[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
THE PRESENT AND FUTURE OF E-COMMERCE FOR SMALL BUSINESSES IN THE
PRIVATE SECTOR AND WITH FEDERAL GOVERNMENT AGENCIES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT PROGRAMS
AND OVERSIGHT
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, APRIL 11, 2000
__________
Serial No. 106-50
__________
Printed for the use of the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
67-090 WASHINGTON : 2000
COMMITTEE ON SMALL BUSINESS
JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
DONALD A. MANZULLO, Illinois California
ROSCOE G. BARTLETT, Maryland DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey CAROLYN McCARTHY, New York
SUE W. KELLY, New York BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania DONNA M. CHRISTIAN-CHRISTENSEN,
DAVID M. McINTOSH, Indiana Virgin Islands
RICK HILL, Montana ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania TOM UDALL, New Mexico
JOHN E. SWEENEY, New York DENNIS MOORE, Kansas
PATRICK J. TOOMEY, Pennsylvania STEPHANIE TUBBS JONES, Ohio
JIM DeMINT, South Carolina CHARLES A. GONZALEZ, Texas
EDWARD PEASE, Indiana DAVID D. PHELPS, Illinois
JOHN THUNE, South Dakota GRACE F. NAPOLITANO, California
MARY BONO, California BRIAN BAIRD, Washington
MARK UDALL, Colorado
SHELLEY BERKLEY, Nevada
Harry Katrichis, Chief Counsel
Michael Day, Minority Staff Director
------
Subcommittee on Government Programs and Oversight
ROSCOE G. BARTLETT, Maryland, Chairman
MARY BONO, California DANNY K. DAVIS, Illinois
PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas
RICK HILL, Montana CHARLES A. GONZALEZ, Texas
Nelson Crowther, Counsel
C O N T E N T S
----------
Page
Hearing held on April 11, 2000................................... 1
WITNESSES
Lee, Deidre, Administrator, Office of Federal Procurement Policy. 3
Summers, Max, State Director, Missouri Small Business Development
Center......................................................... 13
Knott, Scottie, Director, JECPO, Defense Logistics Agency........ 15
Clark, Major, Assistant Advocate, Office of Advocacy............. 12
Bansal, Tony, President and CEO, Digital Commerce Corp........... 20
Appendix
Opening statements:
Bartlett, Hon. Roscoe G...................................... 31
Prepared statements:
Lee, Deidre.................................................. 34
Summers, Max................................................. 45
Knott, Scottie............................................... 50
Clark, Major................................................. 60
Bansal, Tony................................................. 70
ELECTRONIC COMMERCE
----------
TUESDAY, APRIL 11, 2000
House of Representatives,
Subcommittee on Government
Programs and Oversight,
Committee on Small Business,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:07 a.m., in
room 2360, Rayburn House Office Building, Hon. Roscoe Bartlett
(chairman of the subcommittee) presiding.
Chairman Bartlett. Good morning. Let me call our
subcommittee to order.
Good morning and welcome to this hearing of the
Subcommittee on Government Programs and Oversight of the
Committee on Small Business. A special welcome to those who
have come some distance to participate.
We are here today to discuss the present progress and
future potential of e-commerce and its impact on doing business
in the private and public sectors. The dollar volume of
business being conducted by means of e-commerce is increasing
at an unprecedented rate.
An article in the Wall Street Journal last Wednesday, April
5th, quoted a source that estimated the volume of online sales
as increasing by 53 percent this year to $23 billion, after
doubling the previous year to $15 billion. The same article
quotes a trade association that estimates that there are 30,000
or more web sites on the Internet selling merchandise to
consumers.
In the midst of this electronic revolution in the way
business is done, it is imperative that we explore together
today, in this hearing, the present state of e-commerce in the
United States and its future potential and direction.
Many businesses in the private sector are now relying upon
the Internet to buy goods and services which were previously
acquired through antiquated paper-based acquisition processes.
The speed, efficiency, and convenience with which transactions
can be completed are distinct advantages that e-commerce has
over paper-based systems.
The passage of the Federal Acquisition Streamlining Act of
1994 provided an impetus to Federal agencies to use the
Internet as the preferred method of procurement. The rush to
the Internet by the Federal Government has spawned these
headlines in a well-known Internet trade publication. The first
one: ``U.S. Moves to Online Procurement.'' A second headline:
``Commerce Department to Utilize E-Commerce, Go Paperless.''
Third headline: ``Defense Department Goes E-Commercial.''
There are few, if any, major Federal agencies that do not
acquire a large dollar volume of goods and services through e-
commerce transactions. We hope at the hearing today to examine
both the commercial and Federal use of e-commerce technologies
such as the creation of electronic shopping malls, in the
transition to largely paperless transactions.
The hearing will also look at the training and acquisition
assistance that small businesses need or are receiving to
compete in e-commerce both in the commercial and Federal
sectors.
We welcome your suggestions with respect to legislation or
regulatory changes that may be needed to train small businesses
in electronic commerce and to provide more timely and complete
Federal procurement information than is presently provided in
the Commerce Business Daily.
Lastly, in the hearing today we hope to have some answers
to the questions: Where are we going in e-commerce? And what
are the implications for doing business in the private and
public sectors?
Again, thank you all for participating in this hearing, and
thank you in the audience for attending this hearing.
We are very pleased to be joined by our ranking member, Mr.
Danny Davis. Mr. Davis?
Mr. Davis. Thank you very much, Mr. Chairman.
First of all, let me just thank you for convening this
hearing today, and I also want to thank the witnesses for their
attendance.
As the rapid growth of the Internet increases, so does the
need to conduct business on it, and, therefore, I think it is
important that we find out as much as we possibly can about it.
This past year electronic commerce has grown beyond
expectations. Every day more people are finding new ways to
provide innovative products and services electronically. The
Internet is changing the way business is doing business, from
the acquisition and servicing of customers to the management of
their relations with suppliers.
However, as the Internet usage increases, the demand for
online services becomes increasingly important. As of today,
the Government provides over 15 Internet sites dedicated to
Federal procurement alone, the most popular being SBA's PRO-
Net, CommerceNet, GSA's Doing Business with GSA, and NASA's
Small Business Programs site. In fact, the Small Business
Committee has taken the lead to help promote electronic
commerce and Internet usage through the Paperwork Elimination
Act of 1997. Under the Paperwork Elimination Act, Federal
agencies are addressing issues regarding electronic
transactions within the Federal Government and between the
Federal Government and other parties through the sponsorship
and use of alternative information technologies.
However, is electronic commerce getting better or is it
getting worse? Well, that probably depends on who you talk to
and when? While some companies are doing business quite well
online, their successes could easily lead someone to assume
that all small businesses are now ready to adopt electronic
commerce as the new way to conduct business. On the other hand,
I have heard many reports and complaints of the complex
technical and legal issues facing electronic commerce.
Today, it is my intent to try and help uncover and discuss
some of the barriers that inhibit our small businesses from
taking advantage of the business opportunities electronic
commerce encourages, especially small businesses, sometimes
businesses that are called mom-and-pop businesses, businesses
that in many instances are getting started and in many
instances have not had the capital to address their own
electronic needs.
So I would like to, again, Mr. Chairman, thank the panel
for their attendance and thank you for calling this hearing,
and I look forward to their testimony.
Chairman Bartlett. Thank you, Mr. Davis.
In a former life, I was a small business person doing
Federal grant and contract work, and the difficulty of
determining the opportunities available to you is absolutely
enormous. I subscribed to Commerce Business Daily and plowed
through that every day, recognizing that that was a fairly
limited listing of all of the opportunities that were available
across all of the Governmentagencies. So I look forward with
anticipation today to the testimony. It opens up to small business
people all across the country the opportunities for doing business with
the Government.
We have two panels today. The first panel is the Honorable
Deidre Lee, Administrator, Office of Federal Procurement
Policy. Without objection, your full written testimony will be
made a part of the record, and you now can proceed any way you
wish. Thank you very much.
STATEMENT OF DEIDRE A. LEE, ADMINISTRATOR FOR FEDERAL
PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET
Ms. Lee. Thank you very much, sir.
Chairman Bartlett, Congressman Davis, the subject of your
hearing today, applications of electronic commerce--e-
commerce--technologies to our buying process, is both timely
and of particular interest to me. The rapid technological
advance of the Internet is providing unprecedented
opportunities to significantly improve how we conduct
procurement transactions. The potential to improve information
flow from the way vendors learn about Federal contracting
opportunities, to the way Government buyers become informed
about vendors and the range of goods and services they offer to
meet the Government's needs, makes application of e-commerce
technologies to the acquisition process a worthy priority for
our procurement agenda.
Today, I would like to share with the Subcommittee the key
principles we are following and steps we are taking to seize
upon this potential. I would like to focus my attention, in
particular, on the Government's efforts to create a single,
government-wide point of entry for electronic commerce and for
accessing business opportunities. This initiative will serve as
an illustration of how we are striving to take advantage of
electronic tools to make interactions faster, easier, and less
costly for both our buyers and our trading partners, small and
large alike.
