[House Hearing, 118 Congress] [From the U.S. Government Publishing Office] UNDER THE MICROSCOPE: REVIEWING THE SBA'S SMALL BUSINESS SIZE STANDARDS ======================================================================= HEARING before the COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTEENTH CONGRESS SECOND SESSION __________ HEARING HELD FEBRUARY 6, 2024 __________ [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 118-039 Available via the GPO Website: www.govinfo.gov _______ U.S. GOVERNMENT PUBLISHING OFFICE 54-711 WASHINGTON : 2024 HOUSE COMMITTEE ON SMALL BUSINESS ROGER WILLIAMS, Texas, Chairman BLAINE LUETKEMEYER, Missouri PETE STAUBER, Minnesota DAN MEUSER, Pennsylvania BETH VAN DUYNE, Texas MARIA SALAZAR, Florida TRACEY MANN, Kansas JAKE ELLZEY, Texas MARC MOLINARO, New York MARK ALFORD, Missouri ELI CRANE, Arizona AARON BEAN, Florida WESLEY HUNT, Texas NICK LALOTA, New York CELESTE MALOY, Utah NYDIA VELAZQUEZ, New York, Ranking Member JARED GOLDEN, Maine KWEISI MFUME, Maryland DEAN PHILLIPS, Minnesota GREG LANDSMAN, Ohio MARIE GLUESENKAMP PEREZ, Washington SHRI THANEDAR, Michigan MORGAN MCGARVEY, Kentucky HILLARY SCHOLTEN, Michigan JUDY CHU, California SHARICE DAVIDS, Kansas CHRIS PAPPAS, New Hampshire Ben Johnson, Majority Staff Director Melissa Jung, Minority Staff Director C O N T E N T S OPENING STATEMENTS Hon. Roger Williams.............................................. 1 Hon. Nydia Velazquez............................................. 2 WITNESSES Mr. Jay V. Lambke, President, Government Acquisitions, Inc., Cincinnati, OH................................................. 5 Mr. Brad Moore, Chief Executive Officer, Sterling Computers, North Sioux City, SD........................................... 7 Mr. Andrew V. Christ, Chief Operating Officer, Compass Constructors, Kansas City, MO.................................. 9 Ms. Erin Allen, President, Contemporaries, Inc., Silver Spring, MD............................................................. 10 APPENDIX Prepared Statements: Mr. Jay V. Lambke, President, Government Acquisitions, Inc., Cincinnati, OH............................................. 30 Mr. Brad Moore, Chief Executive Officer, Sterling Computers, North Sioux City, SD....................................... 34 Mr. Andrew V. Christ, Chief Operating Officer, Compass Constructors, Kansas City, MO.............................. 51 Ms. Erin Allen, President, Contemporaries, Inc., Silver Spring, MD................................................. 55 Questions for the Record: None. Answers for the Record: None. Additional Material for the Record: Airport Minority Advisory Council (AMAC)..................... 60 Global Small Business Sustainability Coalition............... 63 UNDER THE MICROSCOPE: REVIEWING THE SBA'S SMALL BUSINESS SIZE STANDARDS ---------- TUESDAY, FEBRUARY 6, 2024 House of Representatives, Committee on Small Business, Washington, DC. The Committee met, pursuant to call, at 10:08 a.m., in Room 2360, Rayburn House Office Building, Hon. Roger Williams [chairman of the Committee] presiding. Present: Representatives Williams, Stauber, Meuser, Molinaro, Alford, Crane, LaLota, Maloy, Velazquez, McGarvey, Gluesenkamp Perez, Scholten, Thanedar, Davids, and Pappas. Chairman WILLIAMS. Before we get started, I want to recognize Congressman Stauber from the great state of Minnesota to lead us in the Pledge and a prayer. Mr. STAUBER. Dear Lord, thank you for this wonderful day. And thank you for this Committee, the good work they do. And I want to thank you for my colleagues on both sides of the aisle that are doing your work and trying to make this nation an even better place. And let us share our love with one another, even when we disagree. It is your commandment, Lord. In your name we pray. Amen. And join me in the Pledge. I pledge allegiance to the flag of the United States of America. And to the Republic for which it stands, one nation under God, indivisible, with liberty and justice for all. Chairman WILLIAMS. Good morning, everyone, and I want to thank all of you for being here this morning. Appreciate it. And I now call the Committee on Small Business to order. Without objection, the Chair is authorized to declare a recess of the Committee at any time. I now recognize myself for my opening statement. Welcome to today's hearing, where we will be taking a close look at how the SBA defines small businesses and the impact it has in the federal contracting marketplace. To start off, I would like to thank our witnesses for attending today's hearing. We know that you have other work you could be focusing on, and we greatly appreciate your input. Size standards were established over 70 years ago to protect small businesses by ensuring that only small business firms received SBA assistance in addition to determining eligibility for federal contracts. While size standards may seem like a topic that shouldn't garner too much attention, it is no secret to anyone here that determining what classifies as a small business is more complicated than it seems. And accurate size standards from the SBA are critical because they impact the eligibility of small businesses for contracts across the entire government, not just one specific branch or agency. At the beginning in 2010, it was decided the SBA would reassess their size standards, industry by industry, every 5 years. While there are many different opinions about whether the standards are too low or too high, one thing is abundantly clear, the SBA's size standards have a drastic impact on who can compete in the small business market. A common issue this Committee has observed is the boxing out of small businesses from the federal procurement space. Since 2010, the number of small businesses winning federal contracts has decreased by 50 percent, which is unacceptable and an issue we cannot and we must correct. Moreover, like anything in the federal government, the federal procurement space is home to fraud. Despite being faced with harsh penalties, fraudsters misrepresent themselves as small businesses to gain access to lucrative contracts. The other larger concern is a real small business losing their small status. Many agencies is a receipt-based standard, and if it is too low, it may prevent the business from fully participating because they can lose their size status due to high revenue. Generating contracts in today's dollars is all what it is. This is nothing more than punishment for a business succeeding which is antithetical to the American dream. Additionally, small businesses that lose their status are often left to compete with large firms that dominate the industry. We must ensure the SBA standards are not so rigid that they exclude thousands of small businesses. Outside of size standards, the theme of today's hearing is ensuring the small businesses are not left behind. At the end of the day, the federal government is the largest customer in the world. Our small businesses deserve to compete fairly in this lucrative market. Federal procurement is incredibly complex and any small business can get lost in it. It is the job of this Committee to give main street a voice at the table. And exactly what we are here to do today is that. I would like to once again thank our witnesses for being here with us. I look forward to today's discussion. It is my hope we can find some common ground so as we can best help our nation's small businesses during this time. And with that, I will yield to our distinguished Ranking Member from New York, Ms. Velazquez. Ms. VELAZQUEZ. Sorry, I was at the financial services hearing but I am here now. Thank you. Thank you, Mr. Chairman, and thank you to our witnesses for traveling here today. The demands on a small business owner's time are already immense. I appreciate that you are using some of your time to help this committee address these important issues. How the Small Business Administration defines ``small'' can have an enormous impact on the success of an individual small business, as well as the collective success of small businesses across the country. This hearing gives us an opportunity to better understand the standards, their application for government contractors, the environments that they create, and the challenges for small businesses who approach or exceed their industry's standard. Right sizing the size standard is critical to ensure fairness, promote competition, and encourage small businesses to enter and remain in the industrial base. The federal government needs to both recruit and retain small businesses like those on our panel. Yet both tasks are becoming increasingly challenging. Fewer small businesses are signing up to work with the government, and many more are exiting the market sooner than expected. This is increasingly prominent in the small business market. The government has roughly 40 percent fewer small businesses in its ecosystem than it did a decade ago, and it has always been a challenge in the mid-tier. A GAO report I requested in 2019 found that most small businesses do not successfully graduate. Only 2.5 percent of former small businesses receive contracts as mid-tier companies nine years later. This Committee has regularly reviewed the size standards and tried to ensure that companies that want to grow can. We have at times provided additional runway to do it, to give small businesses additional time to build their capacity, portfolio, and workforce for long-term success. Yet changes to small size standards and policies can be a double-edged sword if not done correctly. We do not want to disincentivize or punish growth, but must also carefully ensure we do not prematurely push small businesses into a market where they cannot compete. The stability of contracting with the federal government provides smaller businesses with the opportunity to plan, grow, and hire at a pace that is appropriate for them. It is important to ensure any changes to government policies account for the impact on all small businesses. As we will hear today, the federal government imposes unique and complex requirements on government contractors. These rules impact small business structure, cash flow, and workforce, as well as strategic decisions about size growth and ultimately whether to continue to participate in the federal marketplace. I look forward to hearing from the panel on past performance requirements, subcontracting processes, and bundling policies that will help improve the environment for small business government contractors. I again thank all of the witnesses for joining us today. I yield back. Chairman WILLIAMS. Yields back. And I now will introduce our witnesses. Our first witness here with us today is Mr. Jay Lambke. Mr. Lambke is the president of Government Acquisitions, Incorporated, located in Cincinnati, Ohio. At Government Acquisitions, Mr. Lambke is responsible for leveraging his over 20 years of experience leading the organization specialized in the IT needs of governments to guide the company through its ongoing needs. Prior to joining Acquisitions, Mr. Lampke was president