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July 26, 2011

Statement for the Record - Senate Committee on Homeland Security and Governmental Affairs Hearing

(WASHINGTON) - Congressman Bennie G. Thompson, Ranking Member, House Committee on Homeland Security, submitted the following statement for the record for the United States Senate Committee on Homeland Security and Governmental Affairs, Ad Hoc Subcommittee on Contracting Oversight hearing on: Small Business Contracts: How Oversight Failures and Regulatory Loopholes Allow Large Businesses to Get and Keep Small Business Contracts:

I would first like to thank Chair McCaskill for conducting this hearing examining how large businesses routinely obtain small business contracts. Sen. McCaskill and I share a commitment to assuring that small businesses have a chance to compete in the Federal marketplace. As a part of that commitment, both the Chair and I, introduced legislation to level the playing field for 8(a) firms by reforming a system of special exemptions that allowed some firms to stay in the 8(a) program in perpetuity. I am happy to report that the Small Business Administration (SBA) has reviewed rules affecting these special exemptions and made some needed reforms.

Today the Subcommittee will examine another issue hindering the small business community – the ability of large corporations to obtain and perform small business contracts. Unfortunately, this problem is not new. In 2006, I wrote to the SBA Office of Inspector General and asked them to examine this phenomenon. The impetus for that letter came from my oversight of FEMA's compliance with small business participation requirements following Hurricane Katrina. During that time, FEMA awarded a contract for nearly $1 million to a business that it classified in its reporting numbers as small.

However, a simple search of the internet revealed to me that the contractor had more than 200 facilities in several countries, over 10,000 employees, and approximately $4.5 billion in North American sales. This was not a small business by any definition. When we contacted the business they claimed that there had been a mistake. So we asked several other Departments to determine whether this same company had also been classified as small with those agencies. The company had been classified as small on numerous occasions by several procurement offices in several departments.

In one instance, this multinational corporation had been named small business of the year. Let's just say that it is unlikely that this mistake was inadvertent. The SBA Office of Inspector General recommended two simple data entry fixes to resolve the problem of a large business being classified as a small business. Yet despite the simplicity of these corrections, it is my understanding that they have not been done even though this government spends millions of dollars every year on computer systems.

The reasons that this simple fix has not been made remain a mystery. I strongly urge the SBA to implement the OIG recommendations from this and subsequent reports on this issue and request that the Members of this Committee join me in pressing for this solution. But I remain optimistic and committed to assuring that small, minority and disadvantaged businesses are treated fairly. And while the Subcommittee considers ways to improve opportunities for small, minority and disadvantaged businesses, I would suggest that it be certain that its efforts do not have unintended consequences of hampering small business survival. We cannot ignore that some policies have unintended consequences.

Recently, the Administration decided to reduce its reliance on contractors by bringing work in-house. The government can achieve substantial cost savings by allowing Federal employees to do the work that contractors have been doing. I applaud and support this common-sense cost reduction policy. However, this common-sense policy should not be carried out to the detriment of the small business community. Yet that appears to be what is happening. According to an examination done by the Washington Post, some agencies are using a method to determine which contracts to in-source that adversely affects small businesses. So far, at least 12 companies have filed lawsuits in Federal court challenging in-sourcing decisions. All of those cases involve small businesses.

Although the Office of Federal Procurement Policy has instructed agencies to place a lower priority on reviewing potential in-sourcing of those contracts held by small businesses, that message has not been received. I have written to the Administrator of the Office of Federal Procurement Policy about this issue and urge those who care about the survival of small, minority and disadvantaged business in the Federal market place to do the same. The twin federal goals of increasing small business participation and increasing internal capacity through in-sourcing are not mutually exclusive. Federal in-sourcing policies should not hurt small businesses.

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