Two years ago, the administration issued a strategic plan
which, among other things, set forth policies to help agencies
make and successfully manage investments in e-commerce. Two of
the principles, in particular, lie at the heart of our approach
to e-commerce acquisition initiatives.
One, follow the commercial lead: This is unusual for us in
Government, because we sometimes want to create the new story.
But we strongly share your belief in your letter of invitation
for today that we can benefit from the private sector's e-
commerce experience.
Our strategic plan emphasizes the importance of Government
reliance, wherever possible and cost-effective, on commercial
products and services so the Government can leverage the
investment already made in the ever-growing commercial
infrastructure and benefit from the market-driven economies and
innovation that commercial tools offer. We do not want to
develop Government-unique solutions.
Two, pursue e-commerce applications that offer
opportunities to reengineer the procurement process. The rapid
technological advances can create temptations to buy intriguing
technology simply because it is available. We must instead
ensure we are making the right investments, looking for those
that can streamline and eliminate transaction steps, minimize
unnecessary paperwork, and facilitate access to resource
information or information that people need to know to do
business with the Government. We want to improve buyer
visibility into products and services, and we need to provide
the sellers with quick, easy access to the contracting
opportunities.
We have numerous initiatives ongoing. You are going to hear
about more of them from the second panel. But let me just give
you a quick list. We are, of course, maximizing the use of
purchase cards. We are trying to improve the electronic payment
process. We have contract writing systems. We are trying to
integrate back-room processes, a form of ERP for acquisition.
We have distance learning, online training. We have online
reference and guidance, and we are trying to improve data
collection and reporting.
But our strategic plan also reminds agencies that they must
remain attuned to the needs of both the buyers and sellers.
High on the list of sellers' needs--and I think you referred to
it, Chairman Bartlett--including the small business community,
is easy and cost-effective access to information on contracting
opportunities. Where are they? What are they? When are they?
Prominent on the list of buyers' needs is the ability to
gain more effective access to the marketplace. To address these
needs, we are emphasizing with our e-commerce initiatives
improved access to business opportunities. Our focus is on
creating a government-wide point of electronic entry, the so-
called single point of entry--of which we, give an acronym,
SPE--for access to business opportunities on the Internet.
My written testimony outlines the progress we are making
towards this single point of entry because, unfortunately, it
is just not as easy as we would all like it to be. Mr. Nelson
Crowther spent a day with us in January going through the
issues and some of the intricacies of how we can get there and
ensure everyone is included and can fairly participate.
As technology has blossomed, we have used FACNet and CBDNet
and DODBusOpps and an EPS pilot. We have GSA Advantage. We have
electronic malls, web sites, and we are also looking at
commercial solutions.
But as I meet with industry representatives and we discuss
the many advances in technology and the companion solutions for
Government procurement, one constant remains: communication,
timely information.
How can we simply and quickly, and at low cost, notify
industry of opportunities and inform the buyer of trading
partners' interest and availability? I continually hear from
small and large businesses that they simply cannot know of and
respond to each agency's individual web site, home page, and
notification process.
A single face, or SPE, single point of entry, for industry
is needed, a place where Federal contracting opportunities from
synopsis to the solicitation, to related procurement
information, can be conveniently accessed.
We are currently evaluating SPE alternatives, keeping in
mind the principles of commercial lead and reengineering. Our
intent is to designate a system that is sufficiently versatile
to enable agency buyers to efficiently and effectively provide
access at a single entry point, and to allow sellers to reach
the SPE through different commercial electronic means.
One area that is of paramount importance is the inclusion
of small business in the Federal procurement process. We are
currently testing an SPE concept in the electronic posting
system where, in conjunction with SBA, we have linked the
electronic posting system to PRO-Net so that small businesses
are provided instant notice when opportunities are available.
They go in, they register at PRO-Net. We haven't fully rolled
this out and announced it yet, but it is hooked up. And they
simply register once for business opportunities, when they are
interested, on this particular system, which right now contains
about 30 percent of our major activities. They receive an e-
mail that says there is something you might be interested in.
They can then instantly go in and access the solicitation.
Our system does not want people sending them to a web site
or a home page where they have to search through and find it.
It goes instantly from the notice to the document itself, and
itincludes history, if there were comments or questions or
previous discussions, so they can see a whole package of what is going
on in procurement. And that is what we are testing, and we are hooking
it to the small business systems so small businesses can see how that
works for them.
As we are moving to use the new technologies, we also have
to make some changes to fully enhance the possibilities. We
have submitted proposed statutory language--it is in the DOD
bill--that hopes we can recognize some changes to take
advantage of the wizardry of electronic commerce, and the fact
that printed copy notifications may no longer be the benchmark
for transaction time frames. Instead, we propose to recognize
electronic postings through the single entry point so people
know where it is as an effective communication strategy and
wait times for solicitation release would be keyed from
electronic posting.
We hope that you will favorably act on this proposal.
Having the requested framework in place will allow agencies and
small and large businesses to enjoy the efficiencies that e-
commerce enables, including a more immediate return on
investment.
I know e-commerce offers many opportunities for improving
acquisition through redesign of the buying process. I pledge to
work with my colleagues at SBA to ensure we address inclusion
of small business. We must continue to look for ways to use e-
commerce to strengthen the Government's acquisition function so
that we can make our interactions easier, faster, and less
costly, for both ourselves and our trading partners.
Designating the SPE in the FAR in tandem with a revised
legislative framework that fully recognize the benefits of the
single point of entry are important steps in this direction. I
look forward to working with you to achieve this goal.
[Ms. Lee's statement may be found in appendix.]
Chairman Bartlett. Thank you very much.
We have been joined by Mr. Hinojosa. Let me turn now to my
colleagues for their questions first. Mr. Davis?
Mr. Davis. Well, thank you very much, Mr. Chairman.
Ms. Lee, let me just say that I certainly appreciate your
testimony, and you paint a very positive picture, and it is
something I think all of us have to look forward to.
Let me just ask, do you believe that removing the 15-day
advance notification for solicitations will help small
businesses?
Ms. Lee. Yes, I do. We have done a little research on it,
and what we are proposing adjusts the time between notification
and solicitation. When we go back and find where the time
requirement came from, the best we can figure is it came from
the mail process, the physical Postal Service. The agency would
put out a notice, and then they would have to wait 15 days
before they could release the solicitation. The thought process
was that if you released them simultaneously, the person that
lived down the street could come pick up a copy and they would
have it well in advance of someone who needed it mailed to
them.
So the advanced notification was all about was leveling the
playing field so people would receive a notice at approximately
the same time. Through electronic commerce, we think we can put
the notice out there and people could access the solicitation
more rapidly. Small business can immediately look at and say,
``Am I interested or not ?'' rather than having to request and
wait and get a copy, put it in their bid pile, figure out if
they are interested.
I think it is going to help small businesses, as well as
large, more readily in this fast-moving world know what is out
there and what their next steps are.
Mr. Davis. Well, what about those that might be in remote
places or who may not have access to the information? Would it
mean that they are suffering under an unfair disadvantage to
them, that others have the information and they really don't?
Ms. Lee. Our current proposal is to continue to provide the
information to the Government Printing Office so they can
continue to print a CBD. But as you know, the electronic notice
does go up faster than the Commerce Business Daily is printed.
What we are not proposing to shorten is the proposal
preparation time, which in most cases is 30 days, in some cases
it is 45 or 60 days, or for huge procurements, even longer. So
we are just proposing to shorten the notice to solicitation
release time.
Mr. Davis. All right. So there would be equity, at least in
terms of the actual amount of time that companies or businesses
would have to respond to the notice.
Ms. Lee. Yes.
Mr. Davis. Let me ask you one other question. I know that
now we see computers at practically every desk within the
Federal Government. Unfortunately, there are businesses, and
especially small businesses, who have not caught up with that
phenomenon.
Is there any way to try and make sure that there is no
punishment in a sense to these businesses because they have not
reached the level of sophistication that the Federal Government
and other businesses might be operating at?
Ms. Lee. There are several ways for a smaller business or
someone who, for whatever reason, doesn't want to be
electronic. They can, and many do, hire companies who search
the CBD and sort it for them and provide them information. So
they could hire that resource and have someone else do the
searching and provide them with the opportunities.
As the SBA is going to tell you, the resource centers in
most cases have the electronic connection, and they also
provide updated information. There are also a good number of
trade publications, particularly in the small business arena,
that search through and identify procurement opportunities.
One of the things we are working on that we need to do
better is improved forecasting so that there is even more
notice. Now, of course, our plans are to put the forecast
online as well. But I think any of these resources could
identify opportunities earlier and still provide the
information.
Mr. Davis. So you are saying that we are going to continue
to do a number of other things to try and make sure that there
is adequacy of information and opportunity.
Ms. Lee. Yes.
Mr. Davis. I tell you, it is kind of rewarding in a sense.
