[House Hearing, 114 Congress] [From the U.S. Government Publishing Office] THE CUMULATIVE BURDEN OF PRESIDENT OBAMA'S EXECUTIVE ORDERS ON SMALL CONTRACTORS ======================================================================= HEARING before the SUBCOMMITTEES ON INVESTIGATIONS, OVERSIGHT, AND REGULATIONS AND CONTRACTING AND WORKFORCE OF THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTEENTH CONGRESS SECOND SESSION __________ HEARING HELD SEPTEMBER 13, 2016 __________ [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 114-071 Available via the GPO Website: www.fdsys.gov ________ U.S. GOVERNMENT PUBLISHING OFFICE 23-766 WASHINGTON : 2017 ____________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Publishing Office, Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800 Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001 HOUSE COMMITTEE ON SMALL BUSINESS STEVE CHABOT, Ohio, Chairman STEVE KING, Iowa BLAINE LUETKEMEYER, Missouri RICHARD HANNA, New York TIM HUELSKAMP, Kansas CHRIS GIBSON, New York DAVE BRAT, Virginia AUMUA AMATA COLEMAN RADEWAGEN, American Samoa STEVE KNIGHT, California CARLOS CURBELO, Florida CRESENT HARDY, Nevada WARREN DAVIDSON, Ohio NYDIA VELAZQUEZ, New York, Ranking Member YVETTE CLARK, New York JUDY CHU, California JANICE HAHN, California DONALD PAYNE, JR., New Jersey GRACE MENG, New York BRENDA LAWRENCE, Michigan ALMA ADAMS, North Carolina SETH MOULTON, Massachusetts Kevin Fitzpatrick, Staff Director Jan Oliver, Chief Counsel Adam Minehardt, Minority Staff Director C O N T E N T S OPENING STATEMENTS Page Hon. Cresent Hardy............................................... 1 Hon. Alma Adams.................................................. 2 WITNESSES Mr. James P. Hoffman, P.E., President, Summer Consultants, Inc., McLean, VA, testifying on behalf of the American Council of Engineering Companies.......................................... 5 Ms. Donna S. Huneycutt, Co-Owner and Chief Operating Officer, WWC, LLC, Tampa, FL, testifying on behalf of the National Defense Industrial Association................................. 7 Mr. Jimmy Christianson, Regulatory Counsel, Associated General Contractors of America, Arlington, VA.......................... 8 David Madland, Ph.D., Senior Fellow & Senior Advisor to the American Worker Project, Center for American Progress, Washington, DC................................................. 10 APPENDIX Prepared Statements: Mr. James P. Hoffman, P.E., President, Summer Consultants, Inc., McLean, VA, testifying on behalf of the American Council of Engineering Companies........................... 25 Ms. Donna S. Huneycutt, Co-Owner and Chief Operating Officer, WWC, LLC, Tampa, FL, testifying on behalf of the National Defense Industrial Association............................. 34 Mr. Jimmy Christianson, Regulatory Counsel, Associated General Contractors of America, Arlington, VA.............. 39 David Madland, Ph.D., Senior Fellow & Senior Advisor to the American Worker Project, Center for American Progress, Washington, DC............................................. 54 Questions for the Record: None. Answers for the Record: None. Additional Material for the Record: Statement of Chairman Richard Hanna.......................... 65 THE CUMULATIVE BURDEN OF PRESIDENT OBAMA'S EXECUTIVE ORDERS ON SMALL CONTRACTORS ---------- TUESDAY, SEPTEMBER 13, 2016 House of Representatives, Committee on Small Business, Subcommittee on Investigations, Oversight, and Regulations, joint with the Subcommittee on Contracting and Workforce, Washington, DC. The Subcommittees met, pursuant to call, at 10:00 a.m., in Room 2360, Rayburn House Office Building, Hon. Cresent Hardy [chairman of the Subcommittee on Investigations, Oversight, and Regulations] presiding. Present: Representatives Hardy, Knight, Hanna, Kelly, Adams, and Lawrence. Chairman HARDY. Good morning. I would like to call this hearing to order. I would like to start by thanking our witnesses, especially the small business owners who have traveled from different parts of the country, for being here. Today, we are going to take a look back at all the executive actions President Obama has taken throughout his presidency that have a direct effect on the Federal contractors. More specifically, we want to examine how these actions have affected small firms that do business with the Federal Government. Throughout this Congress, our full Committee, as well as several of our Subcommittees, including mine and Mr. Hanna's, have held hearings highlighting the negative outcomes of several of these actions, doing our best to defend the small business community. Regrettably, President Obama either was not listening, or worse, he simply ignored our appeals. For example, last September, Mr. Hanna and I held a joint hearing discussing the negative outcomes small businesses would have faced should Executive Order 13673, commonly referred to as ``the Blacklisting rule,'' become final. We received testimony at that hearing that would undermine the government's longstanding policy of maximizing contracting opportunities for small businesses and that it was an opportunity to extort settlements out of small businesses. These pleas were ignored by the Department of Labor, and the Blacklisting rule became final on August 24th. The Blacklisting rule is one of many new Federal regulations that have been spawned by the President's decree hampering economic growth in our small business communities. Aside from the circumventing of the Congress' legislative authority, I am particularly concerned that these executive actions will lead to fewer small businesses participating in the Federal marketplace. We need a healthy industrial base with many small businesses working to provide the government with innovative goods and cost-effective services. When fewer small businesses compete for federal contracts, the outcome will be less innovation and a higher cost to taxpayers. Regrettably, this exodus has already started. We currently have 100,000 fewer small businesses registered to do business with the Federal Government than we did just 4 years ago. This is not good for the United States. In meeting after meeting with my constituents back home in Nevada, and listening to small business after small business testify before this Subcommittee, I have come to the conclusion that Washington regulators, and particularly those appointed in the Obama administration, do not understand how much their actions affect the day-to-day operations of small firms. This is unfortunate, and I hope to work with this administration to make them understand just how difficult they are making it for small Federal contractors. We have an outstanding panel here today with us this morning, and I am very interested in hearing how bad it is getting out there for our small federal contractors. We will keep yelling, and maybe the President will finally hear us. Now I yield to the Ranking Member, Ms. Adams, for her opening statement. Ms. ADAMS. Thank you, Mr. Chairman, for holding this important meeting. To our panelists today, our witnesses, for your presence and your participation, I thank you as well. Each year, the Federal Government spends over $400 billion in taxpayer dollars to pay private companies for goods and services. In the past, Congress has used this significant financial might to help drive forward a number of policy goals. One such policy goal that is a priority for this Committee and for Congress is the participation of small businesses in the federal marketplace. As such, we have passed legislation aimed at ensuring all small businesses get a fair shot at these projects. Likewise, this Committee has worked in a bipartisan manner to help women- and minority-owned businesses navigate the procurement process, recognizing that as the country's largest consumer of goods and services, the Federal Government has the ability to use its buying power to advance priorities important to our Nation. President Obama signed several executive orders and presidential memorandum setting standards for contractors doing good work for the government, and while funds received from Federal contracts boost local economies and allow firms to hire more employees, some firms play by their own set of rules to win these lucrative dollars. As a result, law-abiding businesses are disadvantaged and pushed out of the marketplace. Therefore, these executive actions are aimed at leveling the playing field for all contractors. From ensuring that contracting officers are looking at labor law violations when evaluating a firm's responsibility to protecting employees from discrimination on the basis of sexual orientation and providing sick leave and a higher minimum wage, these executive actions cover a wide range of areas to not only protect employees, but also protect the government from undue risk. So we should be clear of the businesses that perform work for the government. The overwhelming majority comply with laws and do right by their employees while providing excellent goods and services at competitive prices. However, this Committee has heard of a number of bad actors that skirt the law and continue to receive Federal contract work. For instance, according to one report, almost half of the total initial penalty dollars assessed for Occupational Safety and Health Administration violations in 2012 were against companies holding Federal contracts. However, these businesses were rarely debarred or suspended from the federal marketplace as a result of their unsafe working environments. Labor laws are crucial to a healthy economy. Allowing habitual violators to continue working with the federal government without requiring remedies puts employees at risk of injury and the government at risk of delays and additional costs. So with regards to the executive orders on increasing wages and protecting employees seeking equal pay, studies have shown that higher wages lead to better quality of services, lower employee turnover, and more robust bidding by high-road employers, all of which improve the efficiency and the economy of federally contracted work. While these executive actions have resulted or will result in new processes and procedures for Federal contractors, many of the changes will fit into the existing procurement process with the contracting officer using additional criteria to consider. Yet, as we hear today, many small firms are concerned with the cumulative impact impacting all executive orders will have on their businesses. Small businesses provide quality goods and services at affordable prices, meaning a better deal for the government and the taxpayer, yet they have smaller margins, and new regulations can be harder for them to absorb. With small businesses creating over two-thirds of new jobs, our economy needs both small businesses and sufficient employee protections to properly operate. Accordingly, it is important that we find the balance in which small businesses are not overly burdened by complying with the guidelines, while not diluting the protections afforded to law-abiding contractors through these executive orders. With that, I look forward to hearing the witnesses' perspective on these important topics, and I yield back. Thank you, Mr. Chair. Chairman HARDY. Thank you, Ms. Adams. I would like to turn some time over to the chairman of the Subcommittee on Contracting and Workforce, Chairman Hanna. Chairman HANNA. Thank you, Chairman. I