[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
LEARNING FROM HISTORY: IDEAS TO
STRENGTHEN AND MODERNIZE THE HUBZONE PROGRAM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MARCH 2, 2017
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-006
Available via the GPO Website: www.fdsys.gov
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
TRENT KELLY, Mississippi
ROD BLUM, Iowa
JAMES COMER, Kentucky
JENNIFFER GONZALEZ-COLON, Puerto Rico
DON BACON, Nebraska
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
VACANT
NYDIA VELAZQUEZ, New York, Ranking Member
DWIGHT EVANS, Pennsylvania
STEPHANIE MURPHY, Florida
AL LAWSON, JR., Florida
YVETTE CLARK, New York
JUDY CHU, California
ALMA ADAMS, North Carolina
ADRIANO ESPAILLAT, New York
BRAD SCHNEIDER, Illinois
VACANT
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. Steve Knight................................................ 1
Hon. Stephanie Murphy............................................ 2
WITNESSES
Mr. William B. Shear, Director, Financial Markets and Community
Investment, United States Government Accountability Office,
Washington, DC................................................. 4
Mr. Hannibal ``Mike'' Ware, Acting Inspector General, United
States Small Business Administration, Washington, DC........... 6
Ms. Shirley Bailey, Co-Owner-Executive Vice President and Chief
Operating Officer, GCC Technologies, LLC, Oakland, MD,
testifying on behalf of the HUBZone Contractors National
Council........................................................ 7
Mansooreh Mollaghasemi, Ph.D., President & CEO, Atria
Technologies LLC, Orlando, FL.................................. 9
APPENDIX
Prepared Statements:
Mr. William B. Shear, Director, Financial Markets and
Community Investment, United States Government
Accountability Office, Washington, DC...................... 20
Mr. Hannibal ``Mike'' Ware, Acting Inspector General, United
States Small Business Administration, Washington, DC....... 40
Ms. Shirley Bailey, Co-Owner-Executive Vice President and
Chief Operating Officer, GCC Technologies, LLC, testifying
on behalf of the HUBZone Contractors National Council...... 48
Mansooreh Mollaghasemi, Ph.D., President & CEO, Atria
Technologies LLC, Orlando, FL.............................. 59
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
LEARNING FROM HISTORY: IDEAS TO STRENGTHEN AND MODERNIZE THE HUBZONE
PROGRAM
----------
THURSDAY, MARCH 2, 2017
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:01 a.m., in
Room 2360, Rayburn House Office Building, Hon. Steve Knight,
[chairman of the Subcommittee] presiding.
Present: Representatives Knight, Chabot, Gonzalez-Colon,
Evans, and Murphy.
Chairman KNIGHT. Good morning. It has been an interesting
morning already, but we are ready to go.
Welcome to the first hearing of the Subcommittee on
Contracting and Workforce for the 115th Congress.
This hearing will come to order. Before we begin, I would
like to take a moment to thank the returning members for their
continued service and welcome our new members, particularly
Ranking Member Stephanie Murphy. This Subcommittee has enjoyed
a long history of bipartisanship, and I look forward to working
with Ms. Murphy and all of our members as we begin this new
Congress.
I would also like to sincerely thank everybody for being
with us today, with a special thanks to each of our witnesses.
I appreciate your willingness to take time out of your schedule
and appear before this Subcommittee to share your expertise and
insight.
As we approach the 20th anniversary this year, today we
will examine the Small Business Administration's Historically
Underutilized Business Zones, more commonly known as HUBZone
Program.
When the HUBZone Program was first established, its goal
was to create hope for hundreds of thousands of underemployed
or unemployed who long ago thought our country had given up on
them. I can think of no more important goal than bringing
economic hope, independence, jobs, and businesses to neglected
areas marked by high unemployment and poverty. To achieve this
objective, the HUBZone Program must be run efficiently and
effectively. That requires us to take a hard look backwards and
learn from the past.
Over the past 20 years, the Government Accountability
Office and the Small Business Administration's Office of
Inspector General have conducted several audits and
investigations identifying shortfalls in the program that have
invited fraud and abuse. A number of recommendations were made,
and many were adopted by SBA. However, some have not.
The program was improved significantly throughout the
years, but there is still room to improve. We are very
fortunate to have a panel of experts with us this morning who
have either studied or participated in the HUBZone Program. The
testimony we hear today will provide us with a launching point
from which we can further examine the intricacies of the
program and determine whether adjustments are needed to ensure
that the program performs as intended and benefits the small
businesses and communities most in need.
Again, I want to thank each of our witnesses for taking the
time to be with us today. I look forward to hearing your
testimony, and now I yield to the Ranking Member Murphy for her
opening statement.
Mrs. MURPHY. Thank you, Mr. Chairman. I look forward to
working with you and the rest of our colleagues to craft
bipartisan legislation that will help our small businesses
succeed and our economy grow.
Each year the Federal Government procures more than 400
billion in goods and services from businesses around the
country through the vehicle of government contracts.
Recognizing the benefit that these contracts bring to our local
communities in terms of economic development and job creation,
Congress created a small business contracting program in 1997
aimed directly at helping underserved regions with low
employment and high poverty.
The Historically Underutilized Business Zone Program, or
HUBZone Program, provides Federal assistance to firms located
in economically distressed areas by lowering barriers to entry
into the Federal marketplace for these firms. Ideally this
would not only provide an incentive for selling goods and
services to the government, but it would also create jobs and
bring revenue to these struggling areas.
However, since its implementation, the HUBZone Program has
not quite filled its potential. From ensuring that only
certified businesses enter the program and maintain their
eligibility, to informing businesses of their HUBZone status in
a timely manner, to even being able to present evidence that
the program is meeting its mission, SBA has lagged behind in
meeting these basic tasks.
In fact, at one point in time oversight of the
certification process was so poor that the GAO investigators
were able to certify fake businesses that they created where
the principal office locations were in ineligible locations,
including the Alamo landmark in Texas and a Starbucks down the
street from the White House. Additionally the SBA Office of
Inspector General found three firms that were certified under
the reengineered certification process that did not meet all of
the program eligibility criteria.
In addition, for many years the program's portfolio
consisted of businesses that were eligible only because of a
grandfathering clause. Once this expired and other areas lost
their HUBZone designation, close to 6,000 businesses were
decertified. While GAO's most recent report shows that there
have been improvements in the certification process, these
improvements are not far enough along to ensure that the
businesses are adhering to the program's requirements. The
recertification process has for the most part become a self-
certification with little outreach or follow-up from SBA.
I look forward to hearing from our witnesses today about
ways in which the program can be improved to provide sufficient
oversight for initial certification, recertification, and
business development.
Additionally SBA's outreach efforts have been unsuccessful
in getting new businesses to enter the program. Nearly 90
percent of the HUBZone areas still do not have a business
participating in the program. This low participation rate has
resulted in the failure to meet the 3 percent prime and 3
percent subcontracting goals.
The dollars and actions awarded through this program have
continually decreased since fiscal year 2008 with only 71,000
actions worth $6.4 billion, or 1.82 percent of prime
contracting dollars awarded to these firms in fiscal year 2015.
