[Senate Hearing 117-209] [From the U.S. Government Publishing Office] S. Hrg. 117-209 REALIZING THE VISION OF PARREN MITCHELL_ UNTAPPING THE POTENTIAL OF MINORITY AND WOMEN CONTRACTING ======================================================================= HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP OF THE UNITED STATES SENATE ONE HUNDRED SEVENTEENTH CONGRESS FIRST SESSION __________ MAY 19, 2021 __________ Printed for the Committee on Small Business and Entrepreneurship [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 46-998 PDF WASHINGTON : 2022 ----------------------------------------------------------------------------------- COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP ONE HUNDRED SEVENTEENTH CONGRESS ---------- BENJAMIN L. CARDIN, Maryland, Chairman RAND PAUL, Kentucky, Ranking Member MARIA CANTWELL, Washington MARCO RUBIO, Florida JEANNE SHAHEEN, New Hampshire JAMES E. RISCH, Idaho EDWARD J. MARKEY, Massachusetts TIM SCOTT, South Carolina CORY A. BOOKER, New Jersey JONI ERNST, Iowa CHRISTOPHER A. COONS, Delaware JAMES M. INHOFE, Oklahoma MAZIE K. HIRONO, Hawaii TODD YOUNG, Indiana TAMMY DUCKWORTH, Illinois JOHN KENNEDY, Louisiana JACKY ROSEN, Nevada JOSH HAWLEY, Missouri JOHN HICKENLOOPER, Colorado ROGER MARSHALL, Kansas Sean Moore, Democratic Staff Director William Henderson, Republican Staff Director C O N T E N T S ---------- Opening Statements Page Cardin, Hon. Benjamin L., Chairman, a U.S. Senator from Maryland. 1 Witnesses Caldas, Ms. Rosa Q., President and CEO, ZemiTek, LLC, Bethesda, MD............................................................. 4 Rubio, Mr. Euripides ``Ruby'', President and CEO, Ops Tech Alliance, LLC, Bowie, MD....................................... 11 Alphabetical Listing and Appendix Material Submitted Caldas, Ms. Rosa Q. Testimony.................................................... 4 Prepared statement........................................... 6 Responses to questions submitted by Senators Hirono and Young 36 Cardin, Hon. Benjamin L. Opening statement............................................ 1 National Urban League Letter dated May 19, 2021.................................... 32 Rubio, Mr. Euripides ``Ruby'' Testimony.................................................... 11 Prepared statement........................................... 13 Responses to questions submitted by Senators Hirono and Young 41 REALIZING THE VISION OF PARREN MITCHELL-- UNTAPPING THE POTENTIAL OF MINORITY AND WOMEN CONTRACTING ---------- WEDNESDAY, MAY 19, 2021 United States Senate, Committee on Small Business and Entrepreneurship, Washington, DC. The Committee met, pursuant to notice, at 2:30 p.m., in Room 301, Russell Senate Office Building, Hon. Ben Cardin, Chairman of the Committee, presiding. Present: Senators Cardin, Shaheen, Hirono, Rosen, Hickenlooper, Scott, Young, Hawley, and Marshall. OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, CHAIRMAN, A U.S. SENATOR FROM MARYLAND Chairman Cardin. Good afternoon and welcome to this committee hearing of the Small Business and Entrepreneurship Committee. I want to thank all of you for joining on this important and timely hearing on the role the Federal Government must play in supporting minority and women-owned businesses that supply our government with goods and services. The title of today's hearing respects my late friend and mentor, Congressman Parren J. Mitchell. Congressman Mitchell was the first African American elected to Congress from the State of Maryland. He rose to become chairman of the Small Business Committee in the House of Representatives. He advanced opportunities for minority small businesses, including the first minority set-aside passed by Congress. In addition to being the first African American elected to the U.S. Congress from Maryland, Congressman Mitchell also created the first set-aside minority program. It was created in 1977 when he successfully attached an amendment to a $4 billion public works bill that required State and local government to set aside 10 percent of the funds for minority-owned businesses. Congressman Mitchell called the amendment his proudest congressional accomplishment. Congressman Mitchell understood that any plan to strengthen the wealth of America must include entrepreneurship, and that the U.S. Federal Government, the largest purchaser of goods and services in the world, has an important role to play in this effort by ensuring that small businesses owned by members of historically disadvantaged communities, including minorities and women, are able to do business with government agencies. This hearing is timely because President Biden's American Jobs Plan proposes a once-in-a-generation investment in our Nation's infrastructure across all types. Addressing equity for underserved and disadvantaged communities must be a focus in all of these endeavors. So today we will focus on the programs within SBA that help level the playing field for minority- and women-owned businesses, including the 8(a) Business Development Program and the Woman-Owned Small Business Program. The motivation behind my commitment to ensuring that the Federal Government is providing contracting opportunities for minority- and women- owned businesses is twofold. First, I want to ensure that the Federal Government is providing small businesses with the opportunity to compete for Federal contracts on a level playing field with large corporations. And secondly, Federal contracting is a vital part of the economy in my home State of Maryland, where Federal Government contracting spending accounts for 8 percent of our annual GDP and supports thousands of jobs to help families into the middle class. Congress passed the Small Business Act to ensure the preservation and expansion of a level playing field for small businesses because by doing so it is vital to the security of this Nation. The COVID-19 pandemic has shown us all how true these words are. In the past year, the Small Business Administration has delivered more than $1 trillion in aide to