRAPHIC] [TIFF OMITTED] T7174A.013
[GRAPHIC] [TIFF OMITTED] T7174A.014
[GRAPHIC] [TIFF OMITTED] T7174A.015
[GRAPHIC] [TIFF OMITTED] T7174A.016
[GRAPHIC] [TIFF OMITTED] T7174A.017
[GRAPHIC] [TIFF OMITTED] T7174A.018
[GRAPHIC] [TIFF OMITTED] T7174A.019
[GRAPHIC] [TIFF OMITTED] T7174A.020
[GRAPHIC] [TIFF OMITTED] T7174A.021
[GRAPHIC] [TIFF OMITTED] T7174A.022
[GRAPHIC] [TIFF OMITTED] T7174A.023
[GRAPHIC] [TIFF OMITTED] T7174A.024
[GRAPHIC] [TIFF OMITTED] T7174A.025
[GRAPHIC] [TIFF OMITTED] T7174A.026
[GRAPHIC] [TIFF OMITTED] T7174A.027
[GRAPHIC] [TIFF OMITTED] T7174A.028
[GRAPHIC] [TIFF OMITTED] T7174A.031
[GRAPHIC] [TIFF OMITTED] T7174A.032
[GRAPHIC] [TIFF OMITTED] T7174A.033
[GRAPHIC] [TIFF OMITTED] T7174A.034
[GRAPHIC] [TIFF OMITTED] T7174A.037
[GRAPHIC] [TIFF OMITTED] T7174A.038
[GRAPHIC] [TIFF OMITTED] T7174A.039
[GRAPHIC] [TIFF OMITTED] T7174A.040
[GRAPHIC] [TIFF OMITTED] T7174A.043
[GRAPHIC] [TIFF OMITTED] T7174A.044
[GRAPHIC] [TIFF OMITTED] T7174A.045
[GRAPHIC] [TIFF OMITTED] T7174A.047
[GRAPHIC] [TIFF OMITTED] T7174A.048
[GRAPHIC] [TIFF OMITTED] T7174A.049
[GRAPHIC] [TIFF OMITTED] T7174A.050