of the Prism Pointe Technologies as well as GovConnection, where he was responsible for turning around the company following the loss of their federal GSA schedule and negative earnings. He has also held executive roles at Gateway, Ingram Micro, and Tech Data. Mr. Lambke attended Central State University for 2 years, where he studied business management before dropping out to help his parents save their business. Despite being unsuccessful in that, he managed to grow quickly through the ranks of larger companies thanks to the entrepreneurial thinking and strict business discipline. Thank you for joining us today. We look forward to the conversation ahead. Our next witness here with us today is Mr. Brad Moore. Mr. Moore is the CEO of Sterling Computers, located in North Sioux City, South Dakota. I have been there. It is cold. Founded by Mr. Moore's cousin in 1996, Mr. Moore joined Sterling Companies in 2004, after over a decade at his previous job, where he served as vice president of sales. From early on, Sterling Companies focused on contracting with the federal government because they knew the government would always pay when the work was done. Now, government entities from the three letter agencies down to local governments make up the majority of the company's business. Federal government contracts alone represent 75 percent of their business. Sterling Companies now has nearly 300 employees, with over half of them working locally in North Sioux City. Mr. Moore attended Dana College where he earned his Bachelor of Arts in business marketing. Thank you for joining us today. We look forward to speaking with you. Our next witness who is here with us today is Mr. Andrew Christ. Mr. Christ is COO of Compass Constructors located in Kansas City, Missouri. Prior to joining Compass Constructors in September of 2020, Mr. Christ worked for two large general contracting and roofing firms where he worked as a project manager and field superintendent. Mr. Chris has extensive experience with the U.S. Army Corps of Engineers and National Guard, including as a Member of the leadership team which oversaw construction of over $350 million in new barracks buildings at Fort Riley. He also is the president of the American Subcontractor Association of Greater Kansas City and is also a Member of the Executive Committee of the National Organization of the American Subcontractors Association. Mr. Christ attended Kansas State University, home of the Wildcats, where he earned his Bachelor of Science in construction science and management. Thank you for joining us today. We look forward to conversing with you. And I now recognize the Ranking Member from New York, Ms. Velazquez, to briefly introduce our last witness appearing before us today. Ms. VELAZQUEZ. Thank you, Mr. Chairman. It is my pleasure to introduce Ms. Erin Allen, the President of Contemporaries, a Maryland-based company providing human capital solutions for federal agencies focused on public health. Ms. Allen has grown her women-owned and family-run company since taking over for her parents, who started the company in 1991. Under her leadership, Contemporaries, Inc. has consistently served as the largest provider of staffing services to the National Institute of Health under their small business program and grown to become one of the most successful staffing suppliers to the Department of Health and Human Services. They are also ranked as one of the top 10 vendors in their respective GSA schedule and have been recognized as one of the top 100 small businesses of the year by the state of Maryland. She co-chairs the Small Business Committee for the Montgomery Chamber of Commerce and volunteers with the Women President's Educational Organization. Thank you for participating today, Ms. Allen. We look forward to your testimony. Chairman WILLIAMS. Thank you, Ranking Member. And we appreciate again all of you being here today. So before recognizing the witnesses, I want to remind them that their oral testimony is restricted to 5 minutes in length. That is a big number here, 5 minutes. Okay? If you see the light turn red in front of you, it means your 5 minutes have concluded and you should wrap up your testimony. If you try to go over, you will hear me do this. That means shut it down. Okay? And so with that being said, I now recognize Mr. Lambke for 5-minute opening remarks. STATEMENTS OF JAY V. LAMBKE, PRESIDENT, GOVERNMENT ACQUISITIONS, INC.; BRAD MOORE, CHIEF EXECUTIVE OFFICER, STERLING COMPUTERS; ANDREW V. CHRIST, CHIEF OPERATING OFFICER, COMPASS CONSTRUCTORS; AND ERIN ALLEN, PRESIDENT, CONTEMPORARIES, INC. STATEMENT OF JAY LAMBKE, PRESIDENT, GOVERNMENT ACQUISITIONS, INC. Mr. LAMBKE. Thank you. Chairman Williams, Ranking Member Velazquez, and Members of the Committee, it is an honor to appear before you today on behalf of my firm, Government Acquisitions. Most people call us GAI. My name is Jay Lambke. I am the president of GAI. We are a HUBZone-certified small business that has been providing the government with IT services and solutions for over 30 years. GAI is a Member of GovEvolve, an advocacy organization for small and midsized businesses that promote public policies encouraging innovation and competitiveness in the IT industry. At GAI, we have built a special company. And I don't just say that as the president. I say that because I believe we embody everything that is great about American small businesses. Our success is the result of deliberately building a strong family culture full of people who are heavily involved in supporting their local communities. We also all share a powerful commitment to serving the most important customer on planet Earth, and that is the U.S. federal government. We understand the unique needs of each of our federal customers, and we work to leverage best of breed technologies, such as AI, robotic process automation, and cybersecurity, to better enable them to deliver their mission. My personal aspiration is to build this company into the best the industry has ever seen. Now, over the course of my years at GAI, I have seen how acquisition policies shape the environment for small businesses in both positive and negative ways. GAI has experienced great success as a federal IT value-added reseller, or VAR, but we have also faced continual challenges regarding size standards for the industry. So let me set the stage for the enormous shift that has happened in government purchasing of technology over the past two decades, which is when our current NAICS code was put in place. Twenty years ago, an ITVAR sale to the federal government was basically buy a box, sell a box. It was not a very complicated business, required far fewer employees than it does today. And the business is so much--and today the business is so much more complex, requires far more people and cost. And I will try to demonstrate. Nearly everything we do for our customers as a small business innovator involves providing complex solutions that require numerous hardware and software technologies that have to be integrated together. This requires large numbers of very specific engineering resources. Twenty years ago, we did not have teams of people who had to go onsite to deploy these systems. Today, we employ large teams of people who go onsite, install the solution, integrate it with customers' existing systems, and then remain onsite, often for many years to continue development inside of those systems. Twenty years ago, the contracting environment was also very different. There were far fewer contracts to bid on and the bids were fairly straightforward. Today, our proposal efforts are often extremely large and very complex and require a significant proposal staff in order to be successful. Also, the contract opportunities in the industry today are regularly for 5 or 10 years. So if you don't win a slot on one of those contracts, you are probably not doing business with that agency for many years. Because each contract these days are so long, they are that much more important for companies like ours, which has led to an incredible increase in protests. This causes delays in contracts for many years. All of this to say, the stakes today are much higher. The contracting complexities I described create the need for more government contracting professionals on our staff, including lawyers, technical writers, and subject matter experts. Not only does this add significant expense to the business, but it also adds a number of employees, which is the significant challenge in a headcount-based NAICS code. To protect against the ever present cyber threats and ensure secure supply chains, federal contractors are required to comply with a number of ongoing specific requirements. While we believe these are great moves from the government and it is doing the right thing to protect the defense industrial base, these requirements and certifications, like others, also add significant cost, complexity, and people to the business. The method of calculating whether a small business is small you would think would be pretty straightforward in our industry, but it is not. For IT resellers there is only one NAICS code that easily fits all the products and services we provide. Often a contract for IT-related acquisition involves both products and service. Checking my time. For each contract, the contracting officer can only assign a single classification code for the component that accounts for the greatest percentage of the contract value. Recognizing traditional rules and regulations cannot properly be applied to ITVAR procurements; the federal agencies seek numerous workarounds. The rules have not adapted to the quickly changing technology related procurements, and ultimately this piecemeal approach is failing. It is time for the system to change. If the federal government intends to continue to leverage innovative and cutting-edge technologies, which it must, the size standards and corresponding NAICS codes must be modernized to address small ITVARs. I greatly appreciate you holding the hearing today, and its focus on critical component of determining success in selling to the federal government. Thank you again for having me. I am happy to answer any questions. Chairman WILLIAMS. Let the record show you talked for 5 minutes. Mr. LAMBKE. Exactly, right? Yes. Chairman WILLIAMS. Let me inject one thing, too. You are going to see some of my colleagues on both sides of the aisle move in, move out. It is because we have other hearings we will go to and no reflection on this. Now I recognize Mr. Moore for his 5-minute remarks. STATEMENT OF BRAD MOORE, CEO, STERLING COMPUTERS Mr. MOORE. Chairman Williams, Ranking Member Velazquez, and esteemed Members of the Committee, thank you for your opportunity to testify--my opportunity to testify before you today. My name is Brad Moore and I am the CEO of Sterling Computers Corporation, an information technology value-added reseller also known as an ITVAR. As a family owned and operated company headquartered in North Sioux City, South Dakota, we serve an intermediary between