I just had opportunities--I was getting ready to do my income
tax--to need some information relative to my own taxes and
interests doing business with someone. And to my amazement, I
mean, rather than having to wait for any length of time or
whatever, I mean, I just accessed the information and there it
was. I didn't have to get anything in the mail, didn't have to
get anything back, and it was just kind of pleasant to be able
to do that and have instant information, although it still
raises some fears and concerns that I might ultimately have in
terms of the extent to which our employment opportunities will
be able to keep up with the technology that we seem to be
developing.
So I thank you very much.
Ms. Lee. Congressman Davis, the small businesses that don't
have access to technology can face a problem. But it is
amazing, how many of the small businesses are really up to
speed. In fact, a good many of them are in the IT industry and
creating these very systems. So people are coming along.
Mr. Davis. Thank you very much.
Ms. Lee. Thank you.
Chairman Bartlett. Thank you, Mr. Davis.
Mr. Hinojosa.
Mr. Hinojosa. Thank you, Ms. Lee, for coming to talk to us
about what the Small Business Administration is trying to do to
help small business firms.
I agree with the question that Congressman Davis asked
about how many small firms have a computer at the desk of those
folks who work with administration and finance of a small
business. And all three of us here on this panel have had
experience with small businesses, and we know that that is
probably one of the weaknesses of so many of the small firms,
especially if they are in manufacturing and they are going to
try to bid on something for the Department of Defense or some
Federal agency.
We find that small businesses are started oftentimes
because a man or a woman was the one doing the production or
overseeing the production of a company, and they have decided
to go off on their own and do it themselves. So they have a lot
of experience in production and producing widgets, and they
have a little bit of experience on sales, and that is why they
are delving into Federal procurement opportunities. But the
weakness always comes in administration and finance and
business computer systems.
As a result of that weakness of the three components of a
successful business, we find that as you are moving, the
Federal Government is moving towards this paperless
procurement, we are quickly going to be left behind unless SBA,
unless Department of Commerce through MBDA steps in and fills
that weakness and fills that void that I just described.
How do you feel about the women's business centers; MBDA
offices throughout the country or schools of business of
universities stepping in and maybe assisting these businesses,
small businesses, small business firms, bring in a consultant
who could be a graduate from the school of business with a
bachelor's or a graduate from the school of business with a
master's, and maybe work for a day with each firm and helping
them, you know, hold their hand and taking them through the
steps for a whole year, if necessary two years, so that they,
too, can have a computer at the desk of every one of these
firms and that they know how to get onto the suggestions that
you all are using so that we don't have to go through, you
know, the entire document to identify the opportunities that
are for that company?
There seems to be a need for us to help those small
business firms strengthen the third component, administration,
finance, and business computer systems of every small firm.
Ms. Lee. I know when the small business comes up, they do.
We can tell you they have a wide variety of services that they
offer at the resource centers. I think more can always be done.
Sometimes we need to reach out to those small businesses and
tell them the resource center is available. How do we
communicate that first step?
I agree with you that small business needs everything from
training in the very fundamentals of using your system,
choosing your system, getting it set up and being ready to
operate, to how does that system provide you access to Federal
procurement opportunities.
Unfortunately, our system is still not simple, even though
we have simplified acquisition and other initiatives. As you
know, we do require certain certifications, and we do have
certain unique clauses that people that trade with us need to
understand what they are doing and why. So absolutely there is
an incredible opportunity for more learning.
SBA is also trying to provide more distance learning
classes and more of a resource center, just as Congressman
Davis mentioned in checking on his taxes. People that are now
trying to access Federal procurement opportunities can go to a
resource center and ask a question: Tell me more about this
clause or tell me more about this program. And we're trying to
deliver that information in a more user-friendly manner, but
more can always be done.
Mr. Hinojosa. You didn't answer my question. Are you
willing to try to look into how to provide, at least one day a
week, one of these individuals who knows how to use the
computers and know how the business computer system should be
set up for these small businesses interested in doing Federal
procurement to move into the paperless program that you all are
outlining? There needs to be someone regularly going to that
small business, once a week, at least twice a month, whatever
the business firm owner wants in terms of help, even if they
have to pay for it, but it would be cheaper than having to hire
and pay a salary, annual salary, to someone who has this kind
of knowledge.
All I am saying is: Are you willing to explore that?
Ms. Lee. Oh, I would be happy to work with SBA and say how
do we do that. Where do we start? How do we test it? Where do
we go?
Mr. Hinojosa. Good. Thank you.
Chairman Bartlett. Thank you very much.
About a year ago, I wanted to build a small log cabin, and
I got the construction manual, and it said that I needed a 16-
inch circular saw. Now, the usual circular saw is 7\1/4\-inch;
16-inch is a big circular saw. And the manual said that Mikita
made one. So I called the local Mikita dealer, and they
searched their catalogues, and they said there was no such saw
available, that Mikita did not make it.
So I went to my son, who was familiar with the Net, went on
the computer, and found a 16-inch saw. They asked us for our
credit card number, and there was some little delay while they
said they were trying to find a secure link so that our credit
card number would be secure, and they said they finally found
that link. And so within, oh, less than 5 minutes from the time
we started, we had ordered the saw and 2 days later it was
delivered by UPS to my door. I was impressed. The local Mikita
dealer said Mikita didn't even make such a saw.
My question has to do with security and privacy. What we
ask of the Net is accessibility and ease of use, and these two
requirements--confidentiality and security and accessibility
and ease of use--those two things are in tension. What kind of
attention are you paying to these security/privacy problems as
these small companies are encouraged to do business by way of
the Net?
Ms. Lee. Chairman Bartlett, as you know, there is a great
deal of concern about computer security generically. In fact,
we have a priority management objective at OMB that deals with
computer security and digital signatures.
You look at that overall, all-encompassing issue. Then you
go to the procurement standpoint, from this single point of
entry, the information that we are posting there is public
information. We want it traded. So we are just going to
announce and provide information. The next step is to receive
back the proposals, and there are some systems that currently
do that. Right now different agencies do it a little
differently.
We are moving forward with digital signatures. We certainly
are going to have to accept them. And regarding your comment on
security, from a procurement standpoint it is not only the
security of the transmittal, but it is the validation that you
did, in fact, receive the proposal from the company. So it is a
validation issue.
We are actually working that in conjunction with the CIOs
for a government-wide solution. What we don't want to do is
step out and address a procurement-unique solution that is
thengoing to require a different approach for other Government e-
commerce issues.
So as hard as it is for us to say. We are intentionally
staying kind of one step behind industry and following their
lead on the technology. What is the right answer for digital
signatures? What is the right answer for validation and
verification? Ms. Knott will be able to tell you a little bit
more about what they are doing with the Department of Defense
consolidated contractor registration and the security that they
have there to ensure that the information is valid from a
contractor.
Once we get everyone comfortable with finding the
opportunities that way, how do we take the next step and start
receiving back and streamlining the process even further for
all proposals. We receive some now, but not all.
Chairman Bartlett. Thank you. As you know, this balance
between accessibility and ease of use and privacy and security
is one of the biggest problems facing the use of the Net today.
We want the ultimate in privacy and security, and we also want
the ultimate in accessibility and ease of use. And those two
requirements are obviously in tension, and right now everybody
is struggling with what is a reasonable accommodation between
those two.
The single point of entry, we have a big, big Government
and there is going to be lots of information there. Are you
developing a new search engine to make sure that the user can
find what he wants? Or is one of the existing search engines
adequate?
Ms. Lee. I am not the technical expert, but my experts
explain that we don't want to create a Government-unique
anything. And the technology out there is moving so rapidly
that there are currently available search engines that will do
this job. But they are also very carefully structuring this
single point of entry in an open architecture manner so that as
new technology changes you can integrate it into that.
I have to have it explained to me very simply by my expert
here, Captain Carra. The single point of entry is like a
parking lot. We are going to park the data there. So it will be
on some agency's different servers, but it will be located in
one location. And that allows you to access it so that we can
upgrade the architecture and the infrastructure as new things
develop.
We also can put it there so that, as Mr. Hinojosa
mentioned, if service providers want to come and get the data
and enhance it and deliver it to the small businesses or to
anyone else in the new format, they can also access it. What we
are trying to do is park the data in an easily accessed, very
open architecture manner that we can keep refreshing and keep
current.
Chairman Bartlett. So that any of the existing search
engines could be used then to access?
Ms. Lee. I know they have one selected, and we think there
are numerous ones out there. They are big engines because it is
a lot of data, but we think there is a current commercial
solution.
Chairman Bartlett. Thank you.
You mentioned the electronic posting system and the single
point of entry. What is the relationship between those two?
Ms. Lee. The electronic posting system is like the pilot
test. NASA, GSA, Treasury and Interior have gotten together and
are currently using a single-point-of-entry-like process and
testing it and scaling it and learning things about it. They
have learned things. They had questionnaires for small
businesses who used it to reply and say how did they like it,
what did they think about it. And we are learning little
nuances.
Right now you can search by SIC code, standard industrial
code, which we will soon change to NATE code. But you can
search by SIC. One of the things we have found from the small
businesses is that they would also like to have place of
performance because in some cases they really only want to work
on a limited geographic area. And so that might be a capability
that we need to think about adding.