appreciate it. I am going to forego my statement today. So much of this is self-evident and it is often mostly, most of the time it is the case that witnesses have much more insight, and I do not want to take up any time to read my statement because I have a lot of questions and I want to get some feedback and want to take the time to do it. So thank you, Chairman. Chairman HARDY. Thank you, Mr. Chairman. If the Committee members have any opening statements prepared, I would like to ask that they submit them for the record. Now, I would like to explain how things kind of work around here, which many of you probably already know. You will have 5 minutes to deliver your testimony. The light will start out as green. When you have 1 minute remaining, the light will turn yellow, and finally, when your 5 minutes is up, it will turn red. I ask you to adhere to this time limit if you could, please. Now, I would like to introduce our witnesses. Our first witness is Mr. James Hoffman, president of Summer Consultants, Inc., a small mechanical, electrical, and plumbing engineering firm in McLean, Virginia, testifying on behalf of the American Council of Engineering Companies. He possesses 24 years of experience preparing studies and designs of federal historic and institutional facilities and complex renovation projects. Mr. Hoffman is a Project Manager for indefinite delivery, indefinite quantity contracts with Baltimore District of the Army Corps of Engineers Naval Facilities, Engineering Command Washington, and the National Institute of Standards and Technology. Other past and current federal experience includes work with the Architect of the Capitol, the 11th Wing of the Department of the Air Force, and the General Services Administration. Thank you for being here, Mr. Hoffman. Up next we have Ms. Donna Huneycutt, Chief Operating Officer and Co-owner of the Wittenberg Weiner Consulting, testifying on behalf of the National Defense Industrial Association, or the NDIA. Prior to joining the WWC, she practiced business immigration law representing Fleet Boston Financial and Vertex Pharmaceuticals. Previously, Ms. Huneycutt practiced corporate law in New York, focusing on private placement startups and structured finance. She holds a B.A. from the University of California-Berkeley, and a J.D. from Columbia University. She is an active member of the Committee on Acquisition Management and Small Business Division Legislative Affairs and Policy Team of the NDIA. She co-chaired the Small Business Committee on Pathways to Transformation, Response on Acquisition Reform prepared by the NDIA at the request of the Senate Arms Service Committee and the House Arms Service Committee. Thank you for being here, Ms. Huneycutt. Next, we have Jimmy Christianson, Regulatory Counsel for the Associated General Contractors, or the AGC. Working with AGC for nearly 6 years, Mr. Christianson lobbies Congress and federal agencies on transportation authorizations and appropriations, procurement, public-private partnership, labor, and environmental bills. He has success in this which he has led the enactment of favorable provisions in the National Defense Authorization Act for the fiscal years 2014, 2105, and 2016; the Water Resources Reform and Development Act of 2014; and various appropriation bills. He also works with the association members from CEOs of multibillion-dollar companies to middle managers and business owners to identify, prioritize, and advance industries' legislative and regulatory agencies. He received his B.A. from the University of Pennsylvania and his J.D. from the University of Maine. Thank you for your participation, and we look forward to hearing from you, Mr. Christiansen. Now, I would like to yield to Ms. Adams to introduce our next witness. Ms. ADAMS. Thank you, Mr. Chair. It is my pleasure to introduce Dr. David Madland. Dr. Madland is a Senior Fellow and a Senior Advisor to the American Worker Project at the Center for American Progress. He has written extensively about the economy, including the middle class, economic inequality, retirement policy, labor unions, and workplace standards, such as the minimum wage. He has appeared frequently on television shows, including PBS NewsHour, and has been cited in publications such as The New York Times, The Wall Street Journal, and The Washington Post. Dr. Madland has a doctorate in government from Georgetown University and received his bachelor's degree from the University of California-Berkeley. Welcome, Dr. Madland. Chairman HARDY. Again, I would like to thank you all for being here. Mr. Hoffman, we will start with you. You have 5 minutes. STATEMENTS OF JAMES P. HOFFMAN, P.E., PRESIDENT, SUMMER CONSULTANTS, INC.; DONNA S. HUNEYCUTT, CO-OWNER AND CHIEF OPERATING OFFICER, WITTENBERG WEINER CONSULTING, LLC; JIMMY CHRISTIANSON, REGULATORY COUNSEL, ASSOCIATED GENERAL CONTRACTORS OF AMERICA; DAVID MADLAND, PH.D.,SENIOR FELLOW & SENIOR ADVISOR, AMERICAN WORKER PROJECT CENTER FOR AMERICAN PROGRESS STATEMENT OF JAMES P. HOFFMAN Mr. HOFFMAN. Subcommittee Chairman Hanna, Chairman Hardy, Ranking Member Adams, and members of this Committee, I appreciate the opportunity to testify before you today about the issues surrounding the cumulative burden of President Obama's executive orders on small contractors. My name is James Hoffman, and I am the President of Summer Consulting, a mechanical, electrical, and plumbing engineering firm, headquartered in McLean, Virginia. Summer Consultants is a small business with 36 people, and we have been in the federal marketplace for over 50 years. My firm is an active member of the American Council of Engineering Companies, the voice of America's engineering industry. ACEC's over 5,000 member firms represent hundreds of thousands engineers and other specialists throughout the country that are engaged in a wide range of engineering work that propel the Nation's economy and enhance and safeguard America's quality of life. Almost 85 percent of these firms are small businesses. ACEC appreciates the efforts that the Department of Labor and the FAR Council play to ensure compliance with labor laws. The industry is committed to following the rules, but the Federal Government must understand the burdens on the private sector and that the cost is passed on to the government with duplicative requirements. The blacklisting rule creates burdens for engineering firms and other contractors working for federal agencies. While we understand the rationale behind the order, it should be noted that the bad actors are less than 0.01 percent of the total contracting workforce. Let me repeat that, less than 0.01 percent of the total contracting workforce. The Sick Leave Executive Order also creates unnecessary administrative and financial burdens on contractors. While the Council supports paid sick leave, the amount of reporting and the changes required to implement the rule create more expense for contractors and the government. Most of the Council's firms offer equivalent paid sick leave, so the requirement is repetitive. These orders create a more burdensome and expensive process for federal contractors, which drives up taxpayer costs while driving businesses out of the Federal market. For example, my firm is a prime contractor and manages many subcontractors. Under the blacklisting rule, I will have to preclear my subcontractors before I develop a response. Developing a response takes time and focus away from other business as I develop the full scope of the requirements to make sure that the subcontractors have the business and ethical credentials to help me win the work. I question that I will be able to consult with both the contracting officer and the agency labor compliance advisor to find out if these subcontractors are okay, and I am concerned about the alleged labor violations, or violations that are beyond the 3-year period will be held against my firm or any subcontractors during the solicitation and within the context of the contract. My firm already reports compliance with the required rules and orders up to the applicable agency. Adding another set of reporting that is duplicative increases my overhead. Engineering firms across the Nation complain that contracting officers are looking to reduce firm overhead and expenses in this tight budget environment. Under the Sick Time rule, engineering firms also face increased overhead by mandating employee weekly sick time reports. This requires new systems and potentially adds employees to implement the changes, and generally, firms are typically paid on a monthly or biweekly cycle and report sick leave and other time off with each pay period. Member firms respond that implementation costs in the first year are estimated to be in excess of $50,000, with additional costs in the subsequent years. Both these rules will add to the overhead that the government is already trying to limit. Implementation of these rules will further add to those overhead expenses, putting firms in a difficult situation of possibly leaving the federal marketplace, which dilutes competition for critical services as taxpayers or adding costs to the agency if the expenses are accepted. I ask that the Committee consider asking the FAR Council and the Department of Labor to withdraw the proposed sick time guidance and the final blacklisting guidance, to redraft it to better align with the current contracting process. I also ask that the members of this Committee support either the House or Senate NDAA language to limit implementation of the FAR rule and DOL guidance. Thank you for the opportunity to participate in today's hearing, and I will be happy to respond to any questions from the Committee members. Chairman HARDY. Thank you for your testimony. Ms. Huneycutt? STATEMENT OF DONNA S. HUNEYCUTT Ms. HUNEYCUTT. Thank you. Good morning. Subcommittee Chairman Hanna and Chairman Hardy, Ranking Member Adams, and members of the Committee, thank you for the opportunity to appear before you this morning. I am here on behalf of the National Defense Industrial Association, the Nation's oldest and largest defense industry association, comprised of nearly 1,600 corporate and 90,000 individual members. Small businesses are a critical component of the U.S. economy, serving as a catalyst for economic development, providing employment opportunities, and as the engine of new ideas and innovations. Accordingly, the federal government has established programs to ensure participation opportunities to small businesses to fulfill the public policy objectives of the Federal Acquisition Regulation, and access a source of innovative products and services for federal government customers. Explicit and implicit in the desired outcomes for small business programs is achieving effective competition by maximizing small business participation and enabling small businesses to grow through diversification of the goods and services they provide and expansion into the nongovernmental marketplace. As outlined at the onset of the FAR, the guiding principles of the federal acquisition system are to satisfy government customers by maximizing use of commercial products and services, utilizing contractors with superior past performance, and promoting competition. At the same time, the federal acquisition system shall minimize operation costs, conduct business with fairness and integrity, and fulfill policy objectives. The EOs attempt to fulfill