our Nation's smallest businesses in order to prevent the dire economic consequences. I am proud that my amendment to extend the nine-year limit for participation in the 8(a) program to 10 years was included in the Fiscal Year 2021 NDAA bill. That measure will provide small businesses in the program during the pandemic with an additional year of eligibility. Small businesses are where innovation happens in our economy, and this committee has discussed many times in the past years that we must ensure we provide our small businesses with the support they need to compete in the global marketplace. In 1997, Congress set goals for the Federal Government to spend 23 percent of all contracting dollars with small businesses. In Fiscal Year 2019, the Small Business Federal Procurement Scorecard showed that the Federal Government exceeded its small business contracting goals during that fiscal year, awarding 26.5 percent of all Federal contracts to small businesses. The total value of the contracts was $132.9 billion, representing a 10 percent increase from the previous fiscal year. The Scorecard showed that the Federal Government exceeded its goals in three of the four associated economic categories, including women-owned small businesses, the second time in the history of the Scorecard that the Federal Government hit its 5 percent goal for that program. While I'm pleased that the Federal agencies are meeting most of their contracting goals, I have seen recent concerning data showing that we are shrinking the number of contractors that are participating in the program. A recent report by Bloomberg Government found that the number of Federal contractors working on unclassified contracts is at a 10-year low despite a steady rise in Federal Government contracting spending over the same period of time. So there are less businesses participating even though we have a growth in small businesses. In Fiscal Year 2016, for example, more than 120,000 small businesses contracted with the Federal Government, but in Fiscal Year 2019 that number had dropped to under 103,000 small businesses. That means that while contracts are getting bigger and bigger, we are creating an insular club where fewer and fewer businesses successfully compete for government contracts, creating a less competitive marketplace in the process. Predictably, our Nation's small businesses are bearing the brunt of the decline. According to the report, the Federal Government did business with 32 percent less small vendors in Fiscal Year 2018 than it did in Fiscal Year 2009. For a comparison, the number of large vendors fell by only 4 percent. So today I am looking forward to hearing from our witnesses. They're both Maryland entrepreneurs whose businesses have benefited from the 8(a) and women-owned small business program. Rosa Caldas is President and Chief Executive Officer of ZemiTek, an 8(a) and woman-owned certified small business headquartered in Bethesda, Maryland; and Euripides ``Ruby'' Rubio is President and Chief Executive Officer of Ops Tech Alliance, an 8(a) and service disabled veteran-owned small business, certified, headquartered also in Bethesda. Bethesda is getting very well represented here today. Mr. Rubio is also a graduate from the Bowie Business Innovation Center 8(a) Accelerator and the Veterans Institute for Procurement program, which are both successful programs in Maryland that can serve as a model for the Nation as we seek to support small business contractors. I do want to acknowledge the work of Barbara Ashe with regards to the VIP program because it's a unique program. It was created under the sponsorship of the Montgomery County Chamber of Commerce. That's Montgomery County, Maryland. It was a national program to help veteran small businesses, and it's been very successful, helping over 1,600 veteran-owned small businesses to date. One of those companies is represented by one of our witnesses today. So I'm also looking forward to learning from Ms. Caldas and Mr. Rubio about what aspects of the 8(a) and the woman-owned small business programs are working well, as well as the areas we need to improve for more small businesses to successfully compete for Federal contracts. President Biden's American Jobs Plan seeks to invest more than $2 trillion in our Nation's infrastructure, so now is the time to improve the 8(a) and woman-owned small business programs so woman- and minority-owned small businesses have the support they need to participate in a once-in-a-generation opportunity. I know that Senator Paul, the ranking Republican member, will be joining us shortly. He asked us to proceed with the witnesses, so we'll do exactly that. We'll go in the order in which I first acknowledged our witnesses. So, Ms. Caldas, we'll start with you. STATEMENT OF ROSA Q. CALDAS, PRESIDENT AND CEO, ZEMITEK, LLC, BETHESDA, MD Ms. Caldas. Good afternoon. Good afternoon, Chairman Cardin, we don't have here Ranking Member Paul, and members of the committee. It is an honor to meet you and to be invited to speak at this committee. My name is Rosa Caldas. I am the President and CEO of ZemiTek, an 8(a) and woman-owned small business located in Bethesda, Maryland. Thank you for the opportunity to speak at today's hearing. My experience supporting the Federal Government dates back to 1995, when I began managing projects for Federal contractors. I founded ZemiTek in 2007 because I felt I could do a better job supporting the government and providing a better and more nurturing environment for my employees. In 2008, ZemiTek was accepted as part of the Montgomery County Business Innovation Center, and I briefly entered the HUBZone program. During our first eight years, most of our work was through small purchase orders and subcontract work. During this period, we experienced difficulties in gaining access to funding, limiting our ability to grow. In 2015, we won our first significant prime contract award by leveraging a partnership with a more experienced large business. In 2017, we secured our GSA schedules, entered