Even then the program was vastly underutilized since only 25
percent of these actions were awarded through a HUBZone set-
aside or a sole source contract.
I know that last year the full committee held a hearing on
HUBZones that shed light on the inadequacies of the program and
made clear that reforms are necessary to get the program on
track. Today's hearing will provide the background and ideas
needed to guide the committee as we draft legislation to
address these deficiencies.
I thank the witnesses for being here and look forward to
gaining more insight as to how we can make the HUBZone Program
more effective in meeting its mission. Thank you, and I yield
back.
Chairman KNIGHT. Thank you very much. I would like to now
introduce our witnesses, and I think what we will do is we will
introduce all four, and then we will start and go down.
Our first witness today is Mr. William Shear, Director of
the Financial Markets and Community Investment Team at the
Government Accountability Office. That is an acronym. Mr. Shear
is a familiar face, appearing before the Small Business
Committee on a number of occasions, most recently at our
September 7th full committee hearing last year. GAO has issued
several reports on the HUBZone Program. We welcome Mr. Shear
back today to discuss the themes GAO has identified in its body
of work.
Our second witness today is Mr. Hannibal ``Mike'' Ware. Mr.
Ware serves as an acting inspector general for the U.S. Small
Business Administration Office of the Inspector General. The
OIG is responsible for independent oversight of SBA's programs
and operations. Mr. Ware has served as the SBA Director Deputy
Inspector General since last April. Prior to joining SBA OIG,
Mr. Ware served for 26 years for the Department of Interior
OIG, most recently as the Deputy Assistant Inspector General
For Management. Similar to GAO, the SBA OIG has also conducted
several reviews of the HUBZone Program. We look forward to
hearing Mr. Ware's testimony on that body of work.
Our third witness is Ms. Shirley Bailey. Ms. Bailey is
testifying today in her capacity as board chair of the HUBZone
Contractors National Council. The HUBZone Council is a
nonprofit trade association providing information and support
for HUBZone-certified and other small businesses, prime
contractors, professionals, agencies, and organizations
interested in the HUBZone Program. Ms. Bailey has been deeply
involved in the HUBZone Program for many years, both in her
service as HUBZone Council board member, and in her personal
experience as a small business owner. Ms. Bailey is the co-
owner, Executive Vice President, and Chief Operating Officer of
GCC Technologies, LLC, a successful HUBZone-certified small
business located in Garrett County, Maryland. We are pleased to
welcome Ms. Bailey before the committee today.
I would like to now yield to the ranking member to
introduce our fourth witness.
Mrs. MURPHY. Thank you, Chairman Knight. It is my pleasure
to introduce Dr. Mansooreh Mollaghasemi. She is the founder of
Atria Technologies, LLC, a small business located in my
district in Orlando and one of 17 firms in Central Florida that
are HUBZone certified. Atria Technologies provides professional
services in engineering, program management, and technology and
system integration to government agencies and prime
contractors. She is also the founder and CEO of Productivity
Apex, an engineering company that focuses on using technology
to improve the productivity of public and private
organizations. Additionally she is an Associate Professor in
the College of Engineering at the University of Central Florida
where she has been teaching and conducting research for more
than 25 years.
And, Chairman Knight, if you will allow me just a moment of
personal privilege, I should note that Orlando has just been
recognized by the American City Business Journal as the twelfth
best metro area in the country for small business vitality, and
I know entrepreneurs like Dr. Mollaghasemi helped Orlando
achieve that recognition.
Thank you for joining us today, and we look forward to
hearing your testimony.
Chairman KNIGHT. Thank you, Ms. Murphy.
Okay. If committee members have an opening statement
prepared, I ask that they be submitted for the record.
I would like to take a moment to explain how the lights
work. You will each have 5 minutes. It will go yellow, and then
it will go red. If it goes red, I will give you a little time,
but just kind of be aware that it is going red, and we will get
through this.
Five minutes is a pretty good time, and we will start off
with Mr. Shear, and the floor is yours, sir.
STATEMENTS OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, UNITED STATES GOVERNMENT ACCOUNTABILITY
OFFICE, WASHINGTON, D.C.; HANNIBAL ``MIKE'' WARE, ACTING
INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS ADMINISTRATION,
WASHINGTON, D.C.; SHIRLEY BAILEY, CO-OWNER-EXECUTIVE VICE
PRESIDENT AND CHIEF OPERATING OFFICER GCC TECHNOLOGIES, LLC,
OAKLAND MD, TESTIFYING ON BEHALF OF THE HUBZONE CONTRACTORS
NATIONAL COUNCIL; AND MANSOOREH MOLLAGHESAMI, PH.D., PRESIDENT
& CEO, ATRIA TECHNOLOGIES LLC, ORLANDO, FL
STATEMENT OF WILLIAM B. SHEAR
Mr. SHEAR. Thank you.
Chairman Knight, Ranking Member Murphy, and members of the
committee, I am pleased to be here today to discuss our work on
the SBA's Historically Underutilized Business Zone Program.
Congress established the HUBZone Program to stimulate
economic development in economically distressed communities.
The program provides Federal contracting preferences to small
businesses located in HUBZone-designated areas that also employ
residents of the areas.
In this statement I will discuss the evolution of the
HUBZone Program based on our body of work issued between June
2008 and September 2016. In addition, we met with SBA officials
one week ago to discuss the status of open recommendations.
Among other things, I will discuss areas of weaknesses that we
have previously identified in performance audits and fraud
investigations, related recommendations, and SBA's actions to
address them.
While weaknesses remain, SBA has taken some steps to
enhance program processes to varying extents. I will refer to
the following examples. First, the certification process. In
response to a recommendation in our June 2008 report based on
the limited verification of the information firms reported,
since 2009 SBA has required firms to provide supporting
documentation for applications.
Second, susceptibility to fraud and abuse. In response to
recommendations made in a series of investigations in 2008,
2009, and 2010, SBA officials told us the agency began
conducting site visits to 10 percent of certified firms.
Third, recertification process. In 2015, we found that SBA
had not required firms seeking recertification to submit any
information to verify continued eligibility and instead simply
relied on their attestations of continued eligibility. As of
February 2017, SBA has not yet implemented our recommendation
to reassess its recertification process and add additional
controls. SBA officials told us that the agency continues to
develop a technology solution to help address our
recommendation.
Fourth, communications with firms about designations. In
2015, we found that SBA's communications to firms about
programmatic changes, including redesignation, generally were
not specific to affected firms, and thus some firms might not
have been informed they would lose eligibility. SBA revised its
letters to newly certified firms, and as of February 2017, SBA
was implementing additional steps to ensure that all currently
certified firms would be notified of changes that could affect
their program eligibility. For this recommendation as well, SBA
officials told us that the agency continued to develop a
technology solution to help address our recommendation. We will
continue to monitor SBA's implementation of this activity.
Finally, in our 2008 and 2015 reports, we presented
statistics on economic conditions in HUBZone qualified and
redesignated HUBZone Census tracts, and in nonmetropolitan
areas. And in this statement we have updated statistics on
economic conditions. We continue to find that economic distress
has been more severe in designated HUBZone areas than in
redesignated areas.