the latter two guiding principles, but in the process, undermine each of the others. The rationale for the procurement-related EOs have been to ``promote economy and efficiency in procurement'' through their intended outcomes. Industry does not necessarily disagree with the logic, but rather, how that efficiency and economy is achieved. Supporting documentation for the EO on Fair Pay and Safe Workplaces states, ``The vast majority of federal contractors play by the rules.'' However, the implementation approach to each of the EOs punishes that vast majority of good actors through costly, government-unique compliance requirements, a particularly inefficient means to promote efficiency. The most efficient and economic means to fulfill the policy objectives of the EOs is to alter government buying practices. For example, the rationale for the Fair Pay and Safe Workplace EO is, ``Contractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the federal government.'' Thus, if the government makes contract awards based on the offeror that provides a good or service for the best value, it would have already chosen an offeror that adheres to existing labor laws and has workplace practices that enhance productivity. Unfortunately, as industry has long pointed out, the government has poor buying habits that have equated ``best value'' with ``lowest cost,'' and valued compliance to government-unique requirements over actual performance in delivering goods and services, creating a perverse incentive to ``race to the bottom'' to win contracts. Congress has already passed sufficient legislation to ensure protections of federal contractor employees and to ensure that the government only contracts with responsible sources. The federal government should focus on enforcing the objectives of existing laws, rather than using EOs to prescribe in excessive detail how to comply. A major frustration for small businesses is that in many cases they agree with the intended outcome of an EO, such as providing for the well-being of federal contractor employees or making sure that competitors play by the rules, but object to the process by which the EOs have been developed and implemented. Small businesses are not only concerned with the collective impacts of the EOs on their bottom line, but also the detrimental impacts they will have on government customers and their ability to carry out missions, the most consequential of which is national security. In recent years, the Department of Defense, the federal government's biggest spender by a substantial margin, has placed a renewed emphasis on an innovation and acquisition reform, led by top officials in the Office of the Secretary of Defense and the Services. Unfortunately, the EOs undermine these initiatives. The resultant accumulation of government-unique requirements and their compliance costs will continue to deter new suppliers from entering the government marketplace and drive exits by firms already selling to the government, restricting competition. In closing, several of the recent EOs have, through flawed processes, installed burdensome, unnecessary, inefficient, and in many cases duplicative and overlapping regulatory regimes that have the cumulative effect of dramatically increasing the cost of doing business with the federal government. Over time, these will decrease efficiency and economy in federal procurement, while undermining small business growth and development, and limiting the federal government's access to innovative products and services to fulfill their needs. Thank you again for the opportunity to appear before you this morning, and I am happy to answer any questions you may have. Chairman HARDY. Thank you, Ms. Huneycutt. Mr. Christianson? STATEMENT OF JIMMY CHRISTIANSON Mr. CHRISTIANSON. Chairman Hanna, Chairman Hardy, Ranking Member Adams, and members of the Committee, thank you for inviting the Associated General Contractors of America to testify today on this important topic. My name is Jimmy Christianson. I am Regulatory Counsel for AGC, which represents more than 26,000 union and open-shop commercial construction companies throughout the Nation. The construction industry has historically supported and provided opportunities for small businesses. It includes more than 660,000 firms throughout the United States, of which 93 percent have fewer than 20 employees. Generally speaking, those employees may include cost estimators, proposal managers, superintendents, craft labor, equipment operators, and other staff whose primary purpose is construction work. The business of a construction small business is construction. When it comes to compliance issues, many small businesses may have one or two employees that handle safety, labor, human resources, and environmental compliance for the entire company. In many companies, the safety director is also the environmental compliance director. The human resource director is also the accountant and the general office manager. The reality is that small business employees are often working ``double duty'' because small businesses have extremely limited resources. That stated, abiding by laws and regulations is part of the cost of doing business. The requirements of the statutes and regulations imposed, however, can also represent barriers to entry for small emerging businesses and barriers of growth to existing ones. Laws and regulations are necessary to help maintain a level and competitive playing field. Nevertheless, not all laws are necessarily good laws, and similarly, not all regulations are necessarily good regulations or practical. Laws and regulations enacted and finalized, even with the best intentions, can have unintended consequences and needlessly duplicate or confuse existing legal frameworks. Of the more than 400 executive orders and presidential memoranda issued by President Obama, AGC has identified 22 that impact the construction contracting industry and its small businesses. Several of those actions, which I am happy to discuss in detail during the question-and-answer period, will individually and cumulatively expose small business construction contractors to significant legal costs, legal liabilities, and other risks. Small business contractors will have to consider these executive actions in the context of the potential risks versus rewards of participating in the federal construction market. Given the overall state of the economy today, as we experience a workforce shortage, more than two-thirds of our members say they are looking for workers. The private market, other markets out there are more competitive. They will have to consider whether they will continue to work in the federal market or, as they have told me, plan to or strongly consider walking away. The administration probably did not intend to drive small businesses out of the Federal market in implementing these actions; nevertheless, it appears to be a realistic impact. AGC looks forward to working with this Committee on ways to prevent small businesses from leaving the Federal market and addressing the problems with several of these executive actions. I hope today that we can talk about the practical realities that these executive orders place on small businesses. I hope we can talk about the reality that many small businesses already in the construction industry have Davis-Bacon requirements that require them to pay prevailing wage rates. How will these different executive orders on paid sick leave take into account, because many of them do not, existing statutory requirements that are already in there? We will also remember that most small businesses, veteran-owned small businesses, minority-owned small businesses, the small businesses we represent, consider their workers in many cases to be part of their family, just as many of you consider your employees and your congressional staff to be part of your family, and it is hard when rules and regulations come down that make them have to make decisions that have to say we have to let go of some members of our family. I look forward to your questions. Thank you. Chairman HARDY. Thank you, Mr. Christianson. Dr. Madland? STATEMENT OF DAVID MADLAND Dr. MADLAND. Thank you, Chairman Hardy and Chairman Hanna, Ranking Member Adams, and members of the Subcommittee. I very much appreciate the opportunity to be here. My name is David Madland. I am a Senior Fellow at the Center for American Progress Action Fund. CAP Action is an independent, nonpartisan, and progressive education and advocacy organization dedicated to improving the lives of Americans through ideas and actions. The President's executive actions that are the subject of today's hearing draw widespread support from a broad coalition of supporters. Not only do organizations representing workers, veterans, women, the elderly, and taxpayers support many of these actions, but so, too, do a number of small businesses. Many small businesses feel that these executive actions will help them compete on a level playing field and make the contracting process more welcoming to businesses like theirs. Indeed, in 2015, small business contracting, as a percentage of total government contracting, was at record high levels. Though I think the general points I make could be applied to most, if not all, of the President's contracting reforms, I will focus my remarks on those that address minimum wage, require paid sick, ban discrimination based on sexual orientation and gender identity, and ensure companies comply with workplace laws before getting new government contracts. The federal government has a long and successful history of starting important social changes with federal contractors. For example, President Lyndon Johnson prevented companies that contract with the federal government from discrimination on the basis of race, color, religion, sex, or national origin. Actions by President Richard Nixon furthered these protections. Ronald Reagan sought to promote minority contractors. Bill Clinton encouraged contractors in economically distressed areas. George W. Bush sought to ensure contractors employed only American citizens or legal residents. President Obama's efforts to raise standards for workers on federal contracts build on this history and are an important part of making the economy work for everyone, not just the wealthy few. In the United States today, wages have been stagnant for decades, while economic inequality is near record levels. Too many people are struggling to pay bills, especially those working in low-wage industries where wage theft is rampant as employers pay workers less than they are legally required. Many Americans cannot take time off if they get sick, and people often face discrimination because of their sexual orientation and gender identity. Discrimination based on race and gender still occurs, despite previous federal actions. At the same time these executive actions address important economic and social challenges, they also promote economy and efficiency in government contracting. The basic idea is that treating workers fairly leads to better results for taxpayers. Human capital is the core input into many federal contracts, and taxpayers receive the most efficient and effective utilization of all available manpower when workers are treated fairly. Not surprisingly, giving these benefits to taxpayers, businesses, and workers, many state and local governments have already implemented