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ADMINISTRATION COMMENTS ON CONGRESSIONAL PROCUREMENT REFORM PROPOSALS AND HOW THEY WILL AFFECT SMALL BUSINESS Y4.SM 1:103-64 Adninistration Connents ob Congress... HEARING BEFORE THE SUBCOMMITTEE ON PROCUREMENT, TAXATION, AND TOURISM OF THE COMMITTEE ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION WASHINGTON, DC, FEBRUARY 1, 1994 Printed for the use of the Committee on Small Business Serial No. 103-64 \i-^u.. r 5t U.S. GOVERNMENT PRINTING OFFICE 76-394CC WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-044795-X ADMINISTRATION COMMENTS ON CONGRESSIONAL PROCUREMENT REFORM PROPOSALS AND HOW THEY WILL AFFECT SMALL BUSINESS Y4.SH 103-64 1; fldninistration Connents on Congress... HEARING BEFORE THE SUBCOMMITTEE ON PROCUREMENT, TAXATION, AND TOURISM OF THE COMMITTEE ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION WASHINGTON, DC, FEBRUARY 1, 1994 Printed for the use of the Committee on Small Business Serial No. 103-64 f%f^ U.S. GOVERNMENT PRINTING OFFICE WASHINGTON 1994 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-044795-X COMMITTEE ON SMALL BUSINESS JOHNJ. LaFALCE, New York, Chairman NEAL SMITH, Iowa JAN MEYERS, Kansas IKE SKELTON, Missouri LARRY COMBEST, Texas ROMANO L. MAZZOLI, Kentucky RICHARD H. BAKER, Louisiana RON WYDEN, Oregon JOEL HEFLEY, Colorado NORMAN SISISKY, Virginia RONALD K. MACHTLEY, Rhode Island JOHN CONYERS, JR., Michigan JIM RAMSTAD, MinnesoU JAMES H. BILBRAY, Nevada SAM JOHNSON, Texas KWEISI MFUME, Maryland WILLIAM H. ZELIFF, Jr., New Hampshire FLOYD H. FLAKE, New York MICHAEL A. "MAC" COLLINS, Georgia BILL SARPALIUS, Texas SCOTT McINNIS, Colorado GLENN POSHARD, Illinois MICHAEL HUFFINGTON, California EVA M. CLAYTON, North Carolina JAMES M. TALENT, Missouri MARTIN T. MEEHAN, Massachusetts JOE KNOLLENBERG, Michigan PAT DANNER, Missouri JAY DICKEY, Arkansas TED STRICKLAND, Ohio JAY KIM, California NYDL«L M. VELAZQUEZ, New York DONALD A. MANZULLO, Illinois CLEO FIELDS, Louisiana PETER G. TORKILDSEN, Massachusetts MARJORIE MARGOLIES-MEZVINSKY, ROB PORTMAN, Ohio Pennsylvania WALTER R. TUCKER III, California RON KLINK, Pennsylvania LUCILLE ROYBAL-ALLARD, California EARL F. HILLIARD, Alabama H. MARTIN LANCASTER, North Carolina THOMAS H. ANDREWS, Maine MAXINE WATERS, California BENNIE G. THOMPSON, Mississippi Jeanne M. RoslanOWICK, StaffDirector Jenifer Loon, Minority StaffDirector Subcommittee on Procurement, Taxation, and Tourism, JAMES H. BILBRAY, Nevada, Chairman NORMAN SISISKY, Virginia RICHARD H. BAKER, Louisiana EARL F. HILLIARD, Alabama JOE KNOLLENBERG, Michigan KWEISI MFUME, Maryland ROB PORTMAN, Ohio EVA M. CLAYTON, North Carolina RON KLINK, Pennsylvania John FaDGEN, Subcommittee StaffDirector DUANE Duncan, Minority Subcommittee Professional StaffMember (II) CONTENTS Page Hearingsheldon: Feburary 1, 1994 WITNESSES Tuesday, Feburary, 1, 1994 Kelman, Steven, Administrator, Office of Federal Procurement Policy, Office ofManagement and Budget ••• •• ^ Moflitt, Robert J., Associate Administrator, Procurement Assistance, bmall PreBsutsoinn,esCsolAldemeni,niDsetpruattiyoUnndersecretaryofDefense, forAcquisi;t-.ion•R"•e••f•orm ... 1^8 APPENDIX OpeningStatements: BBialkberra,y,HoHno.n.RiJcahmaersdHH |^] Clayton, Hon. Eva ^^ Prepared statements: Kelman, Steven ^^ MPorfeisittotn,,RCooblelretenJ J°'^* (III) ADMINISTRATION COMMENTS ON CONGRES- SIONAL PROCUREMENT REFORM PROPOS- ALS AND HOW THEY WILL AFFECT SMALL BUSINESS TUESDAY, FEBRUARY 1, 1994 House of Representatives, Subcommittee on Procurement, Taxation, and Tourism, Committee on Small Business, Washington, DC. The subcommittee met, pursuant to notice, at 10:02 a.m., in room 2359-A, Rayburn House Office Building, Hon. James H. Bilbray (chairman ofthe subcommittee), presiding. Chairman BiLBRAY. The hearing will come to order. It is my privilege this morning to welcome a distinguished panel ofadminis- tration witnesses before the Subcommittee on Procurement, Tax- ation, and Tourism. Their testimony today will lead off 2 days of hearings in which the subcommittee will kick off one of the most important streamlining debates that has been proposed by the Vice President's reinventing Government proposal, the reform of the Federal procurement system. For the better part of this last year, this subcommittee, along with the Committee on Government Operations and the House Committee on Armed Services, has devoted thousands of hours to developing proposals to reform, streamline and modernize the Fed- eral procurement system. Building upon the work of the Department of Defense's Section 800 panel and the Vice President's reinventing Government proposal, the last several months have seen a number of legislative proposals being put forth by the Congress. These include S. 1587 by Senator Glenn, H.R. 2238 by