Chairman Knight and Ranking Member Murphy, this concludes
my prepared statement. I would be happy to answer any
questions.
Chairman KNIGHT. Thank you very much, Mr. Shear. We will go
on to Mr. Ware.
STATEMENT OF HANNIBAL ``MIKE'' WARE
Mr. WARE. Chairman Knight, Ranking Member Murphy, and
distinguished members of the subcommittee, thank you for the
opportunity to be here today and for your continued support of
the Office of Inspector General.
As Acting Inspector General, I am proud to represent the
dedicated men and women of my office. As an independent office,
OIG conducts and supervises reviews and investigations relating
to SBA programs and supporting operations. Today I am happy to
discuss the work we have done to combat fraud, waste, and abuse
in SBA's HUBZone Program.
Before I discuss our oversight of the HUBZone Program, I
want to provide the subcommittee with a bit of context to
illustrate how the risks within the HUBZone Program factor into
our top management challenges. Our independent reviews, along
with an ongoing dialogue with SBA program officials and
external oversight entities such as GAO, guide the
identification of these challenges facing SBA. Pertinent to
today's hearing, we have identified weaknesses in small
business contracting programs and inaccurate procurement data
as a top management challenge.
Our work in overseeing the HUBZone Program continues to
substantiate this challenge. We issued two reports in recent
years specific to the HUBZone Program, one in November 2013 and
one in September of 2014. Those scopes and methodologies
differed. In both reviews, our findings called into question
the accuracy of Goaling reporting as it pertains to the
governmentwide Federal contract and Goaling results. We also
found SBA had certified firms that did not meet all of the
eligibility criteria, and ineligible firms had received
contract awards.
For the HUBZone Program, these findings indicate there may
be distortions in the governmentwide Goaling results, and the
intended economic benefits of the program are not realized when
ineligible businesses receive HUBZone preferential contract
awards. SBA has taken corrective action to close the five
recommendations that were associated with those reports.
In terms of substantiating the management challenge of
weaknesses in Small Business contracting programs, we also are
aware of work published by GAO which we factor into our
oversight planning purposes to ensure we are not duplicating
efforts. We intend to initiate a new review in the HUBZone
Program in 2018.
On a more granular level, our office continues to receive
complaints on the hotline involving allegations of wrongdoing
in the HUBZone Program. In fiscal year 2016, we received over a
thousand complaints, with 18 being pertinent to the HUBZone
Program. These allegations and other leads developed directly
by our investigations division are thoroughly reviewed and
processed for action by appropriate offices within and external
to OIG, which can include criminal investigation.
Since fiscal year 2014, our office has opened 13
investigations involving the HUBZone Program, resulting in 13
indictments or informations, 12 convictions or guilty pleas,
about $12 million in dollar accomplishments, and $35 million of
cost avoidances.
In the course of our mission, we also promote suspensions,
debarments, and similar administrative enforcement actions.
Last year, for example, we sent 75 suspension and debarment
referrals to the SBA. Seven involved the HUBZone Program. The
year before that we sent six that involved the HUBZone Program.
And in 2014, we referred 50 matters with two involved in the
HUBZone Program.
While the OIG is committed to rooting out the fraud, waste,
and abuse, it cannot be overstressed that SBA's role in
implementing proper controls and enforcing regulations on the
front end is key to the viability of not only the HUBZone
Program, but also of its Federal contracting programs. The
regulatory oversight is especially important given SBA's
attempting to tackle the competing interests of expanding the
number of firms certified for HUBZone Program participation.
Due diligence to ensure only eligible participants are
certified and recertified is vital, as is the need for
continued vigilance through on-site inspections.
We will continue to focus on this important Federal
contracting program as well as the most critical risks facing
the SBA.
Thank you for the opportunity to speak to you today. I look
forward to your questions.
Chairman KNIGHT. Thank you, Mr. Ware. And we will go on to
Ms. Bailey.
STATEMENT OF SHIRLEY BAILEY
Ms. BAILEY. Good morning, Chairman Knight, Ranking Member
Murphy, and members of the subcommittee.
I want to thank you for the opportunity to testify on
behalf of the HUBZone Contractors National Council.
My name is Shirley Bailey, President and Board Chair of the
HUBZone Council, and co-owner of GCC technologies, LLC, a
certified HUBZone company located in Garrett County, Maryland.
The Council strives to contribute to the economic
development of disadvantaged communities by helping HUBZone
certified firms maximize their success in earning Federal
contracts. The underlying principal behind the HUBZone program,
which was established 19 years ago, remains relevant today: to
decrease unemployment and revitalize low-income and
economically distressed communities by encouraging businesses
to located in these HUBZone areas.
Congress in its creation of the program wrote: Creating new
jobs in economically distressed areas has been the greatest
challenge for many of our Nation's governors, mayors, and
community leaders. The trend is for businesses to locate in
areas where there are customers and a skilled workforce. Asking
a business to locate in a distressed area often seems counter
to its potential to be successful. But without businesses in
these communities, we don't create jobs, and without sources of
new jobs, we are unlikely to have a successful revitalization
effort.
The question before this subcommittee is how this program
can live up to its potential, and the numbers suggest that this
program has room for growth. As of February 2017, there were
only 6,026 certified firms, which represents a loss of over a
third of the HUBZone firms since the 2010 Census. Yet these
businesses have had substantial impact on their communities. An
average HUBZone company is awarded over a million dollars in
Federal contracts, a critical revenue threshold in business
sustainability. Federal contracts awarded to HUBZone companies
directly support more than 40,000 jobs every year, of which a
minimum of 35 percent of these jobs are HUBZone employees.
Our written statement goes into a full history of the
program, but I would like to use my time today to address the
changes we believe would increase participation in the program
and ultimately help the communities that would benefit. There
are two themes that should guide changes to the program,
business certainty and program modernization.
With respect to business certainty, we make the following
recommendations. The first one is to increase or consider the
increase in the redesignation period from 3 to 7 years. To
determine program eligibility, SBA uses data from the decennial
Census and the American Community Survey. While Census data is
updated every 10 years, ACS data is updated every 5 years. For
certain areas, this means minor changes in economic data can
lead to a community's eligibility to change annually as they go
through those evaluations.
When a track or county ceases to meet the qualifications
for HUBZone status due to changes in income, unemployment, or
poverty data, it becomes a redesignated area. As a redesignated
area, it qualifies as a HUBZone designated area for an
additional period of 3 years. To create business certainty, we
recommend increasing the current 3-year redesignation period to
7, which will allow firms to make more substantial, long-term
investments without the fear of losing their status before the
business has had an opportunity to succeed or mitigate
potential financial impacts resulting from the loss of their
HUBZone status.
Two, consider supporting the capital investment of a
company's principal office. Many firms make significant capital
investments to locate their principal office in a HUBZone, such
as signing long-term leases or buying and renovating buildings.