similar policies, and evidence shows that these policies tend to work pretty well. A study of New York City's paid sick leave found that after 1-1/2 years after the law went into effect, 86 percent of employers supported the policy. Studies examining LGBT contracting policies in state and local governments found that in almost all localities, any resistance to these policies was minimal and short-lived. The State of Maryland's living wage law conducted by the state found that the number of bids increased after the State adopted the policy by nearly 30 percent. Statements from officials in San Francisco and Los Angeles indicate that their responsible contracting systems have increased the pool of experienced firms willing to bid for their work. Private companies are also adopting similar wage and responsibility review processes. That is why there are a number of small businesses that support these kinds of policies. Indeed, a Maryland state contractor who first decided to bid only after the living wage was enacted said without these standards, ``the bids are a race to the bottom. That is not a relationship we want to have with our employees. Living wage puts all bidders on the same footing.'' The president of American Small Business Chamber of Commerce explained that the President's executive order on the minimum wage will ``help level the playing field.'' A poll from the small business majority found that nearly 80 percent of small business owners support a law to ban discrimination against LGBT employees, and a hearing at this very Committee, construction contractor Bill Albanesi stated that the Fair Pay and Safe Workplace Executive Order ``makes good business sense.'' It makes good sense to vet the contractor before he gets a job. It is common in our industry. We do it all the time and we do not see it as being a burden to any legitimate fair contractor that is playing by the rules. In summary, executive actions help address problems in the economy and they are supported and help workers, businesses, and taxpayers. Thank you. Chairman HARDY. Thank you, Dr. Madland. I would like to begin our first round of questioning. I am going to yield myself along with everybody else as we go through. Mr. Hoffman, I would like to start with you. You know, a bad rule is a bad rule. But do you think some of these concerns that could have been alleviated by the DOL if they followed the Regulatory Flexibility Act and actually allowed small business firms to be part of that conversation to maybe come up with a better outcome. What are your thoughts on that? Mr. HOFFMAN. Yes, sir. Having a greater voice in these regulations is important, and the Office of Advocacy does an excellent job in listening to small businesses. We feel that greater input from the small and large business community into this far-reaching regulation is necessary to make it workable. Chairman HARDY. Thank you. Ms. Huneycutt, it is stated that there are about 100,000 small businesses that have left the federal marketplace in just the last 4 years. Do you think any of these actions would make any of those small business firms ever want to come back doing business with the federal government with some of those actions that have been put in place? Ms. HUNEYCUTT. Well, I can tell you that there is a continuum along which each different firm is going to opt out of something. It might be with increasing layers of regulation which often conflict with each other or are hard to make work with state regulations or other agency regulations and require additional investments in, for example, recordkeeping systems and lawyers at 400- to $700 an hour. I can tell you that we recently spent $10,000 to implement a human resources information system that was totally compliant and is a commercial system, and now with the sick leave recordkeeping that will be required by the new EO, we will be required to potentially opt out of it or pay for special coding to have that work for us. So some firms are going to opt out, and my firm at this time does not engage in service contract work because the very prescriptive ways that the recordkeeping has to be done and things need to be structured are simply too pricey for us to implement and continue to run our business, although we actually do meet all of those objectives. So we have sick leave. We do not have any claims against us. And even still they are a barrier to entry to the SCA. Along that same continuum, unfortunately, what we are seeing is that there are a lot of firms that are opting out of compliance, and sinning first and asking forgiveness later. The contracting officers who are already so burdened with so many different pieces that they need to evaluate in a proposal really do not have the bandwidth or the autonomy to ensure compliance with those, especially in a lowest price, technically acceptable environment where costs are continually being driven down. So unfortunately, what we are seeing is that oftentimes the government is getting exactly the opposite of what it wants because it is rewarding the actors that are noncompliant without knowing it and driving compliant firms out of business. Chairman HARDY. Thank you. Mr. Christianson, in your testimony, you mentioned the use of project labor agreements for federal construction projects, executive order or your written testimony. Can you talk a little bit about how this might affect the open shop contractor or even those who are located in the right-to-work states? Mr. CHRISTIANSON. Sure. The fact is that the agency's position is that we leave it up to--we believe it is the decision of the contractor and laborer to come to a collectively bargained agreement, project labor agreement, and that government mandating those agreements is not a good idea because they do not have the expertise necessarily to do so. They do not have the parties in the construction industry to do so. But when you are dealing with open shop, take for example a very open shop area maybe in the middle of Nevada where there are not many union contractors, if you are all of a sudden mandating that there has to be some sort of union work in an area that is predominately open shop, you are going to have these companies basically change the way that they do work to do a project and they are probably just not going to fit the project. Chairman HARDY. Thank you. My time is expired. I would like to turn the time over to Ms. Adams. Ms. ADAMS. Thank you, Mr. Chair. Before we address the topic, I wanted to just get the panel's reaction to comments made by the CEO of Science Applications International Corporation, SAIC, last week in which the CEO indicated that small business set-asides and contract unbundling were making it harder for his company to get contracts. Do you feel like these comments are representative of what is going on in the federal marketplace? Anyone who would like to answer it? Mr. HOFFMAN. I will start. There are opportunities for large firms to participate with small firms in the federal market, there was recently passed legislation for mentor- protege. There are also other agreements, and recently there is the new Small Business Multi-Tier rule that is allowing prime contractors to count small business subcontracts to their goal. Ultimately, this is helping the agency to meet their small business goals. I think there is still opportunity for large firms to partner with small firms to get work done. Ms. ADAMS. Dr. Madland, do you have a comment? Dr. MADLAND. Yes. As I said in my opening statement, the share of government contract dollars that are going to small businesses is at record highs, which indicates that the President's efforts to focus on small business are working. Yet I think there is significant room for large contractors to do quite well because the scope of government dollars going to government contracts over the past several decades has increased significantly, so there is more total work out there even if a significant percentage now is going to small businesses. Ms. ADAMS. Okay. Thank you. Would anybody else like to comment? Yes, ma'am? Ms. HUNEYCUTT. I would agree as a small business that we are the beneficiaries of set-asides. I think that has been working increasingly well in the last couple of years. I wonder whether some of the reasons SAIC is having trouble competing is because a lot of the statutes that currently exist that were passed by Congress are not being enforced and small businesses have an easier time staying under the radar, thereby lowering their prices and becoming more price competitive. If they choose, or not knowingly, if they do not comply. Ms. ADAMS. Thank you, ma'am. Okay, Mr. Christianson, with many construction firms doing business in the millions, why is it so difficult for these firms to keep track of their legal infractions over a 3-year period? Mr. CHRISTIANSON. Construction is an inherently regional business. In many states, different coasts, you have different projects in different areas. You are working out of trailers. Especially in small businesses, you may not have the technology that a multibillion-dollar company has to track these things. I think the more fundamental question is why do the agencies that actually charge these contractors with infractions not have these records? They are the ones that are ultimately bringing these actions. Why are they asking contractors to do this? Should they not already have this information? Ms. ADAMS. Okay. Let me follow up. There has been a lot of discussion about the negative impact that these executive orders will have on small businesses. However, are there any welcomed changes that help those in your industry or are there areas where you feel more action is needed? Mr. CHRISTIANSON. I do not think so, what is going on here is there is more problems that are created. I think many of these are solutions looking for problems in the sense that, for example, with paid sick leave, most of our union contractors as we found out, do not really provide paid sick leave, because through collective bargaining, they collectively bargain for higher wages than even Davis-Bacon wages to take into account things like you are not working. It is a seasonal industry, so you are not working all the time. If you have paid sick leave during the time that people should be on the job, you are going to change construction schedules. You are going to delay projects, you are going to add to costs. We had one company, for example, that said take off the entire month of December. But now, because of the paid sick leave executive order, they are not going to be able to do that. Take off extra time for the holidays, they are not going to be able to do it. The other thing is, in certain states and cities, you have state paid sick leave rules. You have city paid sick leave rules and now federal paid sick leave rules. So if you are on a federal contract, some of your employees may have federal paid sick leave requirements. If you have a state contract, you have state paid sick leave requirements. And then local, what do you follow? That is really the problem. Ms. ADAMS. Thank you, sir. I am out of time. Mr. Chair, I yield back. Chairman HARDY. Thank you. I would like to turn the time over to Chairman Hanna. Chairman HANNA. You know, it is pretty clear we are in slow growth. Very slow growth. Historically slow growth. It is also true, Dr. Madland, that real wages have not gone up in a