Chairman Conyers, and this subcommittee's H.R. 3586. All these proposals have a great number of issues in common, and most important to this subcommittee, a fundamental change to the bidding process and bidding environment for small businesses. It is particularly in this area that this subcommittee have con- centrated its work. Issues ofparticular importance to the small business include: In- creasing the small purchase threshold to $100,000; creation of a commercial buying environment; notice requirements under $25,000; small business reservation under $2,500; creating of a Govemmentwide electronic commerce procedures; and exemptions from socioeconomic and small business requirements. (1) Tomorrow, a number of small and minority business groups along with private business representatives will present the private sector's views of the present procurement reform proposals. Today, however, we look forward to the administration's views on these issues. Already a number of issues of concern have arisen. Legislation before the House has linked together increases in the small purchase threshold to creation of electronic commerce in the Federal Government. This subcommittee has placed particular emphasis on this issue as the sudden increase to $100,000 will prove disastrous to small business access to solicitations under $100,000. It is the subcommittee's belief that electronic commerce procedures will prove to be the solution to both this access issue and to the issues of current notification practices in contracts under $25,000. In addition, the subcommittee does feel a responsibility to en- courage the creation of a Governmentwide electronic commerce net- work that will push the Federal procurement into the 21st Cen- tury. But let me reiterate. It is imperative that above all that access for small businesses to solicitations under $100,000 be maintained. We share the administration's concerns that changes in the current oral solicitation procedures could create a bureaucratic nightmare. It is my hope that we can find a resolution that will ensure notice and protect the access of small businesses. In addition, a number of concerns have arisen regarding the creation of a commercial buying environment and certain exemptions that are being sought from socioeconomic and small business requirements. There has been a great deal of anxiety among the small business community on these issues. I would hope that the administration would expand on the benefits that small businesses will find in a commercial buying environment, and the status of certain proposals that were ofparticular concern to the small business community. Finally, let me reiterate. It is the Congress's intention to pass significant legislation that is true to the Vice President's goals to streamline and reform the Government. I agree that we need to de- crease the bureaucracy, simplify the process, and put responsibility back in the hands ofthe Government managers. A Government manager should have the ability to go buy post- it notes and memo pads at the local Office Depot and provide for them in a simplified method, and not have to go through the bureaucratic nightmare ofthe Government procurement system. Because we recognize the administration's desires in this area, we are certainly willing to explore possible suggestions that have been made by the administration regarding the small business reservation under $2,500. Again, I welcome you here today, and I look forward to the testimony that you will present. I will turn to the ranking minority member ofthe entire committee, Mrs. Meyers. [Chairman Bilbray's statement may be found in the appendix.] Mrs. Meyers. Thank you, Mr. Chairman. I would like to ask unanimous consent to enter the opening statement of Congressman Baker, please. Chairman BiLBRAY. Without objection, any statements by any of the Members that come today will be put into the record. [Mr. Baker's statement may be found in the appendix.] Mrs. Meyers. Thank you, Mr. Chairman. I appreciate you hold- ing this hearing on proposed procurement reforms and their possible impact on small business. It goes without saying that the procurement process is overcomplicated, inefficient, and in need of re- pair. Unfortunately, much of this complication is due to congressional action. However, there is a light on the horizon. The legislation that we will discuss today contains reforms that are both inno- vative and common sense, reforms that will break the logjams in the way the Government buys. These are exciting changes. Some of them, like electronic commerce, have been in the works for several years. It is satisfying to see these efforts begin to pay off. But in our haste to remove need- less complication, we must be careful not to destroy the necessary protections in the system. The