In order to incentivize the company to stay in the distressed
area even if the area loses its HUBZone designation, we
recommend the principal office requirement remain fulfilled
regardless of redesignation until the firm relocates or no
longer meets other requirements of the program, such as the
employee residency requirement or Small Business size standard.
This will encourage long-term investment by providing business
with certainty.
Three, simplify employee residency requirements for the
smallest businesses. By changing the current residency
requirement from a 35 percent threshold to 33, 1 in 3 employees
would be required to reside in a HUBZone. In addition to
simplifying the calculation for employers, this also helps
small firms ensure that they meet the requirements after the
unforeseen departure of one employee.
With respect to program modernization, we recommend the
following: increased participation in the rural communities.
Fewer than expected nonmetropolitan counties qualify for the
HUBZone Program due to having more burdensome requirements for
median income and unemployment than metropolitan areas. While
rural areas tend to have lower median income and higher
unemployment, nonmetropolitan counties are not homogenous.
Certain county areas may be better off due to the presence of a
single employer, such as a hospital or college--this is the
case that we have in Garrett County, Maryland--and cause the
county to be ineligible. We recommend the nonmetropolitan
county qualification levels be reexamined to account for the
diversity in these areas.
In closing, let me be clear that the Council is advocating
for strengthening and modernizing the program. However, it
should not come at the expense of effective compliance efforts
by the SBA. Fraud penalizes those companies that have gone
through the proper procedures of certification and met the
requirements. In order to achieve the desired rulings of an
effective program, Congress should provide the funding
necessary to allow for expeditious processing of applications
and the required steps recommended by the GAO.
It is disingenuous to fault SBA for failing to administer
the program without appropriating funds to adequately meet the
directives. By working together, distressed communities can
attract businesses which will create jobs and investment. To
continue on the current path will result in underutilization of
the program. Our goal should be to encourage businesses to
locate and create jobs in these communities, and we stand ready
to help.
And thank you again for your time and consideration.
Chairman KNIGHT. Thank you, Ms. Bailey. We are going to put
a bookmark right here, Doctor. We have votes. Votes are called.
We have about 7 and a half minutes left to vote, so I want to
make sure that all the members have a chance to get down.
So we will take a recess right now, and we will reconvene
with Dr. Mollaghasemi when we return.
[Recess.]
Chairman KNIGHT. We are back in, and I appreciate you all
staying around.
We did have the chairman of the full committee who was here
earlier, and I appreciate Chairman Chabot being here. He has
been an exceptional chairman and we appreciate when he can come
to our subcommittee hearing.
So when we left off, we had Ms. Bailey. I appreciate your
testimony. And now we are going to go to Dr. Mollaghasemi for 5
minutes.
STATEMENT OF MANSOOREH MOLLAGHASEMI, PH.D.
Ms. MOLLAGHASEMI. Good morning. Chairman Knight, Ranking
Member Murphy, and members of the subcommittee, thank you for
the opportunity to testify at this hearing.
I am honored to share my experience as an entrepreneur and
highlight the critical role of the program such as HUBZone in
the growth of our economy. My name is Mansooreh Mollaghasemi,
and I am the founder and President of Atria Technologies, an
engineering company based in Orlando, Florida.
Please allow me to first provide some context on the role
of small business in fostering innovation in the United States.
All of today's household names like Google, Amazon, Apple,
Facebook, and many more were all small businesses, in the early
years, with an incredible vision and an unmatched team, and
they did not spring forward from within large organizations.
But how can we infuse this innovation from small business into
our Federal Government?
These SBA programs can provide a mechanism for entry, and
without them, frankly these barriers are often insurmountable.
To give you a firsthand account, please allow me to share my
story. Right after I finished my Ph.D. in industrial
engineering, I became an Assistant Professor in the Department
of Industrial Engineering at the University of Central Florida.
Don't get me wrong. I love teaching. I love doing research,
managing my grants, and graduating graduate students and
mentoring them. But there was always something missing. I
wanted to solve real-world problems and apply my research to
more impactful real world problems.
So years later I finally took the leap and started a
business focused on using technology to improve the
productivity and efficiency of private and public
organizations. I remember how naive I was, thinking if I could
offer a solution to a government organization, of course they
are going to use me. So I started down that path, but the
meetings went generally like this. I would go; I would listen
to their problem; I would talk to them about our core
competencies and offer a solution; We would brainstorm, and
then the conversation would go something like this: We like
what you do. We think it would be useful to our organization,
but we have no mechanism to come to you. First time I heard
that, mechanism, what is a mechanism?
So then I started researching. My research uncovered
multiple things. I learned about the 8a program, more so than
the HUBZone, but I knew that it existed. And I was already in a
lease, that was not in a HUBZone, so I went down the path of 8a
certification. Needless to say the process and its requirements
were daunting, and I was advised to hire a firm to help me. So
I paid, years ago, $4,000 in consulting fees and a lot of hours
of my own time, and luckily because of paying attention to
details, I got certified. And another thing I should mention is
that I had no visibility into the application process. I didn't
even know whether it was moving from one step to another or
whether I would be ultimately certified or not.
While I was able to in the meantime, while I was going
through that, acquire and retain high-profile commercial
clients and competitive government contracts, the 8a program
really was the key that opened a lot of opportunities for me. I
should mention that through one of those 8a contracts with
NASA, I developed, with my team, the first ever supply chain
model of earth to Mars, arguably the longest supply chain known
to mankind. In another contract, we built a highly
sophisticated optimization tool to help USDOT to move freight
more efficiently that with internal R&D I was able to develop a
commercial tool out of it.
Fast forward to 10 years later when I founded Atria
Technologies. I was surprised to experience the same lack of
visibility and long lead time in the application process, which
was over 7 months. So there are certainly opportunities for
improvement in the application and the certification process.
But let me also share with you the positives that I have
observed about the HUBZone Program. Aside from providing the
small business with much needed past performance and experience
to compete for larger opportunities, I am not aware of any
other program with such significant social impact. This program
provides, as you know, distressed areas with sustainable and
meaningful jobs, leading to economic development of these
communities and reduction of unemployment, and as Ms. Bailey
mentioned, reduced homelessness.
Personally, while I have always strived to provide
mentorship to various groups, especially women, prior to owning
a HUBZone company, it never dawned on me to go specifically
seek out people that live in specific areas. This program
forces you to do that and do something good and have a social
impact in the process.
So in summary I would like to leave you with three
thoughts: small business in America is an engine of innovation
that is unmatched in any other economy in the world. Second,
programs like HUBZone are the essential keys to bringing the
benefit of this innovation to the government of the American
people through Federal contract awards and spurring economic
development in distressed areas. And, third, opportunities
exist to streamline the application and oversight process for
these programs to enable their more efficient and effective
use.
It is truly an exciting time to be the leader of a small
business. We are the envy the world and rightly so. The Federal
programs we are discussing today are vital to enabling the
bright light of small business innovation to shine on the
services provided by our Federal agencies.
Thank you for your time today.
Chairman KNIGHT. Thank you very much.
We will now go into questions. I have a few of my own. We
will take about 5 minutes each, and I am sure the ranking
member has questions.