our customers and the wide-ranging manufacturers of IT hardware, software, and services, the largest of whom are Dell, Cisco, and Microsoft. We serve as a reliable, nimble, and secure partner for our government customers in their quest for operational excellence through the use of modern technology. My aim today is to present testimony regarding a select issue within the ITVAR industry, namely around the 541519 size standard, and to propose the adoption of a new NAICS code, one specific to ITVARs, allowing for a new size standard of 500 employees. Twenty years ago, when the SBA first established the industry standard of 150 employees for ITVARs, the IT landscape was vastly different than it is today. Our industry has, of course, evolved, some might say exploded, in the years since. Alongside such an evolution has come an increase in the breadth and complexity of the compliance burdens placed upon ITVARs, including the enhanced focus on supply chain risk management, ISO certifications, and the cybersecurity maturity model certification. To meet those requirements, ITVARs must now hire specialist employees who can effectively manage the growing slate of compliance obligations. For example, today Sterling employs 35 individuals who are dedicated solely to government program management and compliance, and another 130 other individuals who hold over 400-plus required certifications from the technology manufacturers we represent. It quickly becomes evident that the allocated 150 employees is an insufficient headcount when stacked against the complex demands of the federal government. As such, there is currently a trend of consolidation in our industry. It is common for ITVARs, once they have exceeded 150 employees, to sell their business, typically to large companies or private equity firms, thus eroding the supplier base of highly qualified and experienced VARs who have so valuably serviced the government. Why? Because to go from successfully competing as a small business to suddenly going up against companies with tens of thousands of employees is an improbable endeavor. The number of small businesses receiving government awards has steadily decreased from 121,000 companies in 2010 to less than half that number in 2022. This is an indication, in part, that the complexity of government contracting and compliance is making the barrier to entry much more difficult than it was 10 to 15 years ago. Furthermore, 541519 is at its core of services code, which means ITVARs are lumped into the same designation as IT services companies, even though the two business types are vastly different, with dramatically varying solutions and employee headcount needs. It is a square peg for a round hole. Compounding the issue is the fact that ITVARs often don't charge separately for their value-added services, meaning the build services generally do not account for 15 percent of the total contract price, a threshold outlined by code 541519. We estimate as few as 2 to 5 percent of ITVARs are able to achieve this benchmark. While there are a number of possible solutions, I believe the most sensible to be the creation of a new NAICS code, one that accurately captures the core competency of ITVARs and includes the introduction of an appropriate SBA size standard of 500 employees, thus eliminating the exception under code 541519, at footnote 18, assigning a new, applicable and more appropriate code will solve the aforementioned issue. It will also increase small business participation, enhance supplier qualifications, and benefit federal government customers through more competitive pricing. Once again, I appreciate the opportunity to speak to you today, and I am grateful for the Committee's thoughtful consideration. And I look forward to answering any questions today or in the future. Thank you. Chairman WILLIAMS. Thank you, Mr. Moore. And I now recognize Mr. Christ for his 5-minute opening remarks. STATEMENT OF ANDREW CHRIST, COO, COMPASS CONSTRUCTORS Mr. CHRIST. Chair Williams, Ranking Member Velazquez, Members of the Committee, thank you again for the opportunity to testify in front of you today. My topics are going to include federal government requirements for past performance and qualifications, the use of payment and performance bonds, the impact of continuing resolutions on small business, and the bundling of contracts into MATOCs and SATOCs, which are multiple award task order contracts and single award task order contracts. My name is Andrew Christ. I, along with my business partner, Mr. Allan Arias, operate Compass Constructors. We are a small construction business located in Kansas City, Missouri, that delivers high-quality and efficient construction projects to the federal government. A lot of our current clients are the Corps of Engineers, the Air Force Civil Engineering Center, the Naval Facilities Engineering Systems Command, or NAVFAC, and GSA. I am testifying not only as the COO of Compass Constructors, but also as an Executive Board Member for the American Subcontractors Association. We are an association of trade and suppliers that represent over 3,800 individuals since 1966. Compass Constructors views the strict requirement for past performance and qualifications as the largest hurdle for small businesses to enter the federal market. We have witnessed unfair competition toward private contractors who are outside of the federal construction space that have similar past performance not receive a similarly favorable rating for federal government. This makes it extremely difficult for a new contractor to enter into the market. Through this experience, we have learned the value of the myriad of SBA resources offered to small businesses to operate within the federal government's contracting system. federal contracts require often a detailed management plan. They offer specific project staffing and qualifications of key members of the execution team, and if the company does not have these individuals or qualifications, it forces them to enter into the market for additional employees with federal construction experience. This can be a significant and very cost-prohibitive barrier of entry into the federal market. All federal projects, all federal projects, are mandated to have payment and performance bonds. These must be in place in order for a contract to be executed as required by the Federal Miller Act. The surety, they are going to evaluate many factors when determining whether or not to issue a guarantee to the obligee. This often includes operating capital, income statements, cash flow, debts, work in progress. You'll see that there are many parallels to the considerations that a surety recognizes versus what the federal government is evaluating from a performance and financial standpoint. We purport that the rigorous evaluation that the surety performs is far greater than what the government is going to evaluate in a small business' solicitation response. So we would recommend that less emphasis be placed on documented past government performance and more emphasis placed on whether or not the contractor can perform a bid, payment, or performance bond. ASA supports House Bill 1740. It is bipartisan legislation authored by Representatives Bost and Pappas that would ensure these bonding protections are applied to water infrastructure projects where federal funds are being allocated to government contracts. The instability caused by continuing resolutions also make it difficult for federal agencies to have certainty on funding for projects. There are many times that we put together solicitation responses, submit them, only to find out that the funds are no longer available. We put together these large proposals that can be tens of thousands of dollars. That is cash right out of our pocket. And then all of a sudden, due to a continuing resolution, the money is gone. The project no longer executes. My final concern is bundling of contracts into MATOCs and SATOCs. This can be where a 5- to 10-year project that they are going to award to four to five contractors. Now, again, the emphasis on past performance is often scrutinized. And if those small businesses don't have that, they are not going to be allowed to be a part of those MATOCs and SATOCs, which can be 5 to 10 years. I would like to conclude my testimony by recognizing Representatives Stauber and Scholten, both Members of this Committee, for their leadership as co-chairs of the Construction Procurement Caucus. Again, I thank everyone at this Committee. Chair Williams, Ranking Member Velazquez, I will now take any questions. Thank you. Chairman WILLIAMS. Thank you very much. I now recognize Ms. Allen for her opening remarks. STATEMENT OF ERIN ALLEN, PRESIDENT, CONTEMPORARIES, INC. Ms. ALLEN. Thank you. Thank you, Chairman Williams and Ranking Member Velazquez and Members of the Committee. Thank you for the opportunity to testify today. My name is Erin Allen. I am the president of Contemporaries. We are an SBA-certified woman-owned small business located in Silver Spring, Maryland. I also serve as the Chair of the Montgomery County Chamber of Commerce, where I am proud to represent the many businesses that make up our robust Maryland economy. As a Member of the Women's Procurement Circle, which is a group that advocates for policies that strengthen women-owned businesses that do business with the federal government, I appreciate the Committee's focus on the topic of size standards and pathways to growth for small businesses. This issue is one that has become increasingly relevant to my company as we have grown significantly over the last several years. So I am a second-generation business owner. My parents started a company back in '91 when they cashed in their retirement and took out a home equity line of credit and started the business. As a family, we have worked really hard to grow our business, bootstrapping every piece of it. And now we find ourselves teetering on the edge of our small business size standard, which puts our business in a very difficult position. I only see really two options. One is that we sell off part of our business or we find a small business to team with, but teaming means giving away 49 percent of our business that we have worked so hard for. By every measure, we are still a small business and only have 95 employees. Now, that might seem like a large for a local mom-and-pop, but in my industry, that is still teensy. If we lose our small business status, I anticipate we will have to lay off about 30 percent of our employees. And while some might get picked up by another contracting firm, others may not. Our size standard is revenue-based. And however, revenue is not really an indicator of present competitiveness, but really one of future competitiveness. A challenge in the federal market is that size standards vary widely across the different NAICS codes. We primarily win contracts under a code with $12.5 million size standard, but there is other NAICS codes in my industry that have a $34 million size standard. So this wide disparity means that I