the SBA Mentor-Protege program, and formed a joint venture with our mentor. We obtained a GSA Best-in-Class OASIS schedule in 2020 through our joint venture. We now have over 70 employees, as well as many consultants. The small business set-aside programs are critical for the development of small businesses, for economic development, and for providing innovation and flexibility to the Federal Government buyers. We sincerely believe the small business contracting goals are due for upward revision. The Federal Government small business goals have not been increased in over 24 years, and the WSB goal has not been increased since its inception. Goals are important and effective in keeping the Federal Government accountable. We are grateful for ZemiTek's opportunity to participate in the 8(a) program. It is important for potential participants to make sure they fully understand the Federal contracting landscape to fully benefit from the limited timeframe of the program. ZemiTek made a conscious decision to delay submitting our application until we were ready. The 8(a) program does have some challenges. For example, the sole source cap is long overdue for an increase. It needs to be adjusted for the increasing average size of contracts. The maximum total contract value for a sole-source 8(a) award is $4 million. Making it an annual cap of $4 million will be preferable. But at the very least, the cap should be doubled. More resources need to be provided to the SBA, its three offices. Business Opportunity especially carries an overwhelming workload and often focuses more on compliance rather than business development. SBA district offices could benefit from an increase in staffing, as well as more consistent training. We are very grateful to the Small Business Committee in allowing for a one-year extension in the 8(a) program. Twenty- twenty was a challenging year for all of us, as well as for small businesses. Normal business development, client engagement, and networking opportunities were reduced, and growth was difficult. We support the Mentor-Protege program and have benefited from participation. These formalized relationships allow us to benefit from our mentor's guidance and improve our ability to pursue prime contracts. Proteges are limited to two mentors for the company, and we believe that allowing more than two mentors will help small businesses maximize their learning opportunities prior to graduation. Category management poses serious and significant challenges for the small business community. Fewer and fewer requirements are being issued as a stand-alone contract, meaning fewer opportunities for small businesses. Consolidation and bundling of simple requirements and placing them on BICs further erodes the competitiveness of small businesses, as they often lack the capability to bid on the size and complex nature of the consolidated contract. With respect to the WSB program, we have found the certification process to be cumbersome, and we recommend increasing resources to the SBA to ensure that they are able to successfully manage the certification process. We also recommend implementing reciprocity between the 8(a) and WSB programs. Thank you so much for the opportunity to share my experience with you. I look forward to answering any questions you may have. [The prepared statement of Ms. Caldas follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Ms. Caldas, thank you very much for your testimony. We will now hear from Mr. Rubio from Bowie, Maryland, not Bethesda, Maryland. I want to correct the record to make sure the great city of Bowie--the mayor is going to be with me tomorrow--got the right credit for Bowie. Mr. Rubio? STATEMENT OF EURIPIDES ``RUBY'' RUBIO, PRESIDENT AND CEO, OPS TECH ALLIANCE, LLC, BOWIE, MD Mr. Rubio. Good afternoon, Chairman Cardin and distinguished members of the committee. My name is Euripides Rubio, and I am the President and CEO of Ops Tech Alliance-- OTA--a 100 percent Hispanic and service-disabled veteran-owned business located in Bowie, Maryland. As a minority and an advocate for service-disabled veterans in business, I thank you for the opportunity to contribute to the discussion of how we can best tap the incredible potential of our country's minority and women contractors. My company, OTA, was formed to bridge the gap between operations and technology. We provide training, cybersecurity products and services. With the increase of cyber threats to our Nation, OTA's background enabled us to consistently produce excellent results for our clients, and we're very proud of that fact. We also made the Inc. 5000 list for fastest growing companies the last three years in a row. So we are moving at a good pace. I grew up poor with a strong mother who got us out of the projects and kept us on track. She got me to college, but because of financial constraints I had to drop out. So I was that one guy who went to the Army recruiter. He offered me $50 a month to jump out of planes, and I said ``Where do I sign?'' So I spent 23 years in the Army with a career in Intelligence and Special Operations. After my retirement I was eager to do something challenging, so in 2012 I registered OTA as a business. I invested all my retirement savings into this company. I even survived the 2013 government shutdown. But statistically, I was expected to fail. By 2014 I hired our first employee, and we got into our first contract. By the end of the year I was responsible for four families, not to mention my own. Our biggest problem was a delayed payment by large prime companies. Of course, my employees could not wait 45 to 60 days to get paid, nor my bills. The current law doesn't enforce oversight to ensure small businesses are receiving prompt payment within 15 days. Faster payment will not burden a large business, but it will make a world of difference for small companies. In 2015 we applied for the 8(a) program and got accepted, but I found that the reality was not what I expected. Our current clients were not familiar with the program, and