Quickly, Mr. Shear, we have got, according to GAO, the SBA
has not implemented the procedure measures, the effectiveness
of the HUBZone Program. What do you think are the most
important metrics that SBA needs to start collecting and
tracking? And before you answer that, I am going to take a
couple of the comments that you made that it looks like the GAO
has made recommendations. And one of the questions outside of
this that I kind of jotted down was how do you lose
eligibility, and if you do lose eligibility, what happens? Is
it pulled from you, or is there some sort of enforcement
mechanism? How do we go about that? I know there is three or
four questions there.
Mr. SHEAR. I think the answer to your question on
eligibility is what happens to businesses subject to
decertification. There is a process where businesses can become
decertified from the program, even though we have said--and
sometimes this gets kind of confusing, and I know I have asked
a lot of questions of it as we have done our work--
recertification is almost like a self-certification. So we say,
well, why would there be a backlog and things like that? Well,
the question becomes if a firm becomes identified to be
decertified, there is a process for that, but there is a
decertification process, and there are firms that are
decertified.
Some of the companies are being decertified that are asked
to self-certify and provide documentation, and they don't do
that, so some will withdraw on their own. But there is a
process where there are businesses that lose their
certification, and that might be a question for the HUBZone
Council as well.
Going back to evaluation, I will just say generally SBA's
track record of evaluating its programs, including pilot
programs--HUBZone isn't one--but evaluating programs and using
evaluations in their strategic planning and to inform how
programs could be improved, is something that SBA comes up
short on. So in terms of what we are looking for, and I know we
had extensive interactions, SBA hired an economist after our
2008 report to work on an evaluation----
Chairman KNIGHT. And I will stop you right there because I
have got Mr. Ware here shaking his head a little bit, and I
want to kind of delve into this, because I think part of what
we are going to be doing, in this subcommittee, is making sure
that if a program is in place, we want it to be in place to
help and to enhance opportunities.
But if there is a problem and the problem is not being
looked at or not being solved, then that might be someplace
that we want to take a harder look at and structure some sort
of work that way.
Mr. SHEAR. And so let me finally kind of get to the issue
on evaluation. Evaluations can start out as simple. It is
looking in specific districts. I mean, sometimes it can just
start with let's look at the HUBZone map. I have a rough
HUBZone map here for your district.
Chairman KNIGHT. I have seen it.
Mr. SHEAR. And for Orlando. And you just see the way they
are configured. And the question is, you look at the map and
you just even start to ask questions about how does this
program play out? It can involve the role of district offices.
But when we talked about evaluation here, we were talking
about what is it about the HUBZone Program; how can you measure
its impact on local economies? So part of it is collecting
metrics other than how many firms are you certifying? It is not
a matter of counting up jobs that those firms employ. It is a
matter of trying to come up with some kind of benchmarks, and
let's try to look at where you have HUBZone activity.
What do you see what is happening to those local economies
in terms of what it is--it can be jobs. It can be looking at
just improvements in economic conditions, but there are a
number of metrics you could use, but the idea is whether you
start at a case study level or you are using systematic,
economic modeling. There are ways to assess programs like this,
and this is what we were sharing with SBA at that time----
Chairman KNIGHT. Okay. And I am going to go to Mr. Ware
here real quick. We talk about this at the State level, too,
and I am sure that Florida and California and all of the other
States have their own programs that try and enhance and try to
give businesses opportunities inside a zone, whether it be an
enterprise zone or a free-trade zone or something like that.
Mr. Ware, let me kind of get to the crux of this. Is there
something more that the SBA should be doing? Because I am
seeing these numbers from 2006, from 2007, all the way up to
2015 and 2016, of numbers that are not alarming, but it doesn't
seem like they are correcting.
Mr. WARE. Thank you. And I think that is a very good
question and actually one being relatively new to SBA that I
asked coming through the door as I started to review more of
our work. And that question was, are we really measuring the
right things to make sure that the programs are really having
the type of economic impact in the communities that they are
supposed to be having? And I am not sure, based on the body of
work that I have seen, that that is how we are working towards
answering--those are the answers that we are measuring and
trying to come to. But----
Chairman KNIGHT. So, those are always going to be the
questions though, and I know I am taking a little extra time
here, but the metrics of how you measure a program are always
the key to the program. If you can't measure if it is doing
something, or if it is providing what you initially
constructed, then we don't know, and that is a bad thing.
Mr. WARE. Yeah. But the agency has done quite a bit to
strengthen the program and to do things, and the findings of
both my office and Mr. Shear's is it generally wraps around
those types of, the same type of things all the time as you saw
by just going forward and reading the reports. It is basically
with certification or recertification or with how we measure
and report on the numbers and everything else. Although they
have made a lot of strides, a lot more work still needs to be
done.
Chairman KNIGHT. Very good. I am going to go to the ranking
member for her questions.
Mrs. MURPHY. Thank you for all of your testimony.
My first question is for Dr. Mollaghasemi. You know, a
major purpose of this hearing is for us to get a better
understanding of how this program works for small businesses
and within the community. Could you elaborate a little bit on
what your experience with the HUBZone certification process
looked like?
Ms. MOLLAGHASEMI. Sure. So the answer that I will give you,
I will try not to do it too much, but when you have a data
point, you tend to go to that, so I am going to compare it to
the 8a certification because I have gone through both.
The application process was not bad, you know, the
requirements. It wasn't as daunting as the 8a certification. I
was really happy to find it online because when I was doing 8a
certification, a folder like this had to be mailed, and you
always worried will papers get misplaced and so forth. So I
liked that part of it, the online format of it.
The problem came in when, again, you had no visibility into
where it is? Am I moving in the process? And the help desk was
extremely cordial every time I asked for status. While they
were very quick to get back with me, this sort of form email
came out that within 30 days you are going to be assigned a
rep, and then within 90 to 160 days you should be certified.
So, that is a very lengthy process. That is an eternity for a
small business. So the visibility was not there, and it was a
lengthy process.
And I have had more questions answered today than I have
ever been able to ask because of all the valuable advice that
is here. And there is really no, I haven't found, other than my
local SBDC office, that resource is extremely valuable, as you
know, in the entrepreneurship sense. I have them on speed dial
if I have a question. So that has been my experience.
But in terms of recruiting, as you know, right by UCF there
is a HUBZone. I am extremely fortunate, although I am extremely
small now, I am very fortunate to have one very high-tech woman
engineer that occupies one of the full-time HUBZone positions.
But I am able to augment the part-time 40 hour a month from the
surrounding University with students, so I can mentor them and
give them experience.
Mrs. MURPHY. Just as a follow-up to the recruitment piece,
in your experiences, do small businesses incur additional costs
when they are located in and employ workers who reside in
economically distressed areas? Is it harder for you to find and
recruit and train workers?
Ms. MOLLAGHASEMI. In my case no, but I suspect going
forward, because I have a high-tech business, I am not going to
be able to staff up full-time employees. As you know, these are
high-paying jobs, and the likelihood of living in a HUBZone
area is slim.