can be a small business in one and large in another, doing exactly the same work. So bigger small businesses that are about to graduate from the set-aside world need time to build their infrastructure to compete against the mammoth companies that are in there. A firm like mine simply cannot compete with large federal contractors overnight. Government contractors experience a unique pattern in their growth, which is causing an industry-wide midsized business crisis. This pattern of sudden growth is increasingly common because the government's frequent use of large contract vehicles due to contract management. The SBA program that I have been able to utilize is the WOSB program. It allows agencies to set aside contracts exclusively for small women-owned businesses. The government has the goal of awarding just 5 percent of all prime contracts to WOSBs, and yet since 2011, they have only met that goal twice. Agencies are authorized to sole source contracts to WOSBs. However, these awards are few and far between. And as I teeter on the edge of sizing out of being small, increased effectiveness of this program would really, really help. It would enable me to secure contracts faster, thus allowing me to be in a better position to make the transition into the full and open marketplace. So SBA is required to review all size standards every 5 years. I feel like the SBA should look at industries more holistically and seek engagement through live forums with businesses. This increased engagement would give the agency a more accurate picture of how federal buying is really impacting small businesses in the market, rather than just using a formula to determine the size. While there are many policies that contribute to small business success, there are also many, many areas where the federal government really could improve. I don't pretend to have all the answers to this problem. All I know is that I cannot compete with large contractors like Booz Allen. I am way too young to retire and way, way too old to start over. Adjusting the size standards isn't about maintaining my business. It is about helping my employees earn a sustainable living in the middle class. I appreciate the Committee's continued efforts to support small businesses, and I am so grateful for the opportunity to share my experience today and thank you. And I look forward to answering any questions. Chairman WILLIAMS. Thank you, Ms. Allen. And now we recognize myself for 5 minutes. Mr. Lambke, small businesses are disproportionately affected by the government's increased compliance burdens. We have talked about that. The staffing costs alone to navigate tens of thousands of pages of regulations, in addition to abiding by contract rules, can be extremely difficult and expensive. In some industries, compliance officers end up being a built-in cost to doing business. So my question is, can you discuss how compliance requirements and navigating red tape can impose a burden on your business? Mr. LAMBKE. Happy to. Thank you. Compliance for us comes in many forms. One of the most recent ones is the CMMC, the cyber maturity model certification, which I referenced in my opening remarks, which we, the industry, believe is the right thing to do. The threat has never been higher at the defense industrial base. We are obviously being attacked daily. And so it is really important that we have the right infrastructure and protections in place from a cyber standpoint and for our cleared personnel and so forth. The challenge is that--so I will give you an example on our side. My IT staff has gone from a few people 3 or 4 years ago to a small army today. And the cost and complexity and that headcount is going to increase as CMMC actually starts to take place. Right? So we are in a ramping phase. It hasn't been fully implemented. So great requirement, but adds people and complexity to the business. That is just one. We have ISO certifications. We have all of those. And then there is the certifications that go with many of the bids will come out with requirements for, Brad mentioned Dell and Cisco, and those manufacturing partners that we have, many of the bids will come out and say you have to have this many certified engineers at this level to bid on this contract and so forth. And if you are in a certain size standard, there is just no way you can have those numbers of certified engineers on staff. Thank you. Chairman WILLIAMS. This is a sunk cost that could be better spent elsewhere in their operations. I am concerned that for small businesses in the contracting space, the effect of additional compliance officer is even worse. So not only does it add a cost to business, but also takes away a spot in the business size standards metric that puts them on one more employee away from not being able to compete for small business set-aside contracts. So I am going to just go down the line and ask each one of you this, starting with Mr. Lambke. Do you see initial reactions to an idea that is this, do you think we should exempt compliance officers from a business employee count when the SBA examines their size? Mr. LAMBKE. That would be wonderful. Chairman WILLIAMS. Okay. Mr. Moore? Mr. MOORE. Yes, that would be great, but compliance is going to be a lot more than one person. It is going to be dozens of people. Chairman WILLIAMS. Thank you. Mr. Christ? Mr. CHRIST. Yes, I agree. I believe the definition of compliance officer will be something that could be scrutinized and would offer up that a clear definition is present. Chairman WILLIAMS. Okay. Ms. ALLEN. For my business it wouldn't really make a big impact because we are not really in the IT space. We don't have a lot of--other than, though, the normal reporting that we have to do, you know, or outsource to maybe an attorney or a CPA, and some of my staff will sort of share the roles and responsibilities for that. But I would agree with Andrew that there might be some complications in what is the definition of a compliance officer? Because you could say, really, that all of my headquarters staff are in some way involved in headquarters--or in compliance. So then you get into, like, well, what percentage of the time are they doing compliance? And so that would be the challenge. Chairman WILLIAMS. That is if we make it hard on you. We want to make it easy on you. All right. Real quick, from time I have remaining. Mr. Moore, well, your firm is less than 500 employees. The SBA size decisions determined that you are not a small business. For any small business owner, you never want to cap your success. If business is booming, you want to capitalize on it as much as possible and not think about how growth could negatively affect your business. So getting big and growing is good? Mr. MOORE. Yes. Chairman WILLIAMS. So, can you discuss quickly the challenges that you face when your business outgrew the SBA small size standards? And do you feel that the SBA size standards accurately reflect your industry's needs? Mr. MOORE. Thank you. So the size standard in our industry is 150 employees. So once you are at 151, you become large and you are competing against IBM and Dell and everyone else with 10,000 employees. You know, there are very few businesses in our industry between 151 and 500 employees. And you do the best you can to compete, but, in actuality, 60 percent to 70 percent of the opportunities that you were once working on are no longer available. Chairman WILLIAMS. Thank you very much. My time is up. I now recognize the Ranking Member for 5 minutes for questions. Ms. VELAZQUEZ. Thank you, Mr. Chairman. Ms. Allen, you state that you have teetered on the edge of graduation a number of times, and it appears largely due to factors that are outside of your control. What would the appropriate size standard policy be that would bring you and other small businesses sufficient predictability and allow you to plan and grow if you choose? Ms. ALLEN. That is a complex question. So it depends. I know in my industry, you know, as I mentioned in my testimony, that there are several different NAICS codes that we could use. One is teensy, $12.5 million, but another one is $34 million, which, you know, for the work that I am doing in support services, is maybe reasonable. But if I were doing, you know, some of the work that these guys are doing in the IT space, those salary ranges are crazy high. And so it is sort of like--it is almost like if you look at a car dealer, like, are you large because you have sold, you know, $10 million worth of cars? Well, what if you are selling a Ford versus if you are selling Lamborghinis? Right. What is your profit margin in those, right? So it becomes a complex question in that and how do you work that out. Yeah. Ms. VELAZQUEZ. Thank you. In your testimony, you highlight that a more effective WOSB program would have put you in a better position to make the transition from small to midsized. Do you think that contracting officers understand how to use the existing authorities to maximize awards through WOSB? Ms. ALLEN. Not even kind of. When I am talking to a lot of my clients, I am having to educate them on the WOSB program. A lot of them don't understand it, haven't been educated on how to utilize it. And those that have been educated, you know, it is more cumbersome than some of the other programs, so it makes it harder for them to utilize. Ms. VELAZQUEZ. Do you think that if we require federal agencies to only count certified WOSB toward their small business goal, more contracting officers might be compelled to learn how to use the authorities? Ms. ALLEN. For sure, yeah. Yeah. Ms. VELAZQUEZ. Mr. Christ, you write that continuing resolutions can cause instability. How damaging are CRs or government shutdowns? Mr. CHRIST. They are extremely damaging. Thank you for the question, first of all. And the challenge is, you know, keeping projects in the pipeline, keeping consistent revenue. We live every day off of that revenue. That is how we pay our employees. And if we get into a scenario where the faucets all of a sudden shut down, and we have been providing a lot of front end work, whether it be design or whether it be budgetary estimates, we are out that money and we can't recoup it. And so that is really the damage, is that we need to have that consistency in the revenue and allowing the contracts to be executed. Ms. VELAZQUEZ. You cite a loss of $10,000 per proposal based on instability. Does the government reimburse you? Mr. CHRIST. No, ma'am. Ms. VELAZQUEZ. Does the agency have to tell you anything about why it canceled the solicitation if the work is moved or if there are similar opportunities for which you might be qualified? Mr. CHRIST. No, ma'am. Ms. VELAZQUEZ. Ms. Allen, the Rule of Two has been critical to leveling the playing field for small businesses. Will you elaborate on the changes you mentioned in your written testimony and how they will impact small businesses? Ms. ALLEN. Yeah. So the Rule of Two currently only applies to a very small percentage of the acquisitions that are happening in the world in the