there was a lack of awareness and result to use the 8(a), at least in my line of work. So I ended up in the same position where I started from. It wasn't until 2017 where we were searching for a business incubator, and that's how we connected with Lisa Smith from the Bowie Innovation Center. They provided us with many resources, but more importantly the Bowie BIC 8(a) Accelerator program, which included training, mentoring, and many resources to use the 8(a) more efficiently. In the same year we were accepted to the Veterans Institute Procurement, the VIP, which was another great program, managed by Barbara Ashe, where we received very valuable training and networking with veteran-owned companies. Without question, these two programs gave us a lot of insights in areas of business and client landscape that I couldn't find anywhere else. As a minority and a veteran-owned business, we have more grit and experience overcoming obstacles. However, the competitive landscape is extremely unpredictable. And, of course, I'm not even addressing the devastating effects that COVID-19 had on small businesses. If it weren't for the PPP loan, I would not be sitting here talking to you today. In conclusion, I believe the following key steps, if implemented by the committee, will have the greatest impact. First, increase and enforce the contracting goals of the Federal Government and large prime contractors for minority small businesses. Next, increase training for all government agencies on the actual process utilizing minority small businesses. Expand access and require minority businesses to graduate from programs like the Bowie BIC 8(a) Accelerator and VIP. Establish oversight to ensure that Federal agencies and prime contractors are paying minority small businesses within 15 days. And lastly, change the protest process. Protests are devastating the procurement system and wasting money and opportunities for minority small businesses. Thank you, distinguished members of the committee, for your time and attention to these issues. Minorities and women are clearly in the spotlight now, and I recommend focus on these matters more than ever. I'm honored to be here to speak on their behalf, and I'm ready for any questions you might have. [The prepared statement of Mr. Rubio follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Let me thank both of you for your testimony, and let me make this observation. The American Jobs Plan is really a once-in-a-generation opportunity to make a significant investment in the infrastructure of our Nation. But we also have to make sure it's opportunities for all businesses to participate in that infrastructure. So we need to operate from the beginning with the opportunities for small businesses, particularly in the underserved communities, in the minority communities and women- owned small businesses. That's one of the reasons for this hearing. You've made a lot of suggestions. We're going to be looking at those suggestions. We're in discussions with the Biden administration and with our House counterparts as to how we can ensure that the investment in infrastructure will be used to advance these goals, and I think you've given us a lot of good suggestions. I want to talk for just a moment about the Bowie Accelerator program. We're very proud of what they do at Bowie. It's one of the great examples, and it's been extremely helpful. The VIP program that Barbara Ashe heads is one that I brag about all the time. It started with the resources of the local Chamber of Commerce in Maryland, in Montgomery County. It became a national model because it served the national community of veterans, got a partnership with the Small Business Administration. We were pleased to promote that, and now it is truly the template for how we can provide services to veterans in our Nation. So we're proud of both of the programs that you all have referred to. I want to deal with raising the caps that you've talked about, so let me start with the sole source, because sole source is one of the great tools that allows for the contract really to be made with minority businesses and women-owned businesses. Today, the cap on a multi-year contract is about $900,000 on sole source, which really takes you out of the prime contract area exclusively. So you deal with the abuses you're talking about on prompt payment and all the other challenges you have in dealing with prime contractors. So just elaborate a little bit more for me how important it is in reality, what types of contracts are we talking about that you all could qualify for under sole source if that cap was raised. Either one who wants to start. Mr. Rubio. Well, I can tell you, sir, Senator, that we missed opportunities because of that cap. Like Ms. Caldas mentioned, it should be increased even yearly, because when you look at those numbers and the opportunities that are out there, the numbers are not keeping up with inflation, with the economy. So it definitely should be increased. When you look at these numbers, they haven't changed in a long time, over 20 years. So I think it's time. Chairman Cardin. And when the contracting agency is limited by the size, they can't put these contracts up for sole source even though they may be ideal for the sort of special attention that Congress intended. Ms. Caldas, do you want to add anything to that? Ms. Caldas. Yes. I'm just going to provide a couple of examples. We have received a couple of sole source 8(a) contracts. The limit was $4 million. And this is just to illustrate how important it is to increase the cap. One of our coding contracts is providing technical support services to USAID and the Mission in Haiti. Because of all the security problems they have had in that country, they have had to rely more and more on contractors to provide service support. We received the contract sole source award, and because of this situation, we started deploying and providing technical assistance and staff, and this contract is less than a year old, and they already have committed