very, very long time, which nobody can be happy about. I have got 25 years in the Operating Engineers Union. I believe you are earnest in your perspective, but what bothers me about it, Dr. Madland, is so much of it is conjecture and subjective in its nature. I wonder, when you hear three other individuals say that these rules are burdensome and overcomplicated and are discouraging people from entering the marketplace--and of course, what you said is true, that there are more small businesses as a percentage of total government contracts, but it is also true that the number of distinct small businesses' actions has declined, and it is true that there are 100,000 less people. You do not believe these other three panelists? Do you think they are wrong or they are somehow saying something that is completely designed for their own self-interests? Because I hear this every day from business that it is not just the fact that these regulations are out there but that they are not considered in the process. It is the cumulative effect of it all. I do not see people out there trying to--I mean, one-tenth of 1 percent, sure they are bad actors, but why should you hold Mr. Hoffman responsible for every general contractor or subcontractor beneath him which he may or may not have any control over? Frankly, as you said, I think Mr. Hoffman mentioned that those are known people that it is the government's job to keep track of. This is not meant to be personal, but it is surprising to me that you can speak in such general terms about people and have very specific notions about overtime and new overtime rules and the 30-hour work week rule that even the Congressional Budget Office has said will cause up to 2 million people to leave their jobs. I am just interested. Dr. MADLAND. Sure. I think most of my testimony comes based on the experience when state and local governments implement similar policies. While I am by no means discounting the concerns that the panelists here have stated, you often find, before the policies get enacted, significant concerns, but after they go into a place they are less significant. Just to read one very small quote. This was San Francisco. The Vice President of the local Chamber of Commerce, which led the fight against the city's paid sick leave before it passed, reported that the law's impact was ``minimal,'' and that ``by and large paid sick days has not been much of an issue.'' We have actual evidence from, for example, I cited the Maryland study of the living wage where the first and only State to pass a living wage, much higher wages for government contracts, and they actually found that the number of bidders for state projects increased after they implemented the law. Chairman HANNA. I do not disagree that that person said that about that, and I do not know of the Maryland study. I will take your word for it. But do you think that really that is generally the preponderance of regulations and rules that--I mean, I was in business for 35 years. Mr. Hardy was. There is a point that people who have been successful in their lives say it is not worth it anymore. It is just too damn much work to keep up with the government. I am going to walk away. We have a lot of evidence to that, anecdotal and real, 100,000 businesses fewer. They are not sitting here whining at you. They are saying to you we want to do business with the federal government. We appreciate the opportunity, but at some point you are breaking our back and it is not worth it. I think that is the difference between the value system that you lay out which, one can prove individually yes or no, but that is what I hear, that we just kind of cannot take it anymore. Particularly, it strikes me that there is a point for a lot of people where they say, you know, I am out. It is not worth it. You are not worth it. The federal government is too complicated and too much in our face. I think that is a real concern. My time is up. Thanks. Chairman HARDY. Thank you. I would like to turn the time over to Congressman Kelly. Mr. KELLY. Thank you, Mr. Chairman and Chairman Hanna. Thank you both and Ranking Member. Thank all you witnesses for being here. Just as a follow-up, more in a comment than a question with Chairman Hanna. Having been a small business owner, throughout my August I spent almost every day at town halls and those type of things with local folk and small businesses, veterans, being a member of the Mississippi National Guard and serving for over 30 years. I just left the National Guard Conference where I was there as a participant, not as a congressman. It confuses me that we have think tank people in here, and I am not just talking about this panel, but I am talking about the entirety of the panels that have been here in 14 months. We have think tank panels. We have government employees. We have academia people who say that these rules have no effect on small businesses, but I have yet to have a small business person sit at that table and say that they felt that we did not have any effect. Most of the people that we have in front are just like you, three small business owners who actually own small businesses who say it has a tremendous impact on how we do business and whether we do business. So I ask you to continue to fight as small businesses and continue to keep up the dialogue to let them know that these things impact because I, as you, and I think Mr. Christianson said this, as a small business owner, I know we pay our employers all that we can and we are going to preserve and keep and pay as well as we can, all small business employees because they are part of our family. They are. We want to see them do well. That being said, this week I had Kopis Mobile, which is an app business that does a lot with DOD, and they are anchored in Flowood, Mississippi. Aside from keeping small businesses from being created and putting small businesses out of business, I am also concerned about the negative impact these regulations are having on innovation. Ms. Huneycutt, can you talk a little more about how these actions will affect technological innovation? Ms. HUNEYCUTT. I have been following very closely the efforts to get Silicon Valley and more R&D-oriented commercial firms to participate in the bidding process for government work. I think it is something that is critical for maintaining our technological edge, particularly at DOD. They move at the speed of business. As an anecdote, I can tell you that we tried to team with a firm that provides a platform by which to--and we were looking at the State Department--by which to communicate through social media through a centralized hub that would send the same messaging out through Twitter and Facebook and all of these. They were flummoxed at the way that the process worked. They were flummoxed at all of the different ways that they would need to change their business model in order to be compliant, and the hoops, the time that it took. This is not how they are used to doing business. I would suggest, especially if you want to increase the participation of commercial firms in bidding for government work, you do not--either these regulations and these new requirements should be passed as comprehensive legislation. It is not unique to the government, so that everybody needs to engage in it. I would suggest that there be more enforcement of the way companies are characterizing the way they engage people, because oftentimes they will mischaracterize them as 1099 subcontractors, have them sign a contract that says they are complying with everything, and then they get everything cheaper and there is not any real compliance there. I would suggest that you be aware that this puts commercial companies in a position where now they need to treat their government contract employees differently than their commercial contract employees, and they cannot treat them differently. That keeps them out of the government. Mr. KELLY. Mr. Hoffman, just briefly, have about 45 seconds left. What impact do all these new requirements have on the procurement process for small companies like yours? Mr. HOFFMAN. My question is how are we going to, for example, vet our subcontractors? I just had the opportunity to negotiate overhead rates with a government agency and they were pointing to one of the consultants as to having low overhead or lower rates on a different contract. I asked, well, what contract or what is the name of that firm so I can reference it? While they gave me the last four, they were not even willing to give me the name of the contractor. If they will not give me the name of the contractor in a straightforward environment, when will the government give me the name of a contractor which potentially is negative and they are worried about backlash or something like that? So I am concerned myself. Mr. KELLY. Thank you, Mr. Chairman. I yield back. Chairman HARDY. Thank you, Mr. Kelly. We will turn the time over to Mr. Knight. Mr. KNIGHT. Thank you, Mr. Chair. Just a couple of questions. I was reading through some articles and watching what government is doing and what business is trying to adhere to, and some of the comments by all of the panel today. It begs the question that if government does something, or they say they are going to do something and people rebel against it, but then it happens anyway, people just have to adhere to it and that is just the way it is. That is what I look at when we start talking about the overtime rule and we start talking about $15 an hour going across the country and what is happening in cities like Seattle since they have seen the biggest decline in jobs in restaurants since 2009 since they have done the $15 an hour ordinance. So when government gets involved, too heavy-handed, then we tend to see a problem. But my questions are about something recently our Vice President said. He said, ``Because of the administration's efforts to rebuild the basic bargain, the economy has gone from crisis to recovery to resurgence. Today's expansion of overtime protections will build on this momentum.'' Do any one of you or do all of you agree with this? Yes, sir? Dr. MADLAND. Yes. I think the overtime regulations are an important step forward to ensuring that workers, when they work more than 40 hours a week when they are lower income, will receive time and a half, which is the basic bargain of overtime. As you know, the standard had been eroded over decades so that very few salaried workers were receiving overtime. It used to be that the majority of salaried workers received overtime and the new regs will do that, which is part of how you ensure that workers have wages to spend that can go into the pockets of small business owners. Mr. CHRISTIANSON. We do not disagree necessarily that it has been a long time since the overtime wages have been increased or the thresholds have been increased. But the issue is the practicality of more than doubling that threshold and making small businesses have to adhere to that in under a year's time. To have to plan for that is really just not---- Mr. KNIGHT. Before everyone continues I will put the second question on that, and maybe you can answer, too. Would any of your members be opposed to talking about an increase? We went from a little over 23,000 to almost 51,000. Would any of your members be opposed to talking about an increase that would probably put us into a more acceptable for small business, acceptable for