federal space. If that Rule of Two was expanded to, you know, things well above the simplified acquisitions, of which small businesses are able to compete in and are qualified for, it would really open so many doors and really be a game-changer. Ms. VELAZQUEZ. Thank you. I yield back. Chairman WILLIAMS. Yields back. I now recognize Representative Stauber from the great state of Minnesota for 5 minutes. Mr. STAUBER. Thank you very much, Mr. Chair. And Ms. Allen, between a Lamborghini and a Ford, I will take the Ford pickup all day long in northern Minnesota. Minnesota's and this country's small businesses are powerhouses of innovation and resilience. They create jobs, fuel our local economy, and contribute to the unique character of our states and nation. Yet when it comes to federal contracting, their potential is often stifled by a complicated process that favors large corporations with the vast resources. Mr. Christ, as you mentioned in your testimony, there are concerns with how small businesses are paid following change orders or modifications to the original contract. How do these changes affect your businesses differently than a large business? Mr. CHRIST. Thank you for that question. You know, as far as change order work goes, oftentimes the change order is executed by the contracting official. Contractually, we have to then begin on that work. We don't necessarily sit there and have to say, oh, here is upfront costs to go ahead and cover all the work that you have done and completed to date. A lot of times those change orders and contract modifications, they can take many, many months to go through. Mr. STAUBER. Do you hold the monies, then? Mr. CHRIST. We do, yes, sir. Yes, sir. Mr. STAUBER. What does that cost you? Mr. CHRIST. We are working on one right now that we have got probably $250,000 that we are holding. We have expended the monies, but we have no contract vehicle to actually bill for the funding. Mr. STAUBER. Well, we are working on that. Mr. CHRIST. Thank you. Mr. STAUBER. You know, the various issues that you have highlighted encapsulate why I introduced the Small Business Payment for Performance Act, and you are well aware of that. This legislation is not just about protecting individual businesses. It is about safeguarding the future of our infrastructure and our small businesses. When small contractors go bankrupt, the impact is far- reaching. Projects stall, skilled workers leave the industry, and the very foundation of our nation suffers. Similarly, when small businesses outgrow their small status and are recategorized as a large business, they are forced to compete with big corporations, sometimes with a disproportionate gap in total employees. Mr. Moore, having experienced the transition after outgrowing your small business status, could you elaborate on some of the difficulties and regulations you have seen since your transition? Mr. MOORE. You know, the majority of the difficulties are you work at a lot lower margin than the large businesses. We are in a very low-margin business. And with the increased government regulations, that takes a bigger percentage of your net profit, which makes it harder to really scale and hire your employees. So you are caught in this no man's land of you are not small, but yet you are not big, you are not able to compete. So the size standards and the regulations are very impactful on U.S. midsized businesses. Mr. STAUBER. You know, some businesses view their status changes as the government penalizes them for growth. Would there have been a benefit to your company to restrict growth and remain classified as a small business, Mr. Moore? Mr. MOORE. Yes, for sure. It would have helped us stay more profitable. But we just felt like to our employees, we couldn't tell them to now forevermore be stagnant. So we broke through the barrier. But there is definitely--that line in the sand of that small business size standard is definitely motivation not to grow your business. Mr. STAUBER. Right, right. In 2019, the House passed my bill clarifying the Small Business Runway Extension Act. The SBA utilizes a 3-year average of gross receipts to determine whether a company should be classified as small and considered for SBA benefits. The Small Business Runway Extension Act extended the 3-year average to the 5 years. And thankfully, the SBA took it upon themselves to do the right thing, and they did not need further congressional action. However, as many of you mentioned is clear, we need to really foster an environment of growth, and, you know, I look forward to this Committee doing just that. Mr. Christ, I have to say that you, as a business, you are holding a quarter of a million dollars because a change order that the federal government forced upon you, it is almost like you have got to do that. I don't know how many businesses across this nation that would have the capability to do that, and it is simply just wrong. And thank you for your testimony, all of you. And I yield back, Mr. Chair. Chairman WILLIAMS. The gentleman yields back. I now recognize Representative McGarvey from the great state of Kentucky for 5 minutes. Mr. MCGARVEY. Thank you, Mr. Chairman. And I am fond of saying on this Committee, small businesses do big things, and the work you all do is so important. But what is a small business? Small businesses come in all different shapes and sizes. And so what we are trying to do on this Committee is give all these different entrepreneurs the support to start businesses and the tools that they need to help them grow. That is what we want to have with our small businesses. So I am glad to have the opportunity to discuss these size standards today with this panel. I can tell you I have heard from people in my district on this very issue who just grow frustrated. They are trying to do a good job with their business. What happens when they are dealing with these standards from the SBA, and how can we make it better? We know the current structure of small business contracting programs, while necessary to ensure entities can compete for appropriate federal contracts, can sometimes be discouraging, especially for the more advanced small businesses that are ready to grow to that medium size or maybe a little beyond. So these concerns stem from the fact that surpassing their size standard will lead to a loss of eligibility for set-aside contracts, increase compliance obligations, and direct competition against billion-dollar companies. So, given these realities, not enough companies successfully make that transition from small, again, whatever that means, to other than small business status. The Department of Defense has referred to this as the ``Valley of Death'' for small firms that want to grow. According to a 2019 GAO report, over 93 percent of businesses that received only set-aside contracts in fiscal year 2008 and were still federal contractors by year 2017 remained small. Only about 2-1/2 percent of those businesses managed to graduate to midsize by fiscal year 2017. So, Ms. Allen, I will start with you. You mentioned that your company teeters on this edge of small to medium-sized business standard. Are there adjustments to the size standard rules or methodology that would ease the transition for small businesses like yours that are ready to move away from that kind of smallish business standard? Ms. ALLEN. Yeah, you know, the Runway Act was a really great start, so thank you for that. There are several things. I think, making the size standard more consistent in the industry, in my industry in particular, because there are multiple NAICS codes that I could operate under, and it really varies wildly. But additionally, the number just needs to be higher across the board. I think that, you know, as these gentlemen have pointed out, you can't go from 500, even 150 employees to 10,000 employees overnight. And that is what it takes to really be competitive. And so the numbers, whether it be dollars or people, that number just needs to be increased. Mr. MCGARVEY. Is it possible to incentivize growth given the current framework? Ms. ALLEN. No, it is completely not incentivizing growth. It is doing completely the opposite of figuring out how do I, you know, operate in this really limiting environment. Mr. MCGARVEY. Got it. Mr. Moore, I am going to come to you with the next question. Before I do that, though, I do just want to say to Mr. Christ, I married a Missouri girl and have a 12-year-old daughter, so there is some interest in the Super Bowl this upcoming weekend. Mr. CHRIST. I may be wearing my Patrick Mahomes socks. Mr. MCGARVEY. There we go. I figured that might be the case. Mr. Moore, in your testimony, you spoke to the challenges your company faced when you began to outgrow the small size category under that definition. Do you feel that an off ramp program dedicated to making the transition out of small business, again, as it is defined, making that less burdensome and daunting could have helped your business? Mr. MOORE. Definitely. Mr. MCGARVEY. You know what? My grandpa said, don't sell past the close, so definitely is the answer. Mr. Chairman, I yield back. Chairman WILLIAMS. The gentleman yields back. I now recognize Representative Alford from the great state of Missouri for 5 minutes. Mr. ALFORD. Thank you, Mr. Chair. Good to have everyone here today, especially Mr. Christ from Kansas City. I tell you what, it is an honor to be on this Committee working to really help the fabric of America. As a former small business owner in the Kansas City region, I understand some of the hurdles, nowhere near the size of your business or some of the issues you are dealing know. You know, we are here to help champion Main Street America under the direction of our Chairman Williams, to lower the barriers to creating small businesses, and to support small businesses that already exist. However, we know that federal procurement is incredibly complex, leading to massive compliance costs, as you guys have spelled out here, can prevent small businesses from even trying to compete for bigger contracts. And beyond the burdensome compliance cost, out-of- date SBA size standards and agency decisions can also leave small businesses behind. While small businesses are supposed to have unique contracting opportunities, agency decisions can prohibit qualified small businesses. I want to get right into the questions here. I want to start with you, Mr. Moore. Since 2010, the number of small businesses winning federal contracts has dropped by 50 percent. That is a stark decline, and I think it can be attributed to several factors, including the sizing standards. The great thing about it, I hear from both sides of the aisle here, these standards are out of date. We need change on page 15 and 16. By the way, your testimony is unbelievable. I encourage everyone to read it very thorough. On 15 and 16, you offer some solutions. Run through those real quick, just thumbnail solutions for us, please. Mr. MOORE. I don't have that in front of me, but the solution has got to be either a ramp off or