to around 80 percent of the ceiling of that contract. It takes time for the agencies to identify companies like us that have the technical expertise and have the knowledge to deliver those services. They establish, they award the contract, and then they get themselves in a situation where they are reaching the cap and the ceiling very quickly, and they don't have the flexibility to increase that ceiling. I think it's very obvious that whatever--the contracts that were $4 million so many years ago, you cannot buy the same amount of services as you do today. But the reason for the sole source allows for an easier expedited process to issue these contracts, and it is not very straightforward for the agencies to understand if they have any flexibility to increase it and what is the next step. So I just wanted to illustrate one of the examples. That is the type of services that we provide, and it would be beneficial for 8(a) companies, but also beneficial for the Federal Government buyers. Chairman Cardin. Let me ask one additional question, and that is that I was pleased, and you acknowledged in your testimony, that we extended the 8(a) program for an additional year as a result of COVID-19 in the NDAA bill. But I want to talk about graduating out of the 8(a) and your ability to compete once you have completed the number of years of eligibility. We had the 7(j) technical assistance that's supposed to be helping you transition off of the preference under the 8(a) program. Should we be looking at ways to strengthen the ability to deal with the transition off of 8(a)? Are there other issues that we should be looking at? Are there things that we can do to make it more resilient for small businesses that were 8(a) that no longer are? Ms. Caldas. Absolutely. Prior to forming my company, I supported a small business, mid-size businesses, and I was also an employee of large companies. The type of resources that large companies have to compete for work cannot even compare to what a small business can do. So what happens is many of our small business company owners start worrying about the situation where you go from being a small business to other than small. Other than small could be a company that just graduated from their NIC code. It is a very difficult environment where a lot of small businesses don't survive, or they start finding ways to stay small so they don't enter the ``valley of death,'' like some companies mentioned, or they look for opportunities to be acquired because they know that they may not be able to compete in that environment. So there are several things that could be done. One of them is revising the size standard under NIC codes so a small business could take advantage of staying small a little bit longer while they strengthen their capabilities to graduate from that NIC code. Allowing more mentors in the Mentor-Protege. As I mentioned in my testimony, small businesses can only have two through the life of the company, when mentors, and most of them are large businesses, can have three Proteges at the same time. So allowing for more mentors also gives the opportunity for small businesses to grow and learn more through the advice of those companies. So there are many, many other options out there that should be considered. Training is always good. But at the end, when you finish the training, you need to find ways to have resources to compete in an environment where it's just very, very hard to compete. Chairman Cardin. Thank you. I appreciate that. Senator Hawley and Senator Scott have passed on questioning, so we're up to Senator Marshall. Senator Marshall. Okay. Well, thank you so much, Chairman. Glad to be here, and welcome to our witnesses this afternoon as well. In today's hearing we're supposed to be talking about the HUBZone service, disabled and veteran-owned and woman-owned small business programs. Our staff and myself, we made a huge effort to reach out to our minority Chambers, to small business owners, small business wannabe owners in economically distressed communities, and I certainly have not solved the puzzle yet. And as I interviewed people and listened, two big issues remain, among others, two that I've identified: access to capital, and really financial literacy. So I want to talk about access to capital for a second. What advice would you be giving to me to give to future small business owners when it comes to accessing capital? And in particular, I want to know if you've had any experience with the CDFI, the Community Development Financial Institutions. I'll ask each of you first, and ladies first, Ms. Caldas, please. Ms. Caldas. Having access to capital is imperative. When we started and we reached out to one of the banks that we were working with, the first thing they tell you is we want you to be in business for two years. Then you go back and knock at the door, it's been two years and, oh, it just depends on how many contracts you have. When you have contracts, come back and show the bank, and the bank said, well, we want you to have multiple years. And in the meantime you have payroll, you have benefits to pay for your employees, and many of us do a couple of things: one, cashing in retirement and mortgage the house, just to make sure to keep the company moving; or using some services where you sell your invoices and pay very high interest so you can manage your cash. It has been helpful when we started winning prime contract work because some of the Federal agencies do pay us quickly. It is completely different when you are a subcontractor to large primes. Sometimes you get paid 60 days, 90 days, and payroll needs to be paid before the invoice goes out. So definitely there should be more resources dedicated to either some of these financial banks, working with the SBA and providing some ability for smaller companies to start being able to have access to borrow based on the work that they are doing and making it easier to tap that capital. It is not that easy, and we all as small business owners have gone through