So because of the location that I am, I can hire part-time
people, but remember that in a high-tech business if they are
part-time students, for example, what does that do? That just
increases your rates because they become overhead for the most
part. So I don't foresee for a technical engineering, high-tech
company that this would be fast growing without me finding
other types of service contracts to be able to do, which I
haven't done yet.
Mrs. MURPHY. Great. Thank you.
And then my second question for Mr. Shear, you talked
extensively in your testimony about some of the status of how
SBA has followed through or not on the implementation of the
recommendations. Can you talk a little bit more about why you
think it is that the SBA has been incomplete in their effort to
evaluate the program? And also specifically you had mentioned a
technology solution that was in process. Can you tell me a
little bit more about that?
Mr. SHEAR. Yes. Let me start with the second first on
technology. In response to recommendations we made, actually
for both the 8a program and HUBZone a number of years ago, SBA
embarked on a technology solution to help assist with those
programs, and it was called OneTrack, and it ended in failure.
It was never implemented.
And SBA generally, from our management review we did at the
request of the full committee, we just observed a lot of
turnover at the CIO level and an agency that is challenged in
implementing technology.
So now let me bring that to the HUBZone Program. There is a
recognition, and rightly so, that SBA is now developing a new
technology for the HUBZone Program. So like when we spoke with
them last August, it seemed to be a very vague idea, but they
said, well, we will have it up and running in the spring. And
we never thought that that was possible, and it wasn't. So
speaking with them last week, they spoke with much more detail;
they have thought a lot more about this technology solution,
and they are now more realistic about the timelines.
It should be something that businesses can use, hopefully
by the end of the fiscal year, and that SBA could use for its
own analysis of the program by the end of the calendar year. So
we just hope that by the end of the calendar year they will
have something that is actually usable.
So now let's talk about that technology. The idea is that
you would have data that would be for each of the HUBZone firms
where you could do queries on where are they located? Where are
they generating economic activity? You can use it for data
mining for looking at places where fraud might be most
prevalent. So you can use it for a number of things. So they
have said, well, they will use it for recertification. They
will use it to notify firms because it is very difficult to do
without that.
So they are proposing a technology solution, and I hope
they can get it to work because then you can also have queries
again for firms that end up in redesignated areas. Where are
they? I was just showing, Dr.--and I am sorry, I can't
pronounce your name, a map of Orlando, and you just see the way
HUBZones are spread out. If you just have, if you can make
informed decisions about where the activity is occurring and
just try to say what is happening in the areas where the
activity is occurring compared with other similarly situated
places. When we spoke to the economist that was hired by SBA in
2009 to try to develop an evaluation, we shared these ideas
without saying how he should do his evaluations.
But to go back to what Chairman Knight said, we actually
had a mandate, a number of years ago, to evaluate the
Empowerment Zone Program. And so we shared with the SBA
economist how that was done, but it requires data on where
activity occurs. So from a standpoint of conducting
evaluations; making it easier for firms by notifying them; and
by dealing with the recertification process by doing queries
where you can try to identify, in a risk-based way, where might
you have to go do a site visit, or where you might have to
follow up and get more information from firms from the internal
control standpoint--the technology solution coudl be useful.
And then again, where is the activity going on? What
happens at this location? Are they decertified firms? Are they
firms that are in redesignated areas? Are they isolated places,
or are they adjacent to areas with depressed economies, just
looking at the map can be useful. So it is promising if SBA can
pull it off, but let me just flip to the other side.
Supposedly the district offices are the boots on the
ground, and in our work, now in Puerto Rico we are including
the district office in a very big way, but in the past we
didn't go through what the district offices are doing. We went
to business groups, and we went to chambers of commerce and
local economic development entities to kind of see from their
standpoint what is SBA doing to help encourage this program?
So when you don't have technology in place, it becomes more
important to really have a presence in a community and have
resources committed to that. And so from the lens that we have
looked at that, it doesn't seem like SBA really has a presence
in those local jurisdictions.
So there is a number of ways to do some of these things
that involve, people, like site visits are very expensive, that
involve people in the absence of technology, but it is like
neither side of that, there is not enough of that occurring on
either the people or technology side.
Mrs. MURPHY. Thank you.
Chairman KNIGHT. Thank you very much.
I have to go in to get my driver's license renewed tomorrow
and change the address, so I know, Doctor, what you are going
through because I have looked online, and they said I come in,
and it will take them 90 days to send me my driver's license.
When I have to go in, to be there to take care of all this, I
don't know why it would take 90 days, but that is the
department of redundancy department that I am going to.
So, Ms. Bailey, I have one final question. Are you aware of
any economically distressed communities that have experienced
significant economic improvement due to the HUBZone Program,
and does the SBA highlight these communities?
And the reason I ask this, and I will give you a little bit
of a follow-up here, is because I think that some of these
zones that we have talked about before that are trying to help,
that are trying to give this effort in, and I agree, Mr. Shear,
it has got to be easier to check and make sure that things are
working, and if we are going to talk about fraud and abuse and
things like that, I always say that the business has to be a
partner in this, but the HUBZone has to be as easy as possible
to make sure that the business can get through this.
So if we are going to ask the business to do something,
then it should be a very easy process, and that is why I bring
up the DMV. It should be a very easy process for me to go
through a very simple step. And yet 3 months later is when the
step is going to be completed. That doesn't seem very simple,
even though you are asking me to come in and take care of this,
and that is fine. That is not what government should be doing.
Government should be the partner, and then if you are doing
something wrong, we should be able to come back and say you are
doing something wrong and we are going to ask you to correct
it. And if you can't correct it, then we are going to ask you
to leave. That is the way, in my opinion, it should work.
Ms. BAILEY. And that is true, and the question was is do we
know of HUBZones that have actually shown some economic
improvement as of this program? And, yes, we have ones that are
going in and out, but the definition of what is that
improvement? How much is that improvement?
The example of Garrett County, Maryland, we moved in to
Garrett County, Maryland in 2007, and the way we ended up doing
that, we were first in Allegany County. Went in, renovated a
building. It got redesignated, so we had to look for another
area that would have the HUBZone Program. So we looked around
with Garrett County.
When we went to Garrett County, we had 14 people. We now
have over 200 with over about 75 in Garrett County alone. When
we looked at that, when we first went in, there was probably
only two or three of our companies in there that were HUBZones.
Now we have over 11. Garrett County for the first time since
the inception of this program is now redesignated. Do we
consider it to be a significant improvement? Probably not, but
we have gone over those thresholds that were considered to be
the 80 percent, and we are now at 88, which isn't a whole lot,
and then 125 versus the 140.
So we saw this improvement. But when we went into that
area, we were about at 180, and probably income was probably
about 60, 65 or something like that, so there has been
significant improvement. But there are several organizations
that did come into there, made a significant impact. These
organizations are very community oriented. They focus, they
have active community involvement programs, those types of
things. They have connections with the commissioners, the
economic development groups, the colleges. And we find that
these areas that are very successful have those types of
toolkits in their pocket, that they are a working unity that
are all going through and trying to propel the HUBZone Program.