So, it truly is the test. Does this concept work? So far we
have had quite favorable results.
Chairman Bartlett. So electronic posting system is a
limited demonstration----
Ms. Lee. Yes.
Chairman Bartlett [continuing]. Of whether or not
ultimately we can get to a single point of entry for all
Government transactions.
Ms. Lee. Correct. And we learned, again, from the single
point of entry, this is where the e-mailing concept came from.
We heard from primarily small businesses that said, gee, it
would be helpful if you pushed technology and you let me say I
am interested in Western Region SIC Code 7321, and any time
anything that is published in that notice, it sends an e-mail
to them so they are instantly notified. We learned that from
them.
Chairman Bartlett. In your oral testimony, you said that
you hoped that we would act on this proposal. It wasn't clear
to me what the antecedent of ``this'' was when you went through
your testimony.
Ms. Lee. The proposal is in the DOD proposal. It is simply
the removal of the waiting period because it is statutory. It
is in Title X. It is statutory that we have to have this 15-day
wait. The removal of this wait would occur only when the single
point of entry is identified. It wouldn't be effective until we
identify the single point of entry, which we are going to do
through public notice, public comments, those kind of things.
We want to make sure we get that right.
But we think that the attendant release of time period will
draw more agencies and will make them want to use the system
more effectively. So that is the proposed change to the
statute, to decrease that wait time.
Chairman Bartlett. Okay. Thank you very much.
My final question has to do with an issue raised by both of
my colleagues. How many small businesses do you think, in terms
of percentage, are not now on the Net? I am just amazed at how
rapidly this technology has spread and how many people,
including 11-year-olds, are conversant with it and very
capable. What percent of small businesses now are not on the
Net? And how quickly will this change until essentially none of
them will not be there?
Ms. Lee. Chairman Bartlett, I simply don't know. SBA can
certainly tell you of the people that are in PRO-NET, how many
of them have an e-mail address versus how many of them don't;
how many of them accept faxes versus e-mails. They can probably
give you a good feel for that. But I don't know how many small
businesses that want to do business with the Government are not
registered with PRO-Net, and I think that would probably be the
set that we are talking about.
Chairman Bartlett. Yes, I, too, am concerned that you
shouldn't be left behind as a small business person simply
because you don't choose to be conversant with the Net. But I
understand from your testimony that you have made adequate
opportunities for these by sending out Commerce Business Daily
and they have the trade journals and the small business centers
and there are lots of alternative avenues that they can use
until they are Net-friendly.
Ms. Lee. We have found in researching the Commerce Business
Daily, because we needed to know how many were published out
there, that from a high of about 55,000 copies a day, they now
publish a little over 4,000. The majority of those go to
libraries, and so, you know, we are just kind of putting two
and two together. We think that the libraries are still--what
we don'tknow is what the usage at the library is. Is it great
or little? And as you all know, most libraries now have Internet
access, and so they can also get to the onlines or a business could
choose, if their library provides that capability, to use it through
that method.
Chairman Bartlett. Thank you very much. Let me ask my
colleagues if they have any additional questions or comments
before we excuse this panel and convene the next one.
Mr. Davis. Only one, Mr. Chairman. How did that log cabin?
[Laughter.]
Ms. Lee. We are all waiting.
Chairman Bartlett. Well, that was a personal and very
interesting experience. I have always wanted to build a log
home, and I had an opportunity to do that with this little log
cabin. It is fine. It is under a roof, not completely finished
but out of the elements. Thank you very much.
Mr. Davis. You are a man of many talents.
Mr. Hinojosa. I have no questions.
Chairman Bartlett. Thank you.
Ms. Lee. Thank you.
Chairman Bartlett. Thank you very much, and we will excuse
this panel and convene the next one.
We welcome the members of our second panel. Again, your
written testimony, without objection, will be made a part of
the record. We would encourage you to summarize your testimony.
There will be adequate time for expansion during the question
and answer period that follows.
Mr. Max Summers, State Director, Missouri Small Business
Centers, who is here today, I understand, representing all of
the Small Business Development Centers. Ms. Scottie Knott,
Director, JECPO, Defense Logistics Agency. Thank you for
joining us. Mr. Major Clark, Assistant Advocate, Office of
Advocacy, who is here representing the Office of Advocacy and
my good friend Jere Glover. Thank you for joining us. And Mr.
Tony Bansal, president and CEO, Digital Commerce Corporation.
Welcome to all of you to our Committee, and we will begin
with Mr. Summers.
STATEMENT OF MAX E. SUMMERS, STATE DIRECTOR, MISSOURI SMALL
BUSINESS DEVELOPMENT CENTERS
Mr. Summers. Thank you, Chairman Bartlett, and members of
this distinguished Committee. I am Max Summers, State Director
of the Missouri Small Business Development Centers, and I am
here today on behalf of the Association of Small Business
Development Centers. My focus is on the training and
acquisition assistance that businesses should receive or are
receiving to compete not only in the Federal procurement arena
but in the whole arena of Internet commerce.
The rules are changing in today's small businesses. Buyers
and sellers can find one another without an intermediary. That
is bringing challenges to the role of the traditional
middleman. The retailer, wholesaler, banking, insurance, and
publishing industries, in addition to many others, are being
affected.
Navigation, especially the ability to reach buyers and
sellers, is where the battle for competitive advantage will be
won or lost. Boundaries between many businesses are being
weakened or eliminated, and price will take on a much higher
value in consumer decisions because of the customer's ability
to compare compatible products quickly via the online
marketplace.
The majority of our Nation's businesses, small businesses,
have not learned to effectively use the electronic arena to
sell goods and services via e-commerce. Today, the vast
majority of businesses use the Internet to find information or
simply post a website. Many small businesses are in a weaker
position to embrace these new technologies, but the real
challenge is the education of the small business owners
regarding the huge structural shift we will experience in the
global economy.
We must sound the alarm to small business owners regarding
these changes and provide assistance to them to adapt these
rapidly changing conditions in our environment.
Although we cannot change the market forces, we can help
these businesses understand e-commerce and that it is likely to
bring huge shifts in our economic structure, both in the U.S.
and in the global economy.
We must educate these companies to understand that e-
commerce is poised to pull significant dollars from the
traditional economy. It is expected that business-to-business
trade will grow disproportionately, which is likely to displace
many existing traditional small businesses. We cannot save
their traditional business, but we can help them understand
what is on the horizon, we can show them options, and we can
help them adapt to this change.
Small businesses will require a support structure to help
them address these fundamental changes in the new world
economy, especially in rural and hub zone areas. These rapid
changes will require that businesses and their personnel
redevelop skills through systematic and focused learning.
Technology is in the process of revolutionizing business. We
must now do the same thing for business learning.
This educational programming could include help for small
businesses to deal with the major barriers to their success by
developing and delivering: first, focused information and
knowledge regarding what e-commerce is and how it impacts the
business structure; second, developing and delivering processes
for assessing e-commerce competitiveness and the associated
business processes; third, identify what is needed technically
to implement e-commerce and how implementation is likely to
restructure that existing business; and, finally, how to
perform transactions business-to-business or business-to-
Government.
Targeting clusters of relatively similar businesses with
this programming would be most effective and would allow small
businesses to make intelligent decisions about the suitability
of e-commerce for their business. It would also enable many
companies to become better informed about electronic
purchasing. This is especially true in the case of business-to-
business transactions and Government contracting opportunities.
Through the SBDCs and the Procurement Assistance Centers
program, we could assist many of these thousands of businesses
that are unprepared to deal with e-commerce and Government
procurement by the delivery of offerings via their programs and
the ASBDC Internet-based training program. In addition, both
are well positioned to customize that training through one-on-
one assistance.
Together these programs have the procurement and the
management expertise to facilitate positive outcomes for the
Nation's small business, and we would encourage this
Subcommittee and the entire House Small Business Committee to
consider this a priority in identifying and supporting
mechanisms of assistance to the Nation's small businesses.
[Mr. Summers' statement may be found in appendix.]
Chairman Bartlett. Thank you very much.
Ms. Scottie Knott.
STATEMENT OF CLAUDIA S. KNOTT, DIRECTOR, JOINT ELECTRONIC
COMMERCE PROGRAM OFFICE, U.S. DEPARTMENT OF DEFENSE
Ms. Knott. Good morning, Chairman Bartlett and Congressman
Hinojosa. I appreciate the opportunity to appear before this
Subcommittee and discuss the present and future of e-commerce
and its impact on small businesses doing business with the
Department of Defense. I believe the DoD story is a positive
one and clearly demonstrates the commitment of senior
management within DoD to its revolution in business affairs.
The Joint Electronic Commerce Program Office, or JECPO,
serves as the DoD executive agent for accelerating the
application of electronic business practices and associated
information technologies to improve DoD acquisition processes
and other Department business operations. Our efforts unit
three communities that benefit from the use of electronic
commerce: first, the DoD warfighter--the sailor, soldier,
airman, and marine--that uses the products and services of
commercial industries; second, the thousands of large, small,
and medium-size businesses that conduct business with DoD; and,
third, the DoD acquisition community.