that. Senator Marshall. Right. Mr. Rubio, I certainly understand it's a challenge. That's what I'm trying to get at. Have you had any experience with CDFIs? And where are people getting access to capital, woman-owned businesses, minority-owned businesses? Any advice? Mr. Rubio. In my case, when I first started, I had to borrow money from friends and family, and a lot of people do that. Like she said, you show up to a bank and they say great story, great company, great contract, but you just got a contract, we're not giving you money. There was this thing we did not know about, the 7(a) SBA loan, and we actually got that. One bank, actually--we ended up with Sandy Spring, and they're the ones that actually told us, hey, by the way, there's an SBA-backed 7(a) program, and that saved our lives, actually. I got my first loan there. Of course, you also had to put in your house, your life insurance. I had to put everything in it, but that actually helped us a lot. Senator Marshall. Was that like a 5 percent down? Is that what that type of loan was? Mr. Rubio. Yes, there were some fees there, and since I was a veteran too, there were some things that were waived. But it was an easy--well, not an easy process, but definitely once we found out that that was available, we're still in it today. The deal with that is there was no education. I had no idea that it existed. Going back to education, things like the VIP, the 8(a) Accelerator--actually, I found out after the fact. I went to this course, this training, years into when I started the company, and I wish I would have done all that before even getting my certification. I regretted getting my 8(a) so early, and I was already three years into it. I wish I would have had this training before I did this. And the same thing with the money, the education. They brought the banks, they brought folks, CPAs who came in and talked to us. The deal with these programs is you actually have to sit there, and all these folks come in, and you can mentorship, you can ask questions. It's different from me sitting online and going through a class. It was more interactive, right? And you have folks who have actually done it. Senator Marshall. All right. Thank you, Chairman. I yield back. Chairman Cardin. Senator Shaheen? Senator Shaheen. Thank you, Mr. Chairman. And thank you both very much for being here and for your insights into what we could do to make these programs more effective. One of the concerns that I've heard from a number of small businesses in New Hampshire is the challenge of getting into Federal contracting. It requires a lot of paperwork, there's bureaucracy, and they find it really challenging. I've also heard that they feel like the agencies that they may be talking to have businesses that they've done business with over the years, and so they're not that welcoming to new small businesses that want to do work for them. So I wonder, I think you talked a little bit about how you got into the programs, the SBA programs. But can you talk a little bit about what your experience was getting into Federal contracting and what was the break that allowed you to do that? Either one or both of you. Mr. Rubio. It helped me that I was already in the government. I was retired, so I understood the system, I was used to it. Networking is a big, big piece to it, of course, for any business. The issue for me was that when I first came in I had to develop a business plan. And it's not their fault, but when I went to the SBA office, the sample they gave me was actually a hot dog stand, and they were trying to simplify it for me. But that doesn't compare to what you have to do in a Federal-- Federal contracting is a different animal. I mean, the financials alone, when I first started the company, you had to be DCAA compliant. Okay, what does that mean? There is actually a whole agency that does that. So there are a lot of things, a lot of rules and policies that you have to establish, for good reasons, but I don't think the SBA is prepared--they don't have, at least in my case, they didn't have anybody that was actually Federal contracting experts. And again, going back to the training that we received, those guys that were there, those folks were important for me, in my experience. Senator Shaheen. Ms. Caldas? Ms. Caldas. Yes. Similarly, before I formed ZemiTek, I supported the Federal Government as an employee of a small, mid-size, and large contractors. So I knew enough how to deliver work and understood the Federal contracting environment to an extent, because as a manager we didn't have access to certain information. It was challenging. For the reasons he was mentioning, we saw a lot of 8(a) companies apply, but by the time they figured things out they were already three or four years into the program. So that's why we decided to wait through our infrastructure, our accounting system, before we applied for the 8(a) program. Now, with regard to something you mentioned that helped us break into some of the agencies, because it is true, sometimes you are trying to provide support to some agencies and you don't understand how they work. They have different language, and they have different missions. What worked for ZemiTek was looking for opportunities where we could bring our experience as a subcontractor, and it gave us the opportunity to learn how that agency worked before we tried to pursue work in that agency as a prime contractor. It would have been very difficult for us to win the work without having an understanding not only of the Federal contracting landscape but specifically understanding of that Federal agency, what they buy, what are the rules and regulations, because besides the Federal regulations, each agency has some regulations that you just have to understand. So those two things worked for ZemiTek trying to tap into Federal contracting. Senator Shaheen. Thank you. Can I ask you, too, about your certification as a woman-owned small business? The rules are changing, and as of October you're no longer able to self- certify. I