several things that we have talked about, getting credit for certain compliance people. But I think really an increased size standard, if we have gone from half--121,000 down to less than half that, small businesses, something is not working. You know, the businesses are going out of business, and the small businesses are not surviving long term. So there is got to be some sort of change in the NAICS codes, the size standards, or there is got to be an off ramp. Mr. ALFORD. So I am trying to wrap my head around this. What would be the opposition to this? What do you think? Mr. MOORE. If you go ask very small businesses, they are all against expanding the size standards, and I think they are the loudest. And there hasn't been detailed industry studies around some of these NAICS codes. Mr. ALFORD. Thank you. Mr. Christ from Kansas City, congratulations on becoming the National Vice President for the American Subcontractors Association. Mr. CHRIST. Thank you. Mr. ALFORD. Great work in our region. In your testimony, you talked about how strict requirements for past performance and qualifications are the largest hurdle for small businesses to enter the federal construction market. What are some of your recommendations? How do we fix this? Mr. CHRIST. So, in our industry, small business is classified based off of a revenue basis. We are one of those very small businesses. And our concern with raising the small business threshold is that it creates a glass ceiling still. Right now that is one of the issues that we see, is that there is a glass ceiling and no transition period. If there was a transition period outside of the small business designation, we feel that that would be successful. If you just raise the size standards, all you have done is raise that glass ceiling. People want to get right up to it, but they never want to make that jump, because the jump from small business to open competition is so drastic that you are going to get smothered. And that is why only 2-1/2 percent of businesses that graduate small business don't go on to get another contract. You know, it is insane. We are playing with the thousand-pound gorilla at that point, and we can't compete. Mr. ALFORD. All right. Real quick. Mr. CHRIST. Yes, sir. Mr. ALFORD. We got about a minute left. I know you do private projects as well as federally funded. If you build a private project in the Kansas City region, it is X dollars. If you are building pretty much the same project on the federal level, what is the added cost for that, for compliance and other factors? Mr. CHRIST. You know, on average, it is probably about 25 percent to 30 percent. Mr. ALFORD. More? Mr. CHRIST. Yes. Mr. ALFORD. Plus 30 percent? Mr. CHRIST. Yes, sir. Mr. ALFORD. That is incredible. Mr. CHRIST. Yes, sir. Mr. ALFORD. Because the taxpayers are paying for that. Mr. CHRIST. Yes, sir. However, on that, they do have a proven three-phase quality control program that, I can attest, does work. Right now, the Corps of Engineers and their quality control requirements and program, it does mandate quality on those projects. Mr. ALFORD. All right. In your professional opinion, who will win the Super Bowl? Mr. CHRIST. Kansas City Chiefs. Mr. ALFORD. Go, Chiefs. Mr. CHRIST. Yes, sir. Mr. ALFORD. Thank you. I yield back. Chairman WILLIAMS. The gentleman yields back. I now recognize Ms. Scholten from the great state of Michigan for 5 minutes. Ms. SCHOLTEN. Thank you so much, Mr. Chairman. And thank you to all of our witnesses for being here today. As the Ranking Member on the Subcommittee on Contracting and Infrastructure, I see how small businesses get boxed out of the federal marketplace by agency size standard decisions. Everything you are talking about here today, spot on. I am particularly concerned with the ability of women-owned small businesses, WOSBs, to compete and be prepared to succeed if they outgrow these size definitions. That jump is so extreme. In my home state of Michigan, as our recently departed football coach Jim Harbaugh would say, business is booming. It is particularly booming for WOSBs, which represent over 40 percent of businesses in our state. Can you believe that? Isn't that incredible? I am thrilled that last week this Committee passed bills to support the WOSB program, but there is still so much more to be done. My first question for you, Ms. Allen. As a certified WOSB, can you discuss your experience with the program and if there are any tools that Congress can facilitate to help businesses like yours with growth and the graduation. Ms. ALLEN. Yeah. So, you know, recently I was thinking about this. We went after a solicitation, and I will be really brief as I can, that was a small business set-aside. But it had a scorecard that we had to self score, and it was things like ISO certification. Have you had a DCA audit? Do you have a security clearance? Also, the threshold insofar as the size of the contracts was huge, and yet it was still a small business set-aside. And so I feel like it might be useful not only if the SBA were out helping to educate contracting officers, that would really go a long way to helping the program, but also, you know, if there was some sort of education insofar as--or training or something to help small businesses get those DCA audits, get our ISO certifications, get, you know, all those different pieces that would enable us to get a higher score because we are qualified to do the work. I don't need a DCAA audit to say that I am--you know, my CPA is auditing me all the time. I promise we are good. Right, whole other conversation. So I think that that would really go a long way to help insofar as small businesses. And that would help teensy, tiny companies and, you know, larger smalls. Ms. SCHOLTEN. Thank you. It is almost too practical, almost too commonsense. Thank you very much. Very, very helpful. Another concerning barrier to entry that I see in the contracting space is the absolute muck of ambiguity that small businesses are forced to navigate in applying for project funding. While the federal government is operating under continuing resolutions in particular, so unclear, no guidance. If we make small businesses complete a lengthy and costly application process, we should be able to provide some certainty around the funding, regardless of the threat of a shutdown. We feel this is a keen and pressing need for a lot of our small businesses. This question is for Mr. Christ. Can you please speak to your experience competing for contracts under a CR? And what recourse could the SBA implement for firms to weather the uncertainty of a shutdown? Mr. CHRIST. We would love to be able to have some sort of compensation guaranteed, but we understand that that is probably very far-reaching. We do understand that the costs involved with procurement is simply the cost of doing business. However, what has become ever-changing and increasing are the requirements for these solicitations, you know, the vast information that has to be provided, and it takes having to hire a graphic artist. We build buildings, we don't do pretty proposals, right? And so now we have the added costs of this additional individual, and we don't even know if the projects are going to be funded. And that is a challenge. It really is. But again, we understand it is a cost of doing business, but it has become a substantial cost at a risk of, potentially, projects not even being funded. Ms. SCHOLTEN. Thank you. Very helpful and informative. I yield back. Chairman WILLIAMS. Yields back. I now recognize Representative Crane from the great state of Arizona for 5 minutes. Mr. CRANE. Thank you, Mr. Chairman. I appreciate the opportunity to participate in this important hearing. Does anybody on the panel know what the national debt of the United States is? Mr. Moore, you look like you were hitting your button first. Mr. MOORE. It is a lot, 37 trillion, maybe. Mr. CRANE. Thirty-four trillion. You guys know that we spent about a trillion dollars in the last 90 days that we don't have? You guys know what the annual deficit is every single year up here? Two trillion dollars-plus, about 200 billion a month. So when you hear, excuse me, one of my colleagues just talked about continuing resolution. Does anybody know what that means? What does it mean, Mr. Lambke? Mr. LAMBKE. It means that the agencies get funded at a base level from the previous year---- Mr. CRANE. Yep. Mr. LAMBKE.--with no incremental funding. Mr. CRANE. So you guys--right. So basically, funding at the same level, right? So you guys are all business owners, right? You guys understand budgeting. If you had something similar to a $2 trillion deficit annually, what do you think you would be doing as a business owner? Mr. LAMBKE. That is pretty easy. If you---- Mr. CRANE. Would you continue funding your business at the same level you were last year? Mr. LAMBKE. Absolutely not. Mr. CRANE. What about you, Mr. Moore? Mr. MOORE. Definitely not. Mr. CRANE. Mr. Christ? Mr. CHRIST. No, sir. Mr. CRANE. Ma'am? Ms. ALLEN. No. Mr. CRANE. Why do you think we do that up here? Because it is so easy to spend your money. Nobody wants to say no. Right? A lot of you rely on government contracts, is that correct? Mr. LAMBKE. We are 100 percent federal contractor. Mr. CRANE. When this whole thing goes bust, how many government contracts do you think you are going to get? Mr. LAMBKE. I am guessing zero. Mr. CRANE. Yeah. What about you, Mr. Moore? Mr. MOORE. None. Mr. CRANE. Do you think that is possible or do you think we can just continue to print money that we don't have? Mr. MOORE. I hope that we don't continue to print money that we don't have. Mr. CRANE. Well, do you see that changing? Do you guys spend any amount of time up here on Capitol Hill? Mr. MOORE. A Little bit, yeah. Mr. CRANE. Do you see that changing, Mr. Lambke, with the conversations you have had? Mr. LAMBKE. I haven't seen a change in the time I have been watching. Mr. CRANE. I have meetings all the time. Nobody ever asked that we quit giving them money or give them less money. Mr. LAMBKE. No, sir. The hole gets bigger. Mr. CRANE. The only reason I bring that up is because there is obviously--you know, I honestly wish the best for you and your businesses and your employees. I really do. As a small business owner myself, and a very small business owner, probably about 20, 30 employees, I think 50 or 60 at most, I understand how tough it is to start a small business, maintain it, you know, make sure my employees are taken care of. But there is a bigger problem up here that very rarely gets talked about, and that is our spending problem up here. And it concerns me because, you know, when I look at business owners like you that rely on the government and government contracts, because what we do up here is not sustainable. It is just not sustainable. And you even hear when people talk about, oh, these CRs, these continuing resolutions, with disdain, right? The problem is these CRs are spending at the same level. And you just had four business owners that have all been successful say that