The progress that DoD has made in fielding, actually using
our electronic business initiatives is in stark contrast with
the old way that we did business. The old way was serial
processed, paper-based, extremely labor-intensive, and very
time-consuming, and generally resulted in frustrated trading
partners, both industry and Government. Today, DoD is pursuing
paperless processing--keeping pace with industry in the use of
Internet-based commercial technologies while ensuring secure
transactions and authorized access based on, again,
commercially available security solutions.
All of the initiatives that I will discuss today can be
accessed by any authorized user, Government or industry, large
or small, through commercial Internet access. The ease of entry
into the DoD market space is really equivalent to an annual
subscription service on the Internet.
The first initiative I would like to address is the Central
Contractor Registry (CCR). It provides vendors with an
unprecedented method of marketing themselves and their products
to all potential buyers within the Department of Defense. Now
any business can register in one easy place on the Internet,
and their information is available to all 800 contracting
offices as well as their supporting finance centers.
Contractors register in the database one time, with
subsequent annual renewals, and their information is available
to all of these contracting and payment offices. As a result of
the information available in the CCR, 80 percent of the
contract payments within DoD are able to be done using
electronic funds transfer.
The second initiative is the DoD Business Opportunities
Website, developed specifically to easily interface within a
Federal single point of entry. It provides a single search
mechanism for vendors to locate and access DoD online
solicitations. Through the DoD Business Opportunities Website,
users can also link to the appropriate DoD components--the
Army, Navy, Air Force, Marine Corps, and defense agency sites--
to actually make offers on these specific solicitations. This
centralized and coordinated approach allows a single view of
all DoD business opportunities while maintaining flexibility at
the local level within all of our components within DoD to
their initiatives and the increasing use of electronic commerce
and paperless operations.
The next initiative is Wide Area Workflow, which has made
it easier for industry to get paid for the work performed or
for goods delivered through the use of what we call a virtual
payment folder.
In DoD, we require that three key documents line up
together before a vendor can get paid: the original contract,
the invoice, and the receiving report, or the document that
demonstrates that the goods and services were actually received
and accepted.
The process of contract award and payment involves some 800
geographically dispersed Government offices, and then many more
locations that receive the products and services. Without new
initiatives using electronic commerce, this process of trying
to get together these three documents for all of the myriad of
transactions that we do within the Department of Defense could
take up to 6 weeks.
At one of our payment centers, this process alone had
created 15 linear miles of files. So you can see the
administrative burden associated with this paper-based process.
In response to this, DoD has developed an Internet
application that allows the Government to process these three
documents online. By storing these documents on the Web, we
have begun to turn the paper off that is actually going to some
of our finance centers to decrease that 15 linear miles of
files that we created.
Another initiative, the DoD EMALL, also demonstrates our
commitment to making it easier and faster to find and acquire
commercial items of supply that are needed by DoD. The DoD
EMALL provides ``point, click, and ship'' shopping for over 3
million commercially available items. It is comparable to
Amazon.com, CD Now, and multiple other types of commercial
electronic catalogues for online shopping.
But what the DoD EMALL additionally does, it also provides
assurance of buying against long-term Government contracts in
which all of the Federal procurement rules and regulations have
already been addressed as part of the award process before
coming on to the mall. The DoD EMALL also facilitates the use
of the Government Purchase Card, allowing our vendors to be
paid in the same way as their commercial credit card payments.
Additionally, there are no unique programming requirements
necessary to be a vendor on the DoD EMALL.
In all of the electronic business initiatives that I have
presented, we have worked to use commercial technology to
establish a single view or access to processes within the
Department of Defense. This has made it easier to do business
with DoD and allows DoD to take advantage of the best
commercial business practices used by our industry partners.
With electronic business, we have created a seamless business
process where the flow of electrons allows streamlined
interface between DoD and industry to expedite the delivery of
the right information, to the right place, at the right time.
Thank you very much.
[Ms. Knott's statement may be found in appendix.]
Chairman Bartlett. Thank you.
Mr. Clark.
STATEMENT OF MAJOR CLARK, ASSISTANT ADVOCATE, OFFICE OF
ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION
Mr. Clark. Good morning, Mr. Chairman and members of the
Subcommittee. As you stated earlier, Mr. Glover, who is chief
counsel for the Office of Advocacy, is unable to be here today.
He sends his regrets. But you know quite well his commitment to
small business. He has askedthat I present part of his
testimony. The full testimony will be, as you stated, submitted for the
record.
If I appear to be a little bit nervous, it is probably
because I am, seeing that some few years ago I had I guess what
is considered to be the pleasure to be chief of staff of this
very Committee, and many times looked out from where Mr.
Crowther is looking now at the audience and the witnesses and
wanted to know why were they so nervous. Now I understand why
they were nervous, so please bear with me. [Laughter.]
The views expressed here are the views of Mr. Glover and do
not necessarily reflect the views of the Administration or the
SBA Administrator.
Congress has struggled for years to determine how to
address the problem of regulatory burdens on small business,
how to make agencies consider the value of small businesses to
the economy.
Government procurement has been a particularly challenging
issue. Congress has been rightly concerned that the Federal tax
dollars be used to get the best buy, that Government manage the
procurement process efficiently--meaning at the lowest possible
operating cost--and that at the same time be assured that tax
dollars do not promote industrial concentration, that they do,
in fact, promote competition to ensure lowest costs in the long
run. And safeguards were instituted to ensure against abuse
such as favoritism in the award of contracts, failure on the
part of contracting officers to shop the marketplace, et
cetera. Mandates were also established to ensure that small
businesses would have some viable access to Federal contracting
opportunities.
Congressional reforms created a single acquisition
regulation, what is called the Federal Acquisition Regulation.
Other legislation--the Prompt Payment Act, the Equal Access to
Justice Act, and the Competition in Contracting Act--were all
enacted in the name of reform, with a view toward ensuring
fairness and small business access to Government contracting.
I guess as a sidebar, many of these initiatives were
enacted during the period of the 1980s in which I served as
chief of staff, so to some extent, they are very dear to me.
But at the same time, with the passing of the decade, we
recognize that the entire procurement process has come under
criticism for being inefficient, too bureaucratic, too costly
from an agency operating cost perspective. And in response,
Congress has rightly enacted the Federal Streamlining Act, the
Federal Acquisition Reform Act, and other reforms.
However, in pushing for streamlining, which Advocacy
largely supported, Advocacy nevertheless remained concerned
that enough safeguards were not built into the reforms. The
safeguards we believed were needed were those that would ensure
the Government continuously shop for the best buy--found most
often in the small business sector.
We remained concerned that reforms advanced in the name of
efficiency would result in more bundling of contracts into
larger contracts on which small businesses could not bid. We
were also concerned that contracting officers, being given more
discretion in selecting contractors at the same time that the
number of contracting positions was being reduced, would not
have the right incentives to reach out to small businesses on
contracts and purchases where small businesses were truly
competitive.
Computer technology and the Internet provided an option to
help implement operating efficiencies while providing important
information on small business capabilities. To reduce search
costs, contracting officers needed a service, properly
designed, that would make it easy for them to find qualified
small businesses. Thus, PRO-Net was developed by the Office of
Advocacy. It is a database that profiles small businesses,
providing information on what services and products they offer,
their history, and other conditions related to their ability to
perform. It has as its long-term goal to be a one-stop
information portal on small business which all contracting
officers, public and private, could consult to find qualified
small business vendors. It was a major step toward making it
easy for small businesses to do business with all Federal
agencies and to have the database linked to other Federal
programs then under development to increase the efficiency of
contract management.
But this new Internet-based service could not and was never
intended to address all the concerns Advocacy had about the
most recent reforms. Mr. Chairman, more than 5 years has now
elapsed since the 1994 Federal Acquisition Streamlining Act. We
are now beginning to document what has happened. Advocacy has
contracted for several studies: one on contract bundling, one
on credit card purchasing, and one on Federal Procurement
Center data. Some of these studies have already been presented
to the committee, and I will not go into them in detail. But
what is important is that the contract bundling report
indicates that between fiscal years 1989 and 1997, only 8.9
percent of all Federal procurement contracts were bundled, and
that seems like a small number, except when one considers that
the dollar value of those contracts represented 56.6 percent of
all Federal prime contracts. The small business share of all
Federal contracts shrank 1.43 percent between 1996 and 1998.
In the area of credit cards, we have contracted with Eagle
Eye Publishers to examine data from the Federal Procurement
Data Center to see if determinations can be made as to the
number and amount of credit card purchases made with small
firms. Preliminary data does show that credit card purchases
have increased dramatically, as expected. The total value of
purchases made by credit card in fiscal year 1999 was $10
billion. If small business' share remained constant, that would
mean $4 billion would have been spent with small business.
Whether or not this is happening is what remains to be
documented.
You are familiar with the Federal Procurement Data Center
study that was done in fiscal year 1999, which basically
documented the amount of contracts being spent with small
businesses by each Federal Procurement Center, approximately
2,000 Federal Procurement Centers.