also understand that that's off to a relatively slow start in terms of helping women-owned small businesses understand how the new process is going to work. Part of the problem is you have something called the Rule of Two, where there have to be two women-owned small businesses who can compete for whatever the contract is, and part of the challenge is we don't have that many women-owned small businesses. So it's sort of a Catch-22. Have you experienced anything similar to that? Ms. Caldas. I'm going to answer your question in two parts, the certification, and opportunities for the women-owned. The certification process has changed, and the new system is cumbersome and is difficult to navigate. I have been applying to certifications since 2008. You go from the paper process, to a system process. When you had Certify it was working, and we got certified in September 2020, and now they have a new system, and there is not a lot of support sometimes from the SBA to navigate the certification process to complete the new procedures that we need to do before our first year. When we certified in September with the Certify process, we have one year to then jump to the new system. So the process is difficult, and there is not a phone number of somebody you can call. You keep on sending emails and just trying to resolve the problems by yourself. So one is the certification. Regarding opportunities, I have seen a lot more opportunities for women-owned small business in the last couple of years, and there are so many years that we have supported the Federal contracting. One thing that we are dedicating resources and, as you mentioned, they need to do the research and prove that a small business can do the work. I do believe there are a lot of woman-owned small businesses that can do the work. Sometimes I think the agencies, it's hard for them to find it, and it is also our responsibility as woman-owned small business to make the agencies know that we are out there. So one of the things that we are doing is any time an agency has a requirement that we think we can do the work and they have a request for information release, we are dedicating the resources to respond to that and to let them know we can do the work, and by the way, we are 8(a) and woman-owned. We have seen good results on that. Last year we pursued and won a contract that was a set-aside woman-owned using the GSA schedule, and this year we have seen one or two in the last few weeks that have been released, set-aside woman-owned, using the GSA Best-in-Class OASIS. So something is happening. Things are changing. We are seeing more than we have seen before. But I just wanted to address the two things, the certification process and the number of opportunities that are starting to go up for woman- owned small business set-aside. Senator Shaheen. Thank you. That's very encouraging. Thank you, Mr. Chairman. Chairman Cardin. We'll now go to Senator Hirono, who is with us through Webex. I understand she was here when the gavel was brought down, so I thank her for her patience. Senator Hirono. Don't let it happen again, Mr. Chairman. [Laughter.] Senator Hirono. Thank you very much. Have both of you gotten sole-source contracts? [Pause.] Senator Hirono. Hello? Can you hear me? Mr. Rubio. Sole source you said? Senator Hirono. Yes. Have both of you gotten sole-source contracts as 8(a)? Mr. Rubio. I have. Ms. Caldas. Yes, I have. Senator Hirono. Both of you. So, how does a company--for example, you're just starting out, you're in an 8(a), you have no track record. How do you qualify? How do you get the attention of SBA or any of the contracting entities if you don't have a track record as a sole-source provider? I think, Ms. Caldas, you touched on that a little bit. How did you gain the attention of the contracting entity so that they could do a sole-source contract with you when you just started out? Ms. Caldas. Yes. As I mentioned before, we understood that challenge, so we did not enter the 8(a) program when we qualified. We only needed to be in business for two years when we applied for the program, and we were in our eighth year when we submitted our application. So in the moment when we submitted for the 8(a) program, we already had some experience doing work as a subcontractor that we could pull forward when we were trying to pursue work to demonstrate that we could do that work. It took us several years more to get our--we have gotten three sole-source contracts, one really small with the Defense Innovation Unit of DOD, and two others providing technical assistance overseas. But at the time that we were pursuing those, we had enough past performance and past experience to demonstrate that we could do the work. It is a little more difficult for new companies entering the 8(a) that don't have that track record to be able to demonstrate that they can perform the work, so it makes it difficult for them to pursue 8(a) sole-source contracts. Senator Hirono. So is the path you followed to be in getting subcontracts so that you did have a track record, is that the usual path for 8(a)s who want to obtain sole-source contracts, Ms. Caldas? Ms. Caldas. I don't know if it is the usual path. I think the 8(a) is intended for 8(a) companies to be able to pursue those sole source when they are starting. But the reality is that when you are trying to pursue that work, you need to be able to demonstrate that you can do the work and that you have the capacity and the infrastructure to do the work. So I think it is a big mismatch in what is expected versus reality, and I think a lot of small businesses that join the 8(a) program think, okay, now I have 8(a), I can get a sole-source contract, and then find it difficult, taking several years, to be able to gain the experience that they need to pursue it. So that's the reality. Senator Hirono. That makes a lot of sense to me that a small business should have a track record if they hope to compete for a sole-source contract. It's probably something that the SBA should inform the 