is not sustainable. We couldn't do that in our own business. Yet we arrogantly do that every single time up here. Go ahead, sir. Mr. LAMBKE. May I add something? CRs are one thing, shutdowns are another. Mr. CRANE. Yeah. Mr. LAMBKE. CRs are easier to deal wiyh, we have operated under CRs for so long, so many years. That is one thing. But it is the shutdowns that scare us to death. Right? Because then we are having to make really hard decisions about what we do with the families that rely on our companies, you know, to feed their families. Right? Mr. CRANE. Right. Mr. LAMBKE. And so those are testy times. And the longer they go, and there is been a few good ones, those are the ones, I think, that bother us the most. Scare us. Mr. CRANE. Well, on this same train of thought, if you guys had one bit of advice that you could give us on how to make sure that we don't completely destroy our national economy and cause your businesses to go completely under because there is no more government contracts, do you guys have anything that you would like to say to the Members of Congress on this panel? Go ahead, Mr. Lambke. Mr. LAMBKE. Oh, not in 5 seconds. No. Mr. CRANE. Go ahead, Mr. Moore. Anything? Mr. Chairman might give us a few extra seconds. Mr. MOORE. Create more jobs, more prosperity, bigger tax base would be my advice. Mr. CRANE. Pro growth? Mr. MOORE. Pro growth. Mr. CRANE. Gotcha. Mr. Christ? Mr. CHRIST. I would recommend taking a look at the small business standards and distributing some of that revenue throughout that organization reasonably, not to the gorillas in the room that are just underneath that glass ceiling that I mentioned---- Mr. CRANE. Yep. Mr. CHRIST.--that can destroy these small businesses. You can imagine---- Mr. CRANE. Yep. Mr. CHRIST.--us going up against $200 million a year company. Mr. CRANE. Okay. Mr. CHRIST. We are never going---- Mr. CRANE. I think we ran out of time. Sorry, ma'am. We would have given you time, but we ran out of time. Thank you, Mr. Chairman, for letting me go over. Chairman WILLIAMS. Thank you. Yields back. I now recognize Mr. Meuser, Representative Meuser, from the great state of Pennsylvania for 5 minutes. Mr. MEUSER. Thank you, Chairman. Thank you all very much for being here with us today. So I spent about 25 years helping grow a small business into a larger business. And what was interesting as well, 90 percent of our customer base were all, you know, mom-and-pop size small businesses. So I have real good understanding of things, private sector contracting, primarily, but some federal government. And as my colleague was bringing out, you know, it has actually been remarkable where you mentioned, Mr. Moore, the pro growth initiatives. Our revenues in the United States of America have increased almost 40 percent in the last 5 years, $5 trillion versus 3.5 trillion. But we are spending 6.5 trillion. So that is a little bit of a disparity, a little bit of a problem that would, you know, wipe any of your businesses out likely in a hurry. I don't think your bank would last too long there. So it is certainly a combination of just good business management. Right? I mean, effective reductions, but pro growth. Pro growth. That is what brought the United States out of the debts that we had after World War II. And we can do it again. So on this, your businesses are based upon federal contracting. The size of the federal government is not your fault. I mean, everything you see around here is contracted. I mean, the size of our federal government is wildly excessive, and supplies and computers and you name it, need to be provided to it. So that is just the way it is. And it is great that the SBA works towards making small businesses receive their fair share so you don't have to compete against those that are hundreds of millions of dollars and such. So I am listening very closely to everything taking place here. Clearly, the formula for small business contracting needs to be reviewed, right? A hundred and fifty if the revenues are worked into that as well, based upon the different NAICS codes, it could be what, computer sales could be different than desks or furniture and such. And you all expressed a fair amount of ideas. I will just start, though, what should be done with the formula? Okay, you said just raise the standard from 150 up. Now that is fine, but then that could encroach upon small business startups. Now, let's face it as well, some businesses like yours could go from, you know, as soon as you hit 140 employees, you say, my new marketing department is now going to be under a new LLC, and they're not going to have to necessarily count towards my revenues. I will serve as a customer to them and they will be a vendor. You are shaking your head, so I am sure that is one of the oldest tricks in the book, so that is prohibited. But I wouldn't doubt that goes through people's minds as you are considering how to handle all this. So, a couple of questions. One, how do you think the formula should be better set up, revenues, size? And as well are you asked? Did the SBA ask you? Do you do surveys? And also consider this. When you are at a--you receive a contract, and as you stated again, that it takes time to grow, there should be in the formula maybe a 3-year or 4-ear, and these are things that I look forward to speaking with the Chairman of this Committee on, of assurity. Right? If you do grow to 200 employees, you don't lose the contract that year. There is at least a 3-, maybe even 4-year statute which permits you to continue serving in that way. So, Mr. Lambke, I will start with you. Mr. LAMBKE. Yeah. So I am fine with the headcount-based NAICS codes for our industry personally. I think that the number, though, has got to look at what has happened to the complexity of the business over the last 20 years, and so 500 to me is the right number. If you look at what is happening in AI and large language models and robotic process automation, it is a team sport. It is a very complex business. It requires a lot of very smart people working together across multiple systems and platforms. And so it is really just if the government intends, and I know they do, to continue to compete with our adversaries, both offensively and defensively, then you have got to be able to have small business innovators that can get to a sufficient size that they can still innovate. I would argue that many of the larger businesses are not as motivated by innovation. If we don't innovate, we are out of business. I think when you get to a certain size, you cannot innovate as much. Mr. MEUSER. They look at it only every 18 months. I ran---- Mr. LAMBKE. Yes, sir Mr. MEUSER.--our of time. My apologies for speaking too long. I wanted to hear from you, but perhaps we can continue this conversation. I yield back, Mr. Chairman. Chairman WILLIAMS. Yields back. I now recognize Representative Maloy from the great state of Utah for 5 minutes. Ms. MALOY. Thank you all for being here. I want to start with Ms. Allen. Rep. Scholten talked about a bill we are working on together to protect WOSBs. And the businesses already have to certify that they are women-owned, but they don't have to certify that they are small. And what I am hearing from you is that could be very confusing. A business may not even know if they qualify as small, depending on which contract they are going for. And I have sat here listening, trying to decide what to ask all of you, because you have defined the problem very clearly, and we have asked a lot of follow-up questions. So I just want to give each of you a minute. Is there anything you were prepared to tell us as part of a solution that you haven't had a chance to talk about yet? I will start with Mr. Lambke and work my way down. Mr. LAMBKE. Look, I think it obviously takes time, energy, and resources on behalf of the government, but look at the industry. Spend some time with the companies that do what we do specific to IT and recognize that there needs to be something very specific. But you can spend some time with each of us, look at our receipts, look at our business, look at how we get things done and the results we deliver for the customer. I think you can quickly determine where the size standards should be. Ms. MALOY. Thank you. Mr. LAMBKE. Yes, ma'am. Ms. MALOY. Mr. Moore? Mr. MOORE. So our business is changing at lightspeed. And in our primary NAICS code 541519, we are basically providers of technology. There is a limitation on the subcontracting rule which says that we can only subcontract 50 percent or less of the value of the contract. There is a nonmanufacturing rule which says that, OEM--if we are awarded a contract and it is small business set-aside, then you have to procure that product from a small business, which is a manufacturer that is small, which there are none. Footnote 18 says that in our code there needs to be 15 to 50 percent of services, 15 to 50 percent of contract value, and that is never the case. Product is usually the greatest value. So, in my opinion, I just think that the SBA has come together with industry. We are put in an impossible position. There is a lot of regulations that there is no way that we can meet. So I just think it takes more dialogue and understanding, truly, what it is that we do. Ms. MALOY. Thank you. Mr. Christ? Mr. CHRIST. Thank you. So what I would encourage, again, I had mentioned a transition period. I feel that the transition period promotes continuous growth for businesses. Do I have a definition on that transition period and what it looks like? No, that is for additional conversations and I would love to have those conversations with you. But the goal is, to promote innovation, is for businesses to continue to grow, and without that transition period, there is no incentive for growth. They want to get right to that point, be the large gorilla in the room, and they don't want to get out of there. So one other thing that that forces is small businesses to--very small businesses to look to team up with larger ventures and create a joint venture agreement. Right? These can be fantastic mentor-protege agreements. we are living proof that they work, because we are in one right now. However, there are some bad characters out there that will utilize those joint ventures and those mentor protege agreements to just have an avenue to continue to play in that small business. So, you know, being very diligent and scrutinizing that, we feel, is also another thing that could be extremely helpful. Thank you for your question. Ms. MALOY. Thank you. Ms. Allen? Ms. ALLEN. Thank you very much for this question. So, for us, these guys, I think that their NAICS codes are all based on the number of employees that they have, whereas mine is based on revenue, which to me, doesn't make any sense, because for me, my cost of goods sold is huge, right? I mean, my biggest cost is my labor. So, you know, I am paying this much money, but my margins are a little, teeny tiny. And so when you are looking at my revenue as whether or not I am large or small, my revenue might