Mr. Chairman, the data does tell us that something is
wrong. It does not, however, tell us how to fix the problems.
Advocacy makes no claim to hands-on experience with procurement
processes. Nor does it have working knowledge of the day-to-day
management of Federal contracting. Thus, as is our practice, we
convened a meeting of private sector individuals who are
conversant with the procurement processes and with the world of
small businesses trying to do business with the Government.
This meeting included such individuals of distinction as Dr.
Steven Kelman, the former Administrator of the Office of
Management and Budget Office of Federal Procurement Policy,
who, as you know, has returned to Harvard University after his
stint with OFPP.
Several areas were found to be wrong with the Federal
procurement system as it relates to small business.
Streamlining rules that give contracting officers significant
discretion to deal with large firms, without any built-in small
business safeguards and Government-Wide Agency Contracts that
bundle for ease of contract administration were just two of the
areas that this informal group looked at.
They came out with corrective steps: developing GWACs,
Government-Wide Agency Contracts, on which only small
businesses can bid and establish such vehicles for small
business goals for each agency.
This group also had a recommendation of making PRO-Net the
central registration for small business, expand mandatory use
of and reliance on PRO-Net to overcome contracting officer
inertia in searching for small business.
These recommendations have been forwarded to the Office of
Federal Procurement Policy and SBA, and I am pleased to report,
as Ms. Lee stated earlier, some steps have been taken to bring
this more into light of reality. But more needs to be done.
Now, what does all this have to do with e-commerce and
small business? Let me share with you what we do know.
Procurement reforms have led to Federal agencies posting
business opportunities on the Internet. All Federal contractors
are now required to transmit invoices electronically. Many
Federal contractors are also being required to accept contract
payments by credit card. The question these changes pose is:
How is this affecting small business?
An Advocacy study published in 1999 showed that over 4.5
million small employers used computer equipment in their
business in 1998. The percentage of small businesses with
access to the Internet nearly doubled from 1996 to 1998 from
21.5 percent to 41.2 percent, respectively. However--and this
is significant--only 1.4 percent of Internet use among small
businesses is directed to e-commerce sales.
In addition, this report identified several obstacles
facing small business and e-commerce. Costs, security concerns,
technical expertise, and customer service were the major
roadblocks to greater small business participation in e-
commerce. Cost was singled out as the most common and greatest
impediment to expanding e-commerce.
The three basic concerns identified by respondents were:
lack of funds for up-front implementation costs; lack of
monthly cash flow to maintain their sites; and the probability
that there would not be a real return on their investment.
All of these taken together leads us to the conclusion that
without managerial systems in place, or accountability measures
that provide incentives for agencies to do business with small
business, or services that make it easy for contracting
officers to find small business, the benefits of e-commerce as
used by the Federal procurement system will not redound to
small business. Moreover, without such changes, small
businesses will not have the incentive to increase its use of
the Internet. There will grow and remain a digital divide--a
divide that will be caused in large part by the failure of
Federal policies to ensure small business access to Federal
procurement opportunities. E-commerce and the Internet are but
tools that without the right building blocks can be used to
bypass small business.
The building blocks on which the use of technology is
ground are what concerns us. Ensuring that the Government does
business with small business is not dependent on technology,
but it is dependent on policies and mandates. And it is
important to remember that doing business with small business
is not social welfare. It is good Government and good business.
To prove this point, I defy anyone to find a $700 toilet seat
sold by a small business.
Mr. Chairman, e-commerce is at the center of efficiency
reforms in the Federal Government. It requires businesses to be
computer oriented. But none of this addresses the rules by
which contracting officers are to make decisions. Without such
rules, small business' share of Federal procurement dollars
will continue to decline. Mr. Chairman, in conclusion, that is
our concern.
Thank you.
[Ms. Clark's statement may be found in appendix.]
Mr. Bartlett. Thank you very much.
Now, Mr. Bansal.
STATEMENT OF TONY BANSAL, PRESIDENT AND CEO, DIGITAL COMMERCE
CORPORATION
Mr. Bansal. Good morning, Chairman Bartlett and Congressman
Hinojosa. My name is Tony Bansal, and I am the president and
CEO of a privately held small business in Reston, Virginia. Our
flagship product, FedCenter.com, is a Government-focused
electronic commerce-enabled mall with over 5 million line items
and over 600 Government vendors.
I thank you for giving me this opportunity to present my
views here. Like all of the other esteemed witnesses here, I,
too, am engaged in the process of bringing efficiency to
Government e-procurement. But unlike them, I have invested
personal savings to this end. Like my grandfather once remarked
over a breakfast of bacon and eggs, he said, ``Son, it is
important to be committed. Look at this breakfast here. We all
know that the chicken is involved, but the pig is committed.''
[Laughter.]
``And that is why it is called bacon and eggs.''
Well, I am here to tell you that Digital Commerce is
committed to this process. We are a local small business. We
have invested millions of dollars in creating a Government-
focused procurement utility, an electronic mall, if you will,
in which Federal Government buyers can come and compare
products from several different vendors and make best-value
decisions.
We thought that if the law of the land, look at the Federal
Acquisition Streamlining Act, you look at the Paperwork
Reduction Act, you look at all of the other executive orders,
if the law of the land requires that the Government must sell
electronically, it just makes sense that the vendors must be
able to sell electronically. So by creating a clearinghouse, if
you will, in which Government buyers can come buy
electronically and sellers can sell electronically, we believe
we have created an efficient way of meeting legislative
mandates without the use of taxpayers' money, and we have
leveled the playing field for small businesses.
Small businesses need help in this new Internet economy.
The Web is now an essential cost of doing business. In addition
to bricks and mortar, small businesses must understand and
invest in Web-enabled machines and networks. Small businesses
need to migrate to the Web, but do they have the resources to
evolve, market and maintain a Web presence. In my opinion, they
do not have the resources to create the technical
infrastructure or have the marketing muscle to be able to sell
to the Government effectively.
FedCenter.com helps by providing small businesses with
their own website on fast servers. It helps them with hosting
and maintaining their Government catalogues, their pricing; it
helps them with making them e-commerce-enabled; it helps them
with education, training and outreach; it helps them with
marketing; it helps them with access to not only Federal
contracts, but State and local contracts.
I know Congressman Hinojosa, you had earlier made a comment
with the previous panel that these businesses do not have the
wherewithal sometimes to either have the e-commerce capability
or just understand how the process works. We provide that. And
so essentially all of the basic infrastructure that a small
business needs to transact and work with the Government, we
provide. And above all, this entire infrastructure,
FedCenter.com, was built without any taxpayers' dollars and is
provided free to the Government.
And the Government has several other advantages that arise
from here; one, it makes itunnecessary for the Government to
spend money in building this infrastructure, which will allow the
Government to allocate their taxpayers' dollars and other Federal
resources not on establishing capabilities that are already in the
private sector. It also allows the Government to focus on functions
that I believe are more inherently governance; i.e., creating rules,
and guidance, and certifications on how to do business in these malls.
It also allows the Government to focus on meeting the purchasing needs
from small businesses.
How can the Federal agencies help? I believe the Federal
agencies can help by not allocating their dollars in building
these systems, these malls. They are already built in the
private sector. An analogy that comes to mind, which may not be
very perfect, but is close, which is, should the SEC be
building stock exchanges? They don't. They guide and go on and
set the rules of how the stock exchanges work. I think that is
what Government needs. It does not need to build these malls.
They exist.
All of these resources that are being spent on building
these malls should be spent on helping small businesses settle
in these malls, help them with things they need to take
advantage. The Government is doing a tremendous job, in terms
of letting out these contracts, the multiple awards schedules,
the GWACs and others. That is what they should be focusing on.
Some of the things that Ms. Knott, here, presented earlier
in terms of the initiatives that the Government is taking, in
terms of helping the businesses with the electronic invoicing
and quicker payment, those are the things that the Government
must be involved with. That is where you can help the
Government.
If I had a dollar to spend and if I were the Government,
would I spend that dollar on building a mall or would I spend
that dollar on helping a small business? My vote every time
would be to use that dollar in helping a small business go to
malls, Government malls, that already exist. The Government
should focus on, I believe, Governmentwide guidelines on how
these malls should operate and certifications, if necessary,
helping small business settle in. I don't think the Government
should be a mall builder, but should be a subscriber of these
malls. Private capital is efficient. Private capital goes to
places where the risk reward is inequitable. I don't think that
the Government should use taxpayers' dollars to take risks that
are in the private sector.
I encourage all of you to log onto FedCenter.com today and
see for yourself what we have built. And thank you, once again,
for giving me this opportunity.
[Mr. Bansal's statement may be found in appendix.]
Chairman Bartlett. Thank you very much for your testimony.
I want to thank all of the witnesses for their testimony. Some
of the questions and concerns raised in the first panel have
been addressed by this second panel. Thank you very much.
Let me turn now to Mr. Hinojosa for his comments and
questions.
Mr. Hinojosa. Thank you, Chairman Bartlett.