Garrett County puts out as the HUBZone Program as one of
their major economic development tools. So looking at this,
there are certain areas, we know that there are areas like in
Page County, Virginia, those areas that are outside about the
200-mile radius of the D.C. they have to have a different type
of mechanism to be able to pull all of these units together and
be able to get these dollars into those areas. And that is what
is key here.
The key is to get the dollars and the contracts being
performed in these areas so you get the maximum multiplier
effect. It doesn't do any good to issue a contract to a
contractor who has an principal office in these areas and all
the work being done in Washington, D.C.
So the more that we can concentrate on being able to do
that, you are going to see a greater impact in these areas. And
that is a perfect example. And I will go back, you know, using
our company as an example. When we went out to Garrett County,
one of our first contracts was to help the SBA in 2008 with
doing the HUBZone Program. And we talked to SBA. Originally our
contract was to be performed in D.C. And after months and
months of conversation, we convinced them, let us do this in
Garrett County. And we ultimately were able to do that, expand
that contract, and be able to support them from Garrett County,
Maryland.
We were subsequently able to do that with the VA
verification support as well, which is still being done in
Garrett County, Maryland. So it shows that this type of work
can be done outside of the Washington, D.C. area, and you are
going to get the biggest impact when you can do that. So the
greatest thing that we can do is try to figure a way to get
these contracts out to these areas. And the further out we go
into the Midwest, into those areas that don't have these
straight government installations right in their back door,
those are the ones we can have the biggest impact on as well.
Chairman KNIGHT. Well, thank you very much. We always
appreciate entrepreneurs and business owners that come in and
have provided jobs and opportunities for people. That will
always about our mantra around here, that we do believe in
opportunities and the ability to create. So, Ms. Murphy? Do you
have any more?
Mrs. MURPHY. Just one final question. So in 2008 and 2009,
we have discussed how the GAO investigators have identified 29
firms that were participating in the SBA HUBZone programs that
were not in compliance with the program requirements. And then
in 2013, SBA OIG found three firms that the SBA certified that
were not in compliance with the eligibility criteria. And the
example we talked about was the one firm who had the HUBZone in
Washington, D.C., whose primary location was in a HUBZone in
Washington, D.C., but its actual location was in an affluent
suburb.
Mr. Ware, from your perspective, what adverse outcomes can
occur when participating businesses are not in compliance, and
what proactive strategies can SBA use to mitigate any negative
impact.
Mr. WARE. Well on the first part--could you repeat that
first question? The first question was--maybe I should have
just taken the second one, but go ahead.
Mrs. MURPHY. Just from your perspective, what adverse
outcomes can occur when participating businesses are not in
compliance? And then what proactive strategies can the SBA use
to mitigate the negative impact?
Mr. WARE. Thank you very much.
The adverse outcomes, when firms are in that should not be
in, that means that a firm that could have gotten that contract
did not. So definitely that is, in my opinion, the most major
part, and then on top of it, all the Goaling numbers that we
are so interested in for good reason, they are thrown off as
well. So those are the two major reasons for it.
And in terms of proactive strategy, we have long been
talking about the need to definitely leverage more of
information technology resources, and piggybacking off of what
Mr. Shear said, I mean, we are saying the same things.
In terms of some of their legacy systems, that system they
have currently is about 17 years old. It is archaic. It is not
working. Things are still stovepiped, so it causes a lot of
delay and everything else. But makes the need for more boots on
the ground in terms of doing a stronger review and
incorporating the work of contracting officers as well because
they also play a role in this in terms of raising red flags
when they see it because they are the ones getting it first.
And if they were kind of brought into the equation to help out
in that regard, those are some of the things that could
definitely strengthen it and be a proactive stance, a proactive
approach instead of everything being so reactionary with us
coming in after the fact with the finding.
Mrs. MURPHY. Thank you.
Chairman KNIGHT. I would like to thank all of our witnesses
for coming in, and this is our first committee.
I can tell you we will have a fairly bold agenda talking
about the issues that come in front of us. I think that, I am
not speaking for the rest of the committee, but we do believe
in opportunities. I am sure I am speaking for everyone when I
say we do believe in opportunities, and we do believe that
businesses should thrive. If there are opportunities that
businesses can thrive and work in partnership with government,
then we want that partnership to be a lot clearer and a lot
easier for both parties.
SBA's HUBZone Program was created to combat poverty,
increase economic independence and provide stability. As we
have learned today, the HUBZone Program has faced some
challenges in the past. SBA has made some improvements.
However, we need to continue working to ensure the program
operates at the highest level to help both our small businesses
and our communities most in need.
I encourage SBA to continue on this path forward
collaborating with GAO and OIG to resolve any outstanding
recommendations, and I believe we will be following up and
seeing, because I would hate to have this panel back next year
and be talking about the exact same things. That is not our
goal. Our goal is always to be better and to correct
deficiencies.
So I look forward to working with each and every one of you
to make the HUBZone Program one that works for our small
businesses and our communities.
I ask unanimous consent that members have 5 legislative
days to submit statements and supporting materials for the
record. Without objection, so ordered. This hearing is
adjourned.
[Whereupon, at 11:53 a.m., the subcommittee was adjourned.]
A P P E N D I X
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Knight, Ranking Member Murphy and members of the
Committee on Small Business Subcommittee on Contracting and
Workforce, thank you for allowing me the opportunity to testify
at the hearing entitled ``Learning from History: Ideas to
Strengthen and Modernize the HUBZone Program.''
My name is Dr. Mansooreh Mollaghasemi and I am the Founder
& President of Atria Technologies which provides professional
services in engineering, program management, and technology &
system integration. I'm pleased to share my experiences as an
entrepreneur and small business owner in the United States, and
highlight the critical role of programs such as the HUBZone
program in the growth of my business--and many others like
mine.
But first I would like to provide some context on the role
that small businesses play in the unique innovation of American
business. Google, Amazon, and Apple are all household names
today with a market cap of $1.7 Trillion. The common theme
among all of them is that growth was achieved primarily in the
business-to-business or business-to-consumer space in the US
first, with dramatic expansion to worldwide presence shortly
thereafter.
Note that these companies did not spring forward from
within large corporations. They were all small businesses in
their early years, staffed with employees with an unmatched
fire for the achievement of an incredible vision. And succeed
they did! This is American business at its core. The bottom
line is that there is no other country in the world that has
shown the same ability to innovate.
But what is missing from this picture? What is missing, is
a commensurate infusion of this unparalleled innovation from
small business into the requirements of our Federal government.
The HUBZone program provides one mechanism to transfer this
innovation from a small business to solve the problems faced by
our Federal government.
Last year, Federal government spending reached $1.1
trillion dollars in contacts and grants \1\ with approximately
75% of that funding awarded to businesses. The lion's share of
that funding is awarded to large businesses and one key reason
lies in the risk aversion of the government. Agencies generally
look for three things in selecting contractors: past
performance, ``back reach'', and financial security/depth. To
meet all three criteria, large business is almost always
preferred, with ``second place'' going to those medium and
small business that have managed to find a way to gain
experience and past performance with federal contracting.
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\1\ USA Spending. https://www.usaspending.gov/transparency/Pages/
OverviewOfAwards.aspx. Publication date unavailable. Updated 2017.