be up here, but if, you know, my margin is this little, teeny tiny bit, it doesn't make a lot of sense to me personally in those labor categories. I agree with Mr. Christ that I think that a transition period would be hugely helpful. As I mentioned, helping small-- especially WOSB companies, close to my heart, to get their DCAA audits done, to be able to get security clearances, to be able to the ISO certifications, helping them with that process, I think would be huge insofar as helping them to make those transitions that is incredibly expensive and time-consuming for us. Ms. MALOY. Speaker B: Thank you. My time has expired. I yield back. Chairman WILLIAMS. The gentlelady yields back. I now recognize Representative Gluesenkamp Perez from the great state of Washington for 5 minutes. Ms. GLUESENKAMP PEREZ. Thank you, Mr. Chairman, and thank you all to the witnesses for being here today. So we know that the SBA is tasked with ensuring that small businesses are given a fair shot at competing for federal contracting dollars. These federal contracts can be an incredible opportunity for small businesses and our entrepreneurs. And Congress has established goals to award a percentage of all prime and subcontracts to women-owned small businesses, small disadvantaged businesses, service-disabled veterans-owned small businesses, and HUBZone certified small businesses. I want to make sure that we are holding agencies to these standards, which is why I cosponsored the Corrective Action Report Oversight and Accountability Act with Representative Meuser, which would hold agencies accountable for actually hitting these benchmarks. But today, I am really interested in how we make sure that the benefits of these important programs that give small businesses opportunity to compete for federal contracts are actually going to small businesses. Mr. Christ, I am interested in one of the problems you mentioned in your testimony. You talk about acquisitions where small businesses are solicited by larger firms to join joint ventures in which the small business holds 51 percent and the big guys hold 49. You mentioned that these joint ventures can be extremely beneficial for small businesses to tap into the larger firm's bonding program, employee pool, previous government network, but you also know the problems arise when these big guys simply utilize the small businesses as a vehicle to get federal work otherwise set aside for small businesses. This is concerning to me because it means large businesses are getting this advantage that Congress intentionally set aside for the small guys who can't otherwise compete. So in your view, how should we improve the program to make sure that the small businesses receiving these benefits are actually small? Mr. CHRIST. That is a very great question and it is difficult to answer because there is always going to be bad characters no matter what we do. And I feel that the program itself is established in a very good manner, but examining the ownership structure of the joint venture is extremely critical. We know personally of several firms where the larger businesses have actually required them to give up ownership in some of the smaller business. So now they are not getting 49 percent. They may be getting 54 percent of the revenue, because from the joint venture entity standpoint, they may only be 49. But when you factor in the ownership in the small business, it is more than that. So I feel that, you know, examining the ownership structure of both companies and making sure that there is no cross- pattern or cross-pollination in there, I feel that that is one way that you can help kind of clean that up. Ms. GLUESENKAMP PEREZ. Thank you. Mrs. Allen, you also mentioned some of these issues in your testimony, including the problems that arise when certain companies fraudulently claiming to be women-owned to benefit from these set-asides. Can you expand on this process for self-certification, how that works and how you think it could be improved? Ms. ALLEN. Yeah, self certification, I mean, you can just check a box and say, oh, yes, I am woman-owned. You really need to have, you know, as Mr. Christ is saying, as with small businesses, also women and small businesses, to look at the structure, who is doing what, who is actually day-to-day? You know, is--you know, Joe Jim Bob's wife, the one who is the figurehead, but she has nothing to do with the business. She is not involved. She is not running it. That really does a disservice to women like me who are out there, you know, doing the things every day and really, you know, slugging it out with companies that are not woman-owned and not always small. Ms. GLUESENKAMP PEREZ. Yeah. Thank you. Before coming to Congress, I ran an auto repair and machine shop. And COVID, obviously, we were largely impacted. And that year, I had a bunch of different projects running. We worked on air improvement quality projects. We worked on taking our intake process online, all these big projects. Some of our good friends who own an auto body repair shop, that whole year her entire project was figuring out how to navigate a city's contract process, you know. And when you see these big hurdles, you really grasp like when the bureaucracy becomes so extreme, it is the small business, it is actually the women-owned that create these issues. So I sincerely thank you all for being here today. I thank the Committee for your attention to this. Chairman WILLIAMS. Yields back. I now recognize Mr. Molinaro, Representative Molinaro, from the great state of New York for 5 minutes. Mr. MOLINARO. Thank you, Mr. Chairman, and thank you all for being here this morning still. I think I am going to continue in sort of that line of questioning, only to acknowledge that in my previous life in local government, we certainly recognized that small businesses were so much more ably--or able to navigate the local procurement policies and, of course, state and federal becoming much more complex. We recognize that the bureaucracy is too overwhelming in many cases. Small businesses, by definition, have lesser resources and time to make the commitment to navigate that labyrinth of regulatory oversight and outdated standards that I think this Committee has been fairly earnest in attempting to address. The problem hasn't been that small business is too small, it is that big government is too big, and navigating that field has become even more challenging. And yeah, big business has found ways to circumvent. And I would also offer the certification of women- or minority-owned businesses are challenging for those who earnestly and appropriately qualify, and far too easy for those who wish to act in a nefarious way. Obviously, so I want to get to NAICS codes in a moment. I do want to reference, however, the posted act, which this Committee unanimously adopted. It is a bill I sponsored, passed the House, meant to demand the SBA open up a more greater transparency for small businesses to know regulation and how to navigate that regulation. All of you have testified to this to some degree, but I would like to just narrow it into or at least like to focus in on the issue of transparency. Given your experience, the work you have done, obviously interacting with the federal regulatory oversight and your own work with the federal government, what should we do to appropriately address the issue of lack of transparency? That is where it starts. What would be a good first step for actual transparency to make it easier for you all small businesses across this country to navigate the SBA? Not a single thought? Mr. MOORE. I just think that the SBA has been wonderful and very helpful during our 8(a) certification. There is many programs, a lot of assistance, and, you know, a lot of learning sessions, educational sessions, and I think that is all great. Once you move out of the small business category, there is very little, if no, support. And I would like to see more collaboration continuing between the small business administration and industry. Mr. MOLINARO. So greater collaboration. Anyone else? Mr. CHRIST. Utilization of the business opportunity specialists. It is amazing to me that these small businesses don't know that that resource is out there. And Our business opportunity specialist has been fundamental in helping us navigate through all of these programs and really helping us understand what is required and expected of us as a small business. So, you know, getting that out there and getting small businesses to participate with their business opportunity specialist, and probably looking at extending that and making it a little larger, because I know just in our region, we have had issues with turnover on the business opportunity specialists and not having enough of them to take the need that is out there. Thank you. Mr. MOLINARO. Thank you. Ms. ALLEN. I would agree. And you can imagine we are here in Maryland and, you know, we are kind of a company town. So you can imagine how many government contractors there are that could really benefit from those small business specialists, and there just are not enough of them to really be able to make an impact. If Kansas City is struggling, the Maryland-D.C. area, those guys are overwhelmed. But there is just not enough to be able to really make a dent in the amount of help that small businesses could use insofar as, you know, getting themselves off the ground and also making that transition, that they have a lot of knowledge and just, they are up to their eyeballs. Mr. MOLINARO. Let's do this, Mr. Lambke. I am going to let you jump in, but it will be my last question. Hopefully, with 20 seconds, you will be able to get to it. But you speak and you all have dealing with the challenges that businesses not quite fitting neatly into the NAICS codes offered by the SBA. You obviously referenced the continuing resolution. The SBA has found is to continue to add footnotes to types of businesses that are emerging. And as a result, we all recognize there are now over 41 pages of different NAICS codes, which indicates, obviously, the ongoing problem. Based on your experience, do you feel the current rigidity of the system can shut out innovative companies, I think you do, and ultimately, limit competition for government contracting? And you may have to answer that in writing later. Mr. LAMBKE. Indeed. Mr. MOLINARO. Thank you. Chairman WILLIAMS. Thank our witnesses for their testimony for appearing for us today. And I think you can see that at least there is one Committee, truly is bipartisan. We get it. We are going to fix it. And without objection, Members have 5 legislative days to submit additional materials, written questions for the witnesses to the Chair, which will be forwarded to the witnesses. So I ask the witnesses to please respond promptly. If that happens. If there is no further business. Without objection, the Committee is adjourned and thank you. [Whereupon, at 11:35 a.m., the committee was adjourned.] A P P E N D I X [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [all]