It was interesting to hear each one of you because I could
identify with your presentation, and I don't know that I have
questions for each one of you, but I will say that the comments
that Mr. Bansal made at the end, that if you had the money, you
would invest it in training the small business firms instead of
building the malls has a lot of merit.
The comments that Major Clark made at the end of his
presentation that talk about how e-commerce in the Federal
procurement program will continue to decline with small
businesses because of what we don't have, and that is the
infrastructure and the know-how to be able to use it, addresses
the concerns that I posed to the first presenter. Scottie, the
presentation you made gives me a lot of encouragement that
there are a lot of opportunities for the small businesses to be
able to identify contracts where they could sell to the Federal
Government. I happen to come from the era of the 1980s, where
we started selling to the Federal Government as an 8A
contractor. And the first year we were able to sell about
$300,000 of hamburger meat to the Department of Agriculture
under the National Lunch Program. It was very difficult. We
couldn't understand the specifications. We really needed
someone to hold our hand and take us through this land mine.
I was able to get a technical assistance grant, under the
7J program of SBA, and they sent me to a Swift plant in Dallas
that was making a product, a ham, for the Department of Defense
to supply our troops. The gentleman who owned that plant told
me that it was very difficult, that he was the first 8A
contractor to ever get a meat contract, and he went on to
explain how difficult it was to understand specifications and
all that was required.
Well, now, with what is being done here under e-commerce,
it just continues, and bundling, which was addressed also by
Major Clark, is just a continuation of making it more difficult
and putting more obstacles for women and minorities to get into
these contracts. I have been out of the food processing
business now for 4 years. And the number of family-owned
businesses that used to be in that industry have diminished by
more than half.
And where we used to have approximately 38 little business
firms competing under the 8A program for meat products, you are
down to one-third; and under the bundling, you have probably
lost 80 percent. I think that we need to sort of put the brakes
on this fast technology that we are doing under e-commerce, and
as we pause, that possibly Mr. Summers, through your
association, could come up with something that would be quick
to bring all of these small firms under all industries and
occupations, under all of the SIC codes, up to par to be able
to utilize this paperless procurement program that the Federal
Government is wanting to do. There is no doubt, there is no
doubt in my mind, that the big, large firms are the ones who
are benefitting from this. And I have had constituents come to
talk to me and say how we, as Small Business Administration or
Small Business Committee members are turning a blind eye to
what is occurring to them.
Mr. Summers, I heard somebody say you had the answer to a
question that I was asking the first presenter.
Mr. Summers. Well, I don't know whether that was accurate.
You asked the question about the possibility of using
students to the first presenter?
Mr. Hinojosa. Graduates.
Mr. Summers. Graduate students?
Mr. Hinojosa. Not a student, but somebody who has graduated
with a bachelor's degree out of the School of Business, to team
up with some of our small business firms to help them set up
and use the equipment and participate.
Mr. Summers. This could be done without a great deal of
difficulty. Many SBDCs are housed on university campuses. I
don't know the exact number of campuses we are on, but we have
a thousand centers. Probably that represents 5 or 600
universities across this country, and that enables us to be a
good facilitator to identify students who would be qualified to
assist and match that assistance to the local business. DLA's
Procurement Assistance Centers can bring the procurement
expertise that is needed with that.
So if you link those together, we could quickly and simply
solve the one problem that you are addressing. Just a thought.
Mr. Hinojosa. Chairman Bartlett, I can't help but think
that that is a good idea for theconsideration of our committee,
and see how we could work with the agencies that are responsible for
funding those small business components, either through SBA or
Department of Commerce. I know that both of them have them under the
MBDC and SBA agencies.
But, again, how fast can this be done?
Mr. Summers. The charge of SBDCs is to provide management
assistance. This is a component. Assisting with issues of
administration, finance and computer systems are all under the
umbrella that we would see as our charge today. How quickly can
we facilitate the students? That is the hard part of the
equation. But we are well positioned to do that.
I don't know that I can put a time frame to it today, but
we are positioned to make this happen fairly quickly. If we
could get the components and figure out how to really approach
this, we would like to have more student involvement. And if
this were a mandate for us, I think that is something we would
take on. I can't speak for the DLA Procurement Assistance
Program, but they have a representative on this panel, so they
can speak for themselves.
Mr. Hinojosa. Major, I want to say that your studies that
you identified are very accurate and that as a member of this
committee, I would like very much to somehow get more
communication and dialogue with your component of the SBA and
see how we could maybe think this out as to how we can utilize
Mr. Summer's recommendation and move in that direction because
this booming economy is leaving out some of our small business
firms if we don't respond.
And I, Mr. Chairman, would like to say that I would love
the opportunity to work with you in finding a solution to
leapfrog, not go at a turtle's pace to make it happen. That is
why I was asking the question how soon can we get it done so
that we can help our small business firms be a part of this e-
commerce business-to-business boom that is before us.
Mr. Bartlett. I thank the gentleman very much for his
concerns and his questions.
Several members of the Small Business Committee were small
business people before we came here. And you can tell by Mr.
Hinojosa's questions that he is very familiar with the concerns
of small business. What we need, Mr. Hinojosa, I think is the
equivalent of SCORE. SCORE are retired executives, probably not
as familiar with computers and the Net as younger people, but
we need the equivalent of that made up of younger people who
are available too. SCORE does a fantastic job of interfacing
with small business in the management business plan aspect of
it. We need that kind of capability at this technical front now
to help our small businesses become more familiar and more
expert in using the Net.
Consistent with your concerns, let me ask Scottie Knott,
what percentage of the businesses in your DoD EMALL, which I
gather Mr. Bansal says you don't need to make because he has
already done it.
Ms. Knott. He is a participant on the EMALL.
Chairman Bartlett. Oh, he is a participant. What percentage
of your businesses in your DoD EMALL are small businesses?
Ms. Knott. Right now, of the vendor catalogues, I would say
about 40 percent of them are small businesses.
Let me just comment, though, on what my colleague had to
say about that. One of the things that you mentioned, in terms
of looking for solicitation and the small business vendor not
wanting to go to multiple websites, and having to look here,
and then look here, and then look here in different website, in
the same way our DoD customers, the people that need these
commercial goods and services, don't want to have to go to
multiple different websites in order to find all of the
different chain saws, for example, that may be out there in the
marketplace.
So what the DoD EMALL does is uses available commercial
catalogues, as the FedCenter, and brings them together for a
single view of all of those commercial sites, as well as DoD
inventory to our DoD customers. So we are not building a unique
capability for--we are not building our own malls. All we are
doing is we are bringing together all of the different
catalogues and malls that are available from commercial
industry, as well as our Government, visibility of our products
in the warehouses, and providing that to our DoD customers. So
I just wanted to make that distinction in that regard.
But the DoD EMALL is available to any vendor within DoD who
has a Government contract. We want to put on the mall contracts
that are available for ordering because what we are doing is we
are presenting this information to the person who is the
orderer, not the person who is the procurement professional
putting together the procurement. That has already been done
for them. So we are going directly to the customer who is
ordering this product.
Chairman Bartlett. Forty percent of your businesses in your
mall are small businesses. What percent of the dollar awards
are small business?
Ms. Knott. In the mall?
Chairman Bartlett. Just what percentage of the money spent
by DoD is spent on small business? If 40 percent of your
potential contractors are small business, what percent of the
dollars do they get?
Ms. Knott. I don't know what the total percentage is for
all of DoD in terms of all of DoD procurement. I am not
specifically in that particular business. But there is no
distinction made between the vendor who is a large business or
a vendor who is a small business in any of our e-commerce
initiatives. They are available to all on the same playing
field.
Chairman Bartlett. Thank you.
Several of you have mentioned legislative actions that
might be desirable for the Committee to make. One of the first
of those----
Mr. Hinojosa. May I interrupt you, Mr. Chairman?
Chairman Bartlett. Yes, sir. Please do.
Mr. Hinojosa. Before you get off of the percentages, you
said 40 percent were using computers. In the study that was
presented by Major Clark on page 9, there is a paragraph that
is alarming and should be alarming to us in our Committee,
which says, ``However--and this is significant--only 1.4
percent of Internet use among small businesses is directed to
e-commerce sales.'' That is alarming.
And there is no doubt that what Scottie is talking about,
the opportunities and all of that, are tremendous. But unless
we address the reasons, it says, ``The three basic cost
concerns identified were lack of funds for up-front
implementation costs; number two, lack of monthly cash flows to
maintain their site; and, three, the probability that there
would not be a return on their investment,'' at least that is
the perception.
Unless we address this, I don't think we are going to see a
big improvement in small business firms taking advantage of
business-to-business e-commerce. I think the Government is just
going to be patted on the back by the big companies and thanked
for getting rid of all of the small business firms that used to
compete with them so that they can up the prices so that we can
have the $700 toilets.
Mr. Bansal. Can I make a comment?
Mr. Hinojosa. Sure.
Mr. Bansal. We have addressed at least two of those three
concerns that was in that report you just read out. We do, for
small businesses, we do bring them into an e-commerce world, so
we do do a set-up for them. We do maintain it monthly for them,
and we do get them transactions, so they can bill
electronically.