continuing our economy to move forward? I am not trying to---- Mr. CHRISTIANSON. We are always interested in talking. We did not really have the opportunity to talk. That is what happened here is we had an opportunity to talk about the impacts but it does not seem like the administration did any listening. Mr. KNIGHT. Okay. And again, I will say the flip side, too. It has been a long time since that has been changed. We do not keep minimum wage at 25 cents an hour. It moves and it ends up trying to be at a wage that is commensurate to the timeframe. Some people think that that is too low and some people think that the jumps are too high. But, when we talk about the overtime rule, and moving it, I think it is a 113 percent jump. That seems to me to be a jump that small business is going to not just push back on, but have a very difficult time adhering to. Mr. CHRISTIANSON. You know, you cannot get something from nothing. Small businesses are not all of a sudden going to be able to pay everyone overtime that are under this threshold. Some people are now going to be hourly workers. They basically feel like they have been demoted, which is not necessarily true, but just the reality if they want to stay on the job, the company has the same amount of finite limited amount of funds. They are going to readdress what level certain people are paid, how many hours people work, so that they can adjust accordingly. Mr. KNIGHT. In my last 20 seconds, do you think that that takes away some of the flexibility for small businesses? Because like you say, now we are going to turn some of them into hourly wages. In California, we have done some things that have taken away the ability for employers and employees to have a conversation, and say you have to have certain breaks at certain times, and if you do not have these certain breaks, then you are in violation. It takes away the flexibility. Then it turns it into, I am the employer, you are the employee, and that is the way it is and we do not talk and you follow the rules and I have to fill these forms out, and have a nice day. Yes, ma'am? Ms. HUNEYCUTT. My response is to what was discussed a little bit earlier. With the exempt rules referencing a higher salary point, I can tell you the practical impact that that has had on us where, actually, we have very few people that were below that point to begin with, but those that were near that point got pay raises because the cost of giving them another couple of thousand dollars raise was nothing compared to the cost of having to change our recordkeeping systems. But what that also means is that we are very hesitant to hire at that lower salary level or that lower wage level because, again, the cost of the recordkeeping, the cost of changing our payroll system. A lot of commercial payroll companies do not--actually, if that is global they will be abiding by that. If it is a government-specific thing, a lot of commercial payroll companies, human resources information systems companies, will not accommodate that. So you are back to square one having to look for another service or having to pay to customize their recordkeeping. Particularly, a lot of the work that is done at the lower wage levels, a lot of it can be automated. I do think that some firms will be looking to automation or noncompliance or other ways to--from my point of view, for my company only, it is really the recordkeeping and changing. If you have 15 different categories of employees, it is very hard to keep track of what the rules are. The employees say, well, he is getting this, why can I not get that? It sows some havoc. Mr. KNIGHT. Thank you. My time is well expired. Thank you, Mr. Chair. Chairman HARDY. Thank you. There is a desire to go around with another round of questions, so I am going to start off with Ms. Adams if she would like. Ms. ADAMS. Thank you, Mr. Chair. Mr. Christianson, I wanted to follow up on something. You hinted about the lack of consistency between federal and state laws regarding regulations. If there were better consistencies between the federal and state statutes, would you be open to an executive order that promotes paid leave and other similar measures? Mr. CHRISTIANSON. The fact is an executive order cannot do that. It is not lawful. They cannot change state law by executive fiat. So the question itself is one that I do not think is even realistic. Ms. ADAMS. Well, not so much lawful, but what about consistency? Mr. CHRISTIANSON. If the federal government contracts were to fall in line with other requirements, that would be, beneficial assuming that requirement in itself is beneficial. Ms. ADAMS. Okay, Mr. Hoffman, much of the objections to the Fair Pay and Safe Workplace Executive Order center on blacklisting, the idea that contracting officers are spoiling to disqualify firms for superfluous reasons. Do you feel that these concerns have been addressed in the final rules that the Department of Labor has issued? Mr. HOFFMAN. Right now, it is not clear to me the concept of, first of all, that something is going to occur in 3 days. Our experience with contracting officers is things do not happen that quickly. If it is an issue of an allegation, perhaps there should be an investigation. Is that adequate time to do that? Are we going to provide records or provide information to the private sector so that we can select our teammates correctly? I gave an example earlier as to whether that actually happens. I gave a very simple example, we cannot even identify who is the prime contract on a contract number, though at some point I will figure it out. So, I have some doubts. Ultimately, it seems to me, Ms. Adams, that we have these different reports and the government collects them. If we could take the information that we already have and act upon that and put in a secure deposit repository, collect all the information that we are already collecting, that would be a good idea. It strikes me that the government has fantastic intentions, but we have a significant amount of regulation, and not all regulation is good. We would really like to go ahead and design innovative solutions for our clients and not looking back at forms and annual reports and this and that. Potentially hiring people to do administrative compliance is not growing the business. Ms. ADAMS. Thank you, sir. Dr. Madland, while we recognize the concerns that some small firms have expressed regarding the new overtime rules, as well as the increase in minimum wage, can you discuss some of the benefits for employers and the economy as a result of the changes? Dr. MADLAND. Sure. The basic story, as I said, wages have been stagnant for quite some time. They are just starting to tick up. That has caused a lack of overall demand in the economy, which has reduced new hiring by small businesses and all businesses because there is not enough new consumers out there. Raising people's wages through the minimum wage and through overtime will help boost overall demand in the economy, which can help create a virtuous cycle and grow the larger economy. Ms. ADAMS. Thank you. I yield back, Mr. Chair. Chairman HARDY. Thank you. I turn some time over to Mr. Hanna. Chairman HANNA. Thank you, Chairman. What I hear here is people who fundamentally agree with one another, but it is the preponderance and the lack of input that is given that is not adequate. In a national debate, it is really discouraging to hear both parties vilify small business in one way or another, because we both know the business of America is business and that is really where all the jobs come from and all the growth, the growth that we are not seeing right now. You had a phrase, Dr. Madland, that you used, and I am not taking a position on it. I am wondering what you mean by the term ``wage theft.'' I can imagine what you mean by it, but I think what I see out there is people who feel put upon that in order to run a business well, you cannot have every outcome perfect. A lot of time in the government's pursuit of a perfect outcome, it actually does what that common phrase is, it kills the goose. That a certain amount of slippage, which you may regard as something wrong or illegal or immoral or unethical, is really part of, not that anyone on any case would approve it, but the ability of business to do business in an environment that is welcoming and not punitive, where they are not always feeling like they are probably, likely, on every given day doing something wrong, is also important. Businesses need to be let to do what it is they do best and government does not always have the best answer for that. It has the outcome it likes, but it does not get there necessarily in the right way. The overtime rule. I have talked to a lot of people who have no problem with what the President has done other than they doubled it. I have spoken to a lot of businesses that say if you went to 35,000, we get it. I would be the first person to admit that there are companies out there that take advantage of that, just like Ms. Huneycutt talked about 1099s. There are companies that take advantage of the 1099 rule. You see that playing out in court, and I agree that is wrong because it denies benefits and keeps people out of a system that provides them with a decent lifestyle and hope for a decent--but what do you mean by ``wage theft?'' Do you feel as though businesses are bad somehow? I know you are going to say no, but what do you mean? Dr. MADLAND. Wage theft is when companies do not pay the legally required wages. That typically means they are paying less than, for example, the minimum wage. One of the key examples actually in support of the Fair Pay and Safe Workplace Executive Order was a worker named Helen Avalos, who worked up at Walter Reed as a contractor janitor. Her company just stopped paying her, stopped paying her and all the other workers. She has got rent, got kids. Does not have, you know, low income. What is she going to do? The company continued to receive new government contracts. That is kind of what I mean by wage theft. It is breaking the law by failing to pay legally required wages. The independent contractors---- Chairman HANNA. But are there not laws that cover that in the State of Virginia? I mean, the minimum wage laws? Dr. MADLAND. Yes. But if they are not doing it, that is wage theft. That is what wage theft is, is breaking---- Chairman HANNA. I mean, she has recourse without the federal government getting involved in it. Dr. MADLAND. She was working as a federal contractor and, no, she actually did not really have much recourse. She and her coworkers protested outside and said what is going on? It was weeks of not getting paid. Chairman HANNA. Okay. I accept that. I am sure it is true. I have no reason to believe otherwise. But how about the notion that one incident or a bunch of incidents would give you cause to react to affect thousands, if not millions, of businesses around the country so that the actual--and this is the common complaint--that the benefits of what you have done are real and positive, but yet they cost much, much more than they are worth and that the government does not really look at that? Dr. MADLAND. I think you are talking about the Fair Pay and Safe Workplaces. For most companies without legal violations, they will simply check a box certifying they do not have legal violations, akin to what is done for tax violations. For those that do, there will be