Accessed February 21, 2017.
So the ``catch 22'' here is that the experience with
federal contracts that small businesses need to demonstrate
successful past performance, depth of staff with federal
program track records, and the financial depth from contract
wins--that ver experience, or rather the lack of it, is the
major roadblock to their ability to contribute their innovative
---------------------------------------------------------------------------
capabilities to government efforts.
Finding that mechanism to enable them to gain experience
with federal contracting is precisely the value that these
small business vehicles like the HUBZone program provide to
those small businesses who seek to provide their goods and
services to the Federal government. Without these programs, the
barriers to entry can be insurmountable.
Why is this? Please allow me to use my own story as an
example....
After receiving a Ph.D. in Industrial Engineering, I began
my career as an assistant professor at the University of
Central Florida. While I greatly enjoyed teaching graduate and
undergraduate classes, conducting research, and mentoring and
directing graduate students, I often longed for applying my
research to more impactful real world problems. To that end, I
finally took the leap in 2001 and started a business to focus
on using technology to improve the productivity and efficiency
of private and public organizations. I am extremely fortunate
to have agencies like NASA and US Department of Transportations
(USDOT) as well as Lockheed Martin, Disney, and Universal
Studios among my clients. But the road to success has not been
easy.
There are numerous challenges facing an entrepreneur, the
least of which are the long hours, recruiting and retaining
quality employees, and the constant pressure to make payroll.
I knew that we had services that would be of value to
Federal government agencies. And I remember how naive I was at
the start, thinking that if I could offer a solution to a
government agency's problem, they would, of course, want to
procure my small business services! But the meetings generally
went along these lines: I would listen to their particular
problem, present what our core competencies were and offer a
solution to their problem, and have a brainstorming discussion.
Then would come the response... ``we like what you do... we
think it would be useful to our organization... but there is no
mechanism for us to procure your services.''
So I began researching the various mechanisms. I learned
about the HUBZone program and the 8a certification and the
benefits of each problem as well as the difficulty attaining
the certifications. At the time, my office was not in a HUBZone
location and because I was already committed to a lease, I
decided to pursue the 8a certification. The process and its
requirements seemed daunting; so I hired an experienced firm
and paid over $4,000 in early 2003 to help me with the
application preparation. The process was every bit as time
consuming as I had been warned about but luckily paying
attention to details and providing the requisite documentation
helped me to get 8a certified one year later. It is worth
noting that I had no visibility into the application evaluation
process and no idea if my application was even moving through
the process, and whether it would ultimately be accepted or
denied.
While I was able to acquire and retain many high profile
commercial clients and won some competitive grants, the 8a
program was the key that opened the door to major opportunities
for us to serve the needs of our Federal government.
Through one of our 8a contracts with NASA,
my company developed and analyzed the first every
supply chain model of Earth to Mars, arguably the
longest supply chain known to mankind.
In another contract, we built a highly
sophisticated optimization tools to help USDO to pilot
solutions for moving freight more efficiently. With
additional infusion of internal R&D funds, this tool
served as the genesis for the development of a
commercial tool.
As we built our past performance and developed intellectual
property, additional opportunities came about that spurred our
growth further.
Years later, when I decided to start Atria Technologies, I
was surprised to experience the same lack of visibility and
long lead time in the application process.
In 2013, I founded Atria Technologies to meet the needs of
local prime contractors to fulfill HUBZone requirements. I
learned that many small businesses have difficulty attaining
and/or maintaining their certification. This may be due to
redesignation of HUBZone areas, difficulty in meeting the 35%
HUBZone employee requirement, or lack of experience in running
a business, in general.
Although I already had an existing business, very few of my
nearly 30 employees who were engaged in multiyear projects
lived in a HUBZone. With Atria Technologies, there was an
opportunity to start with a clean slate, pursue and hire full
time employees that live a HUBZone, and find and mentor part
time HUBZone employees who happen to be students at the
university.
I acquired an office in a HUBZone location, hired my first
HUBZone employee who was a student at the university and
applied for HUBZone certification for Atria Technologies a few
months later. While I was pleased to find the application
process fully on line, the certification process was not much
different from what I had experienced in 2003 while pursuing 8a
certification.
During what turned out to be a full 7-month certification
process, I made several inquiries into the status of the
application. While the email correspondence with the HUBZone
helpdesk was extremely cordial and I received a prompt response
generally within a day, the helpdesk team was unable to provide
a time frame for processing my application.
For any business in the 21st Century, seven months is a
long time--as long as the life of many products. Please believe
me when I say that for a small business, a seven-month wait for
paperwork to be approved is an enternity. It is worth noting
that by the time I received certification, I had already spent
over $15,000 without a single contract.
While my other business focuses on developing software
tools to put in the hands of end users, Atria Technologies
focuses on professional services to serve government agencies
and prime contractors. Almost all federal contracts won by
large companies include a small business contracting plan that
includes 1 to 3% HUBZone certified small business requirement.
This will provide small businesses with the much needed past
performance to compete for larger opportunities while
contributing to jobs and economic development in distressed
areas.
Today, Atria Technologies is a subcontractor to a large
Prime contractor on a multi-year Air Force contract in Systems
Engineering, has 4 employees with 2 residing in a HUBZone. One
of the HUBZone employees is a full time engineer and the other
is a student who works 40 hours per month. The ability to hire
part time HUBZone employees on a 40 hour basis is one of the
regulations that I find beneficial. This not only allows the
small business to meet the requirement of the program but most
importantly provides an opportunity for the part time employees
to gain experience, build their resume, and make additional
income.
So what is the takeaway? These SBA programs are critical
for enabling small businesses to take their first steps into
serving the needs of our Federal government and as a result
contribute to growth and economic development. Specifically,
the HUBZone program helps the small business program
participants earn their track records for ``past performance''
that enable them to stand up and compete on their own for
larger opportunities while infusing further investment and jobs
in distressed areas.
But as beneficial as these programs are, there are ways
that they can be improved, primarily in the removal of ``red
tape'' and barriers to entry for small business leaders. For
example, it would be extremely valuable to provide visibility
into the application process. Existing technology can be
effectively used to streamline the approval process, and
historical data can be mined to predict the time required to
process applications based on their complexity. Moreover, once
HUBZone certified, small business owners would greatly benefit
from having a resource that can provide guidance and answer
questions about the program. I have been fortunate to find such
a resource at our local SBDC office whom I have contacted on
several occasion to clarify rules and seek guidance.
So, in summary I would like to leave you with three
thoughts:
Small business in America is an engine of
innovation that is unmatched in any other economy in
the world,
Programs like HUBZone are the essential keys
to bringing the benefits of this innovation to the
government of the American people through federal
contract awards and spurring economic development in
distressed areas,
Opportunities exist to streamline the
application and oversight process for these programs to
enable their more efficient and effective use.
It is truly an exciting time to be the leader of a small
business. We are the envy of the world, and rightly so. The
federal programs we are discussing today are vital to enabling
the bright light of small business innovation to shine on the
services provided by our government agencies.
Thank you for your time today.
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