I think the point that I did not make very emphatically is,
really, the Government can help by encouraging the use of these
solutions to send business to small businesses. And I think the
e-mall has taken the lead in the sense that we are in
partnership with them so that they have the ability, if they
want it today, to do that. And we are free to the Government.
We don't charge the Government for use, but we do charge
businesses. But what we charge to small businesses is so low,
so compelling, that we have not had problems from getting them
to participate. And in some cases, we have even waived that fee
because we truly believe that there are hundreds of thousands
of vendors that have prenegotiated contracts with the
Government that most of them need to be in malls like this for
the Government to succeed.
Mr. Hinojosa. Mr. Chairman, I agree with Mr. Bansal that
what his company and his group have is applicable to the
solution that I am looking for. But before we commit to the
legislation changes that you were about to talk about when I
interrupted, I hope that we would make that conditional on the
Federal agencies who can help implement the solution that I am
asking for, that if we are to make legislative changes like
removing the 15-day waiting period and other things that were
requested earlier, that all of that be conditional on there
being, I guess, a huge effort in human resources and monies for
technical assistance to address what I want, and that is that
small businesses have a human being who can help them utilize
this opportunity of business-to-business e-commerce.
Chairman Bartlett. Thank you. Thank you very much. Your
concerns I think are the concerns of the Office of Advocacy.
And I would hope that in any legislation that we are working on
that we would work closely with them because they are out there
every day working with small businesses and know the problems
and the concerns that they have.
I was mentioning the suggestions that you all have made for
committee action. Mr. Summers made one of those first
suggestions. And what I would like you to do is to make sure
that our staff has those because we will be looking at them.
This is such a rapidly changing field that a 4-year-old bill is
probably now obsolete, isn't it, for many of the needs and
concerns of small business. So we do need to update this, and I
appreciate your suggestions for changes.
And, Mr. Summers, if you would make sure that the committee
actions that you would like to see us make are clearly spelled
out for our staff people.
Scottie Knott, you mentioned the virtual payment folder.
Ms. Knott. Yes, sir.
Chairman Bartlett. Government has a great reputation for
being a very poor payer, slow. By poor, I mean slow payer. Does
this new technology help us move a little faster, so that we
won't continue to have that reputation?
Ms. Knott. Yes, sir. I believe so. The vendor can actually
submit their invoice electronically. And built into that
process are some validations so that the invoice that they
submit is correct; in other words, it has all of the required
information.
As you know, under the Prompt Payment Act, and we have some
cash management requirements associated with paying vendors.
And in order for the clock to start ticking on the payment, you
have to be in receipt of a valid invoice, and it has to be
correct. So this helps the business entity submit the invoice
and make sure that all of that information is correct.
Additionally, it marries up those other two documents that
I told you are necessary, the receiving report, as well as the
contract, and it makes it available to any payment official
within the DoD community online, so they don't have to wait for
the mail, they don't have to wait for somebody to file it and
put it in the right folder, they don't have to wait for that to
actually appear on their desk. So it is instantaneous access to
information the minute it is available or actually created,
when all three of these documents are created. So it should
speed that particular process up.
Chairman Bartlett. We hope so. One of the major complaints
of people doing business with the Government is that they are
so slow paying. As a matter of fact, I know of some small
businesses that do not contract with the Government simply
because they do not have the financial resources to wait 90 or
more days for payment.
Ms. Knott. Yes, sir.
Chairman Bartlett. So, hopefully, this new technology will
speed that up, which I think will be very beneficial to the
taxpayer because we are going to have small businesses, who
will be even more competitive, becoming involved when they have
finally learned that they will get paid on some timely basis.
Major Clark, you mentioned that Mr. Glover's views are not
necessarily the views of the administration. Jere Glover is
typical of a number of people, not enough, but a number of
people in the Government who when they tell the person they are
conversing with that, ``I am from the Government and I am here
to help you,'' the person doesn't start laughing, which is the
usual response when somebody from the Government says, ``I am
from the Government and I am here to help you.''
Your organization, particularly Jere Glover, really is
there to help, and I am pleased that an increasing number of
people, particularly those who are interfacing with the small
business community, have the kind of attitude that Mr. Glover
has. When he gives a talk and he says, ``us,'' he is talking
about small business, and when he says ``them,'' he is talking
about the Government bureaucrats. And we need more of our
people to use that kind of vocabulary when they are interfacing
with the public, particularly with the small business
community.
You mentioned the $700 toilet seat. Whose fault is that? We
have $200 hammers and $700 toilet seats. Whose fault is that?
How much of that fault is the fault of Government procurement
policies and how much of it is the fault of the business? You
said that small business was never there, that when that sort
of thing came up it was always large business. Whose fault is
that? How much of that fault is our procurement policy and how
much of that fault is the business?
Mr. Clark. Mr. Chairman, if I may go back in time just a
little bit, the toilet seat issue came up, at least came to our
attention back in the 1980s, and at that time it was at least
the belief of staff, looking at various documents, that fault,
if there is fault to be placed, was part placed on the system
itself, in terms of how it encouraged, how it allowed for this
type of situation to occur. And in many situations, and in most
situations, small businesses simply were not available to
participate at that level of play and, therefore, small
businesses were not selling the $700 toilet seat to Defense or
the $250 hammer, whatever the case may be.
But in many situations because of the system, while we saw
the $700 toilet seat as being ridiculous, the system itself saw
the $700 toilet seat as being just a very small part of a
larger mission that had to be accomplished, and that mission
was to make sure the fighters were able to fight, and we were
able to conduct the type of war that was necessary.
So, to a very large extent, the procurement regulations at
that point in time allowed for this tooccur, and that is, to
some extent, why we, at least the staff level, recommended to the
members, and they took the recommendations and moved forward with
legislation, in terms of correcting some of those deficiencies.
Chairman Bartlett. I appreciate your answer.
Most frequently when this is mentioned, it is mentioned in
the context of greedy, inept businesses who are just finding
opportunities to gouge the Government and the taxpayer. I
appreciate your answer very much because I think that most of
the blame there lay at the regulations, which didn't only
permit, but in some ways of looking at them, almost required
this kind of thing. And I appreciate your concern about
changing these so that that wouldn't happen again. There is no
big business that wants this kind of a thing to come out in the
press about their contract with the Government. That doesn't
help anybody, the Government or the business.
You also mentioned contract bundling. Relevant to that,
there is another concern that a number of small businesses have
come to us with, and that is bid shopping. Is that problem
finally corrected? Bid shopping is where a prime goes out and
gets a bunch of subs to team with them in bidding. And then the
prime gets the contract, and he comes back to the subs, and he
says, ``Well, now I have got the contract. I am going to rebid
these subs. How much lower can you make your bid cost on
that?''
And frequently the subs that were a part of the bid and
maybe part of the reason that the award was made to the prime
are not involved at all in the performance of the contract
because the prime has now gone out and done what is called bid
shopping. They have shopped it around. They have gotten other
small bidders who would do it for lesser dollars. Had they been
on the team, originally, they might not even have gotten the
contract because the Government buyer might not have seen that
as a responsible team.
The difference in dollars is just put in the pocket of the
prime. It is called ``bid shopping.'' Have we found a way to
correct that abuse?
Mr. Clark. Mr. Chairman, we have not looked at bid shopping
as a study, at this particular point. We do, however, know that
from anecdotal information that has been brought to our
attention, that it is occurring. So, therefore, we have not
moved forward with any type of recommendation as to how to
curtail it simply because we have not studied the problem in
its totality.
It does exist, and it is unfortunate that the small
business owner is, in most situations, the victim of this
particular process. It is something that we will be looking at
in the very near future, but we have not yet been able to fully
document the magnitude of it.
Again, bid shopping, in past legislation, there has been
attempts to correct this. There are some laws in place now
which can address this if they are properly implemented.
Chairman Bartlett. I think in terms of fairness, almost
everybody would like to see the team that won the contract be
the team that performs on the contract. And if legislation is
needed to make that happen, please let us know. If
administratively, the Government procuring agencies can make
that happen, that is okay. But if you need legislative support
to do that, please let us know.
Mr. Bansal mentioned the relationship of the chicken and
the pig to your breakfast ham and eggs. For the chicken, that's
a one-day effort, for the pig, that is pretty much a total
commitment, isn't it.
Mr. Bansal. Sure.
Chairman Bartlett. And there are many small businesses who
feel more like the pig than the chicken----
Mr. Bansal. Absolutely.
Chairman Bartlett. When they are dealing with the
Government.
I want to thank all of you very much for your testimony.
This is a rapidly growing technology. It is very difficult to
keep up with it, particularly difficult for our small
businesses. The most relevant legislation is now 4 years old.
And I think very clearly since it is 3 or 4 years old, that we
need a new look at legislation. Appreciate your suggestions for
what this legislation might include.
And, again, thank you very much for your participation in
today's hearing.
Our Subcommittee is now adjourned.
[Whereupon, at 11:55 a.m., the Subcommittee was adjourned.]