Federal Government must act more like a business, but we must remember that it is not a business. Protection of the tax- payers' dollars is essential. Equally important is ensuring access to Government contracting for those who have been traditionally shut out and shunted aside, small business. Mr. Chairman, I support procurement reform 100 percent, but the reform must go both ways. It must make it easier for the Gov- ernment to buy and easier for small business to have access to sell. I look forward to hearing from our witnesses, and I want to thank them all for coming. Chairman Bilbray. Thank you, Mrs. Meyers. Mr. Sisisky. Mr. Sisisky. I have no prepared statement, Mr. Chairman. I am just delighted to welcome Secretary Preston. It is the first time that she has been in a hearing. I have been attending the Armed Services Committee hearing, and I am really here iust to learn about this. I think we all agree that we need to make some fundamental changes, and, hopefully, this is the right way to go. But we are certainly going to be looking at it both here and in the Armed Services Committee, particularly here as it relates to small business. I look forward to the testimony. Chairman BiLBRAY. Thank you, Mr. Sisisky. We have a panel of three witnesses today. The first of 2 days of hearings, as I mentioned in my opening statement. The first witness will be the Honorable Steven Kelman, Adminis- trator, Office of Federal Procurement Policy, Office of Management and Budget. Second, is the Honorable Colleen Preston, Deputy Undersecre- tary ofDefense for Acquisition Reform. Third, is Robert J. Moffitt, Associate Administrator, Procurement Assistance ofthe U.S. Small Business Administration. For the record, we also have a letter from Erskine Bowles, the Administrator of the Small Business Administration, pointing out the fact that he has designated Mr. Moffitt to represent him in the hearing. We have the greatest respect for Mr. Bowles. Anyone he would send over, we know will do an excellentjob. We will start in the following order. Mr. Kelman, you would go first; Ms. Preston; and then Mr. Moffitt. So, we will start with Mr. Kelman. We will go through all ofyour testimony, and then at the end we will have a series of questions from the Members who come in and out during the day. Unfortunately, we do not have a lot of Members here. Because today is a pro forma day in the House. Unfortunately when pro forma days happen, most Members stay in their districts to work with their constituents. But there will be people coming in and out. Mr. Kelman. TESTIMONY OF STEVEN KELMAN, ADMINISTRATOR, OFFICE OF FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGE- MENT AND BUDGET Mr. Kelman. Good morning, Mr. Chairman, other members of the committee and the subcommittee. I appreciate the opportunity to be here today. As I mentioned to you over the phone yesterday, Mr. Chairman, aside from my confirmation hearings in the Senate before recess, this is my first appearance as administrator before a congressional hearing. So, for the rest of you here, this may be another day and another hearing, but it is a little bit of a special day for me. I appreciate your kind words, that you would not rake me over the coals too hard today. Chairman Bilbray. This is your first time. So, we will try to be gentle. Mr. Kelman. Thank you. Mr. SisISKY. He is speaking for himself. Mr. Kelman. Speaking for himself That is right. I know he was only speaking for himself. I also need to apologize. Our family moved down from Boston a few months ago, and we have seemed to have brought the Boston winter with us to town. I have been saying to some people who the administration is hopeful that we can get procurement reform legislation passed in the House and the Senate by springtime. But I have been a little bit vague about whether I meant Boston springtime, which is in about May or June. Chairman Bilbray. You didn't say which springtime. Mr. Kelman. That is exactly right. I left it purposefully vague. At any rate, what I am going to do, I have submitted a statement for the record, and I am going to summarize it in the interest of time. I wanted to start off, if I could, by commending members of this subcommittee for your work on behalf of procurement reform, in- cluding of course the introduction of H.R. 3586. I think that with the efforts of the Vice President in the national performance re- view, and the interest in Congress in procurement reform, we really have a unique opportunity to serve the taxpayer better by mak- ing some real advances in the area of procurement reform in this session. I also want to confirm to you at the outset that the administration supports the strongest level of small and minority business op- portunities for participation in Federal contracting. We view small