some additional reporting requirements. However, again, the goal of those reporting---- Chairman HANNA. I am sorry. Go ahead. I do not mean to interrupt you. Dr. MADLAND. The goal of those reporting requirements is to provide sort of a warning to have further review of the company's larger---- Chairman HANNA. But you heard what Ms. Huneycutt said, that these recording requirements, which you say are a few hours, other people say are tens if not hundreds of hours, you do not have a good perspective on what it actually costs these businesses going forward, and that you are placing a disproportionate cost on tens of thousands of businesses without regard to that cost because of the outcome you desire, that perhaps that should be taken into account. Dr. MADLAND. Yes. Obviously, you need to weigh the cost and the benefits and the time that is required. Chairman HANNA. It does not feel like you do. Dr. MADLAND. Well, as I said, most of the time, most companies will have a very simple process. There will be a more involved process for companies with legal violations. But again, the goal is to get those companies into compliance with the law, that seems like a worthy goal. Also, the studies of the cost estimates suggest it is going to be less than a cent for every hundred dollars of federal contracts of the additional cost, and that is a burden, but also, you are helping draw in more law-abiding companies that then will want to contract with the government that are familiar with similar processes. Lots of private companies---- Chairman HANNA. Losing a hundred thousand companies does not support that and does not support that notion. Also, the cost that we--excuse me, Mr. Hardy, just 1 second. Do you mind? The cost associated with it, I have never heard of anybody who would say to you it is 1 penny on a dollar. But with that I yield back. Thank you, Dr. Madland. Chairman HARDY. Thank you. And I would like to go ahead and let Ms. Huneycutt, she had the desire to address that question, and yield my time to it. Ms. HUNEYCUTT. Sure. It sounds to me like that situation is already addressed by DOL regulations, which do not permit an employer to have somebody work and then not pay them. There are very specific regulations regarding the timeliness of payment, so that already exists. Again, my concern remains the same, which is that if we diffuse the responsibility for enforcement to the contracting officers, then they really do not have the bandwidth to do this or the autonomy. They are going to say, well, that is really DOL's enforcement issue and I am not going to worry about it until DOL tells me something. DOL is going to say that is the contracting officer's responsibility and I am not going to enforce it until the contracting officer tells me something. My concern is that with the increasing layers or duplicative regulations there will be less accountability and more bad actors invited to leverage that. Chairman HARDY. Thank you. One quick question I would like to address, and of these 100,000 contractors we have lost in the last 4 years, Mr. Christianson, being a small business owner myself in the past, and going from two or three employees and working your way up to 350 over time, when you step into the contracting world with the government agencies, do you believe that other small businesses that are say 50 and under will have the ability to step into this field? Because now you have grown your internal staff or office staff to two or three times the size that you would have had at a normal site. Do you believe these contractors, are you hearing that as some of the challenges? Would you like to elaborate on that? Anybody else who would like to? Mr. CHRISTIANSON. First of all, Mr. Kelly mentioned or acknowledged that I am a small business owner. I am not. I am a regulatory counsel. I do not have that honor of being a small business owner, I represent them. Chairman HARDY. But you work with many small businesses? Mr. CHRISTIANSON. Work with many, and I have my job in many thanks to the regulations and the confusion that the President has put forth. AGC created this position recently for me as a result of all the questions small businesses were asking. So I, in part, am part of the job growth lawyers as a result of this. I do not think that is what you all think of job growth when you think of small businesses. But on your question, in the commercial construction industry, small businesses could be $36.5 million or below. If you have a contractor that is $5 million versus $30 million, and you are going after the same set-aside work and now you have to comply with equally confusing and burdensome regulations, your overhead costs as a percentage if you are that $5 million company is going to be way higher than that one for that $30 million company. So you are now at a competitive disadvantage completely. You are going to have to hire, not me as the association lawyer, me as the outside counsel because I can tell you that I talked to our general counsel before coming. He does not know of any commercial construction company that had their own in-house lawyers or attorney below $100 million. They hire outside counsel at $400 an hour and hire consultants to do this. Chairman HARDY. Thank you. Anybody else care to elaborate on that? With that, that is the final question. Again, I want to thank each of you [our panelists] for being here today and testifying. Small businesses play a critical role in our federal marketplace. A vibrant, competitive, and robust small business sector lowers prices, spurs innovation, and creates jobs. As all of us here at our Committee, Democrat and Republican alike, recognize the importance of having worked in a bipartisan fashion throughout the 114th Congress, passing numerous pieces of legislation designed to help small firms compete in the federal marketplace. Unfortunately, our President is either unable to understand how hard it is complying with these executive actions for small businesses, or worse, unwilling to listen. We here on the Small Business Committee, will continue to speak up and fight so that the folks have a seat at the table. I ask unanimous consent that members have 5 legislative days to submit statements and supporting materials for the record. Without objection, so ordered. We are adjourned. [Whereupon, at 11:21 a.m., the Subcommittees were adjourned.] A P P E N D I X [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] The Cumulative Burden of President Obama's Executive Orders on Small Contractors Testimony before the Committee on Small Business United States House of Representatives Subcommittee on Investigations, Oversight and Regulations And Subcommittee on Contracting and Workforce Donna S. Huneycutt Co-Owner and Chief Operating Officer WWC, LLC On behalf of: National Defense Industrial Association 10:00 AM Tuesday, September 13, 2016 Rayburn House Office Building, Room 2360 Chairman Chabot, Ranking Member Velazquez, and Members of the Subcommittees, thank you for the opportunity to appear before you this morning. I am here this morning on behalf of the National Defense Industrial Association, the nation's oldest and largest defense industry association, comprised of nearly 1,600 corporate and 90,000 individual members. While several Executive Orders (EOs) issued in recent years have, or will have, a detrimental impact on small businesses that contract with the federal government, such as the Department of Labor's so-called ``Overtime Rule'', for the purposes of my testimony this morning I would like to focus on the EOs specific to government procurement or federal contractors. Small businesses are a critical component of the U.S. economy, serving as a catalyst for economic development, providing employment opportunities, and as the engine of new ideas and innovations. Accordingly, the Federal Government has established programs to ensure participation opportunities to small businesses to fulfill the public policy objectives of the Federal Acquisition Regulation (FAR), and access a source of innovative products and services for Federal Government customers. Explicit and implicit in the desired outcomes for small business programs is achieving effective competition by maximizing small business participation and enabling small businesses to grow through diversification of the goods and services they provide and expansion into the nongovernmental marketplace. Several EOs and Presidential Memoranda specific to government procurement or federal contractors have overwhelmed small business contractors and undermined small business goals. Small businesses have borne the cost of having to understand not only additions and changes to the Federal Acquisition Regulation (FAR) and regulations of various Departments and agencies, but also how the agencies will implement those changes. This requires careful study of resulting agency procedures, guidance, and instructions, in addition to projecting workforce behaviors, which are largely driven by the actual or perceived interpretation of the original regulations by oversight actors (Government Accountability Office, agency Inspectors Generals, etc.). Once those are understood, small businesses must incur significant initial and reoccurring compliance costs. These costs place a burden on small business, and take the place of investments in research and development (R&D), human capital, and other means to grow businesses. As outlined at the onset of the FAR, the guiding principles of the Federal Acquisition System are to satisfy government customers by maximizing use of commercial products and services, utilizing contractors with superior past performance, and promoting competition. At the same time, the Federal Acquisition System is to minimize operation costs, conduct business with fairness and integrity and fulfill policy objectives. The EOs attempt to fulfill the latter two guiding principles, but in the process, undermine each of the others. The rationale for the procurement-related EOs have been to ``promote economy and efficiency in procurement'' through their intended outcomes. Industry does not necessarily disagree with the logic, but rather, how that efficiency and economy is achieved. Supporting documentation for the EO on Fair Pay and Safe Workplace states, ``the vast majority of federal contractors play by the rules.'' \1\ However, the implementation approach to each of the EOs punishes that vast majority of good actors through costly, government-unique compliance requirements--a particularly inefficient means to promote efficiency. In fact, the proliferation of government- unique requirements imposed by the EOs undermines efficiency and economy by limiting the government to suppliers that are willing and able to comply. Their neither promotes competition, innovation, nor does it maximize the use of commercial products and services. --------------------------------------------------------------------------- \1\ See ``FACT SHEET: Fair Pay and Safe Workplaces Executive Order.'' Available at: https://www.whitehouse.gov/the-press-office/ 2014/07/31/fact-sheet-fair-pay-and-safe-workplaces-executive-order. Further, the most efficient and economic means to fulfill the public policy objectives of the EOs is to alter government buying practices. For example, the rationale for the Fair Pay and Safe Workplaces EO is ``Contractors that consistently adhere to labor laws are more likely to have workplace practices that enhance productivity and increase the likelihood of timely, predictable, and satisfactory delivery of goods and services to the Federal Government.'' Thus, if the government makes contract awards based on the offeror that provides a good or service for the best value, or in other words, the offeror most likely to deliver or perform on time, predictably, and with satisfactory performance, it would have chosen an offeror that adheres to existing labor laws and has workplace practices that enhance productivity. Unfortunately as industry has long pointed out, the government has poor buying habits that have equated ``best value'' with ``lowest cost'' and valued compliance to government-unique requirements over actual performance in delivering goods and services, creating a --------------------------------------------------------------------------- perverse incentive to ``race to the bottom'' to win contracts. Congress has already passed sufficient legislation to ensure protections of federal contractor employees, and to ensure that the government only contracts with responsible sources. Rather than using EOs to alter the enforcement or interpretation of legislation, the Federal Government should ensure that they are enforcing existing laws to ensure protections for workers, and then alter buying practices to reward best value. A major frustration for small businesses is that in many cases they agree with the intended outcome of an EO such as, providing for the well being of federal contractor employees, or making sure that competitors play by the rules, but object to the process by which the EOs have been developed and implemented and the resulting burdens. This starts with the Federal Government's assessment of burdens on small entities. The Small Business Administration's (SBA) independent Office of the Advocate \2\ has commented that the Federal Government underestimated the compliance costs and entities affected in implementing regulations for Fair Pay and Safe Workplaces, Paid Sick Leave for Federal Contractors, and Establishing a Minimum Wage for Federal Contractors EOs. Unfortunately, since the EOs are published without the public vetting inherent in the legislative process, the public has no means of providing input, or accountability, on the likely burdens prior to publication. --------------------------------------------------------------------------- \2\ Regulatory comments by the SBA Office of Advocacy can be found here: https://www.sba.gov/category/advocacy-navigation-structure/ legislative-actions/regulatory-comment-letters. This lack of engagement with small businesses prior to development of the EO, or their implementing regulations, has resulted in unnecessarily burdensome requirements. For instance, the proposed rule to implement EO 13706, ``Establishing Paid Sick Leave for Federal Contractors,'' requires federal contractors to ``calculate an employee's accrual of paid sick leave no less frequently than at the conclusion of each workweek,'' and provide an employee in writing their accrued sick leave at the employee's request. However, most companies have internal business systems calibrated for bi-weekly or semi-monthly pay periods, which is the same frequently for employees to input hours worked or taken for leave. Forcing small businesses to invest in customized business systems or man hours to adjust to these intervals, while accommodating the various standard and nonstandard employee schedules within their business, is unnecessary, and does not ``increase efficiency and cost savings in the work performed by parties that contract with the Federal Government,'' as the EO intends. Or in the case of the ``Fair Pay and Safe Workplaces'' EO, the implementing ``guidance,'' was not subjected to the rulemaking process, despite its ``regulatory nature,'' as pointed out by the SBA Office of the Advocate. Further, implementation of the EOs have not provided adequate compliance support for small businesses. For example, the FAR rules implementing EO 13627, ``Strengthening Protections Against Trafficking In Persons In Federal Contracts,'' was made effective without Congressionally-mandated guidance to help contractors comply with new requirements, severely limiting the ability of small --------------------------------------------------------------------------- business to comply most effectively with new regulations. One EO in particular, Fair Pay and Safe Workplaces, is simply unfair to businesses of all sizes. Under this EO, small businesses would have to disclose alleged and adjudicated violations of 14 Federal laws and EOs in addition to yet-to-be fully-determined equivalent state laws in the preceding three years to either government contracting officers (COs), or the Department of Labor (DoL). Once disclosed, the DoL or CO (with help from agency labor compliance advisors [ALCAs]) would determine, based on the details of the alleged or adjudicated violations and any mitigating factors, whether they are serious, repeated, willful, and/or pervasive in making a responsibility determination. Aside from the enormous associated compliance burden, the EO unfairly places these subjective determinations in the hands of COs who are incredibly risk averse and untrained in labor law. Although they are able to seek the advice of an ALCA, DoD alone for instance, has nearly 24,000 contracting officers (COs) that enter into contracts worth billions of dollars annually, with only one DoD ALCA and a handful of representatives. Common sense indicates that the small-dollar contracts that SBs compete for as primes would at the bottom of the list of priorities for ALCAs, leaving the onus on COs to assess and interpret actual and alleged violations and a range of mitigating factors, and leaving scarce resources for the government to engage with small business to develop and implement labor compliance plans. This aligns with industry's long-stated contention that this EO is punitive-based, with the intent of blacklisting businesses, rather than the supposed intent of ``helping companies improve.'' Small businesses are not only concerned with the collective impacts of the EOs on their bottom-line, but also the detrimental impacts they will have on government customers and their ability to carry out missions, the most consequential of which is national security. In recent years, the Department of Defense (DoD), Federal Government's biggest spender by a substantial margin, has placed a renewed emphasis on innovation and acquisition reform, led by top officials in the Office of the Secretary of Defense and the Services. These efforts have been initiated as a result of the current state of the acquisition process, which is unable to keep up with the rapid pace of technological innovation and security threats, and the reality that innovation is driven by private sector R&D, requiring DoD to access nontraditional and commercial suppliers that have historically been deterred from the government marketplace by procurement policies, to stay at the forefront of technological innovation. Unfortunately, the EOs undermine these initiatives. The resultant accumulation of government-unique requirements and their compliance costs will continue to deter new suppliers from entering the government marketplace and drive exits by firms already selling to the government, restricting competition. Further, Fair Pay and Safe Workplaces, alone, figures to drive a substantial increase in bid protests, slowing down the acquisition process even more. In closing, several of the recent EOs have, through flawed processes, installed burdensome, unnecessary, inefficient, and in many cases duplicative and overlapping regulatory regimes that have the cumulative effect of dramatically increasing the cost of doing businesses with the federal government. Over time, these will decrease efficiency and economy in federal procurement, while undermining small business growth and development, and limiting the Federal Government's access to innovative products and services to fulfill their needs, in direct contradiction of ongoing initiatives. Thank you again for the opportunity to appear before you this morning and I am happy to answer any questions you may have. [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Opening Statement of Chairman Richard Hanna House Committee on Small Business Subcommittee on Contracting and the Workforce Hearing: ``The Cumulative Burden of President Obama's Executive Actions on Small Contractors'' September 13, 2016 Thank you, Chairman Hardy. I, too, would like to start by thanking the witnesses for taking time from their busy schedules to be with us. We really do appreciate it. Most of the issues we will examine today are not new. As Chairman Hardy mentioned in his opening statement, the Small Business Committee has done extensive work over the past two years to improve how small businesses work with the federal government. During the 114th Congress, our Committee has reported nearly 40 pieces of bipartisan legislation aimed at making it easier for small firms to do business with the federal government. Nearly 20 of these bills became law as part of last year's National Defense Authorization--and nearly 20 more are still in play in this year's NDAA. The bipartisan work we have done here in the Small Business Committee is stark contrast to what President Obama has done during his time in office. Since 2009, the President has issued 15 Executive Orders and presidential memoranda that specifically relate to government contracting. While these mandates may be well-intentioned, too often the cost significantly outweigh the benefits. In fact, it is estimated that compliance with unique government regulations costs almost 30 cents of every contract dollar--a figure sure to increase as more of these executive actions are fully implemented. To make matters worse, we have seen time and time again that the proposed regulations stemming from these executive actions consistently fail to comply with the Regulatory Flexibility Act, or RFA. At its most basic, the RFA is a simple, yet critical law that mandates that federal agencies give small businesses a seat at the table when they are developing both proposed and final rules. In recent years, agencies' inability to comply with the RFA has created further difficulties for small businesses. For example, agencies frequently publish regulations that have significant flaws in their economic impact analyses or lack a discussion of significant alternatives that reduce impacts on small businesses. Agencies also certify rules as not having a significant economic impact on a substantial number of small businesses but fail to provide a factual basis for this conclusion as the law requires. Sometimes agencies do not conduct the kind of affirmative outreach that is required under the RFA and accordingly limit the opportunity for small businesses to provide adequate input in the rulemaking process. Unfortunately, the regulations that have come out of these presidential actions are no different in their lack of small business input. These issues cannot persist or we will continue to see innovative small firms exiting the federal marketplace, leaving taxpayers on the hook for more expensive products purchased by our federal agencies. We have an excellent panel with us today and I look forward to hearing their testimony. Again, thank you all for being here.