8(a) participants that that's the reality of things. So how many years are you into the 8(a) program, Ms. Caldas? Ms. Caldas. Five years. We entered the year in 2016, but just so you can compare, the company is going to be 14 years old in a few months, and we've only been in the program for five years. Senator Hirono. Yes. So I think that you are probably quite unique in how you have very strategically managed your company so that you are able to maximize your participation in the 8(a) program, so I commend you. And you have obviously grown your business to 70 employees. When you started, how many employees did you have? Ms. Caldas. One, me. [Laughter.] Ms. Caldas. The first year was me, and then I had a second person part-time. Senator Hirono. You should be a mentor. I think you said mentors would be good. You mentioned the concern about the category management contracting model, and I've heard from other companies, other minority-owned businesses that are concerned about the category management contracting model because it means that there are fewer contracts to go around, which means fewer opportunities for minority-owned businesses, particularly small businesses, of course. You have expressed some concerns about it. What should we be doing? Should we be getting away from this sort of contracting model? Ms. Caldas. I think with the category management and the Best-in-Class, it's a combination of issues. One, it is really hard to get in as a small business because, again, for you to be able to be successful and have one of those contract vehicles, everything is based on the scoring, and the scoring depends on how many contracts you have, what type of certifications you have. And the other thing is that those contracts don't have a full open enrollment, so they are every five years, a small window for you to try to apply and enter. So a lot of companies are doing, and we were successful just by partnering with a large business. So we as a team, who score high enough to enter--to gain the vehicle. So that's one thing. I think more agencies need to be educated about what is expected to be done with category management, because what we have personally seen is that we need to meet our category management goals, and certain requirements that were performed by small businesses are being moved to either the unrestricted pool or they--and we have seen this a couple of times. I don't know if it's something that is happening frequently. They release the same requirement at the same time for the small business pool and the unrestricted pool, and at that point you are really not competing. It is really just too hard to compete when you know that the large business is also going for the same work. So it is challenging because then a lot of the newer small businesses that don't have that experience, it's almost impossible to get into those vehicles. So it's either facilitating that some small businesses can really be part of it and opening the enrollment so we are not--I mean, we made an effort and we knew we only had one chance, we have to do it with a large business because if we don't do it now, we need to wait five more years. And then a lot of the requirements started to be consolidated and bundled. And because they are consolidated and bundled, they bundle a lot of small business requirements into a large requirement that they then release in the unrestricted pool. So I think it needs to be more visibility and oversight in how these plans are being implemented, because this is just reducing the contracts that are available for small businesses to pursue. Senator Hirono. Mr. Rubio, do you share that perspective regarding this kind of model for contracting? Mr. Rubio. Yes, and I was also--it's interesting because we had different experiences. I was in the JV also, in the mentorship program, and that was another lesson learned because there was not a match, and I wish I would have known a lot of things before I got into that. It's kind of like a marriage. You get married. You see each other's culture and financials and everything. So that did not work as well. As far as going back to the sole source piece, I just wanted to mention something, that I did have some issues with that, and it was that our clients--the deal with 8(a)s is that you have 8(a)s in specific areas, like I was supporting a very specific client in DOD, the Department of Defense, and they were not familiar with 8(a)s. They had no other 8(a). I was the first 8(a) that showed up, and I actually had a relationship with this client as far as doing other work for them. When it came to the point where we had to do a--we said, hey, let's go, we're an 8(a) now, and that's what happened back in 2015. I got my 8(a) and said, okay, we have an 8(a), and they said we have no idea how to use you like that, let's just keep doing what we were doing before. And we couldn't actually grow any business we were doing with them because of that. So education on the government side definitely was an issue for us, and even for us, because I didn't know how to tell them until years later, when I learned. So I did not wait, like you did. I should have. Senator Hirono. Considering that---- Chairman Cardin. Thank you. Senator Hirono. Oh, I'm sorry. Considering that all contracting agencies I thought were supposed to have certain goals regarding minority-owned business contracting, the fact that some entities still don't seem to know that, never heard of 8(a), that's pretty astounding. Mr. Chairman, I think this idea, this concern about the category management contracting model, I hope that we can ask further questions about how that is being implemented and the impact on 8(a)s and small businesses. Thank you, Mr. Chairman. Chairman Cardin. Thank you, Senator Hirono. Senator Rosen by Webex. Senator Rosen. Thank you, Chairman Cardin. I appreciate you holding this important hearing on Federal contracting for minority and women-owned businesses. I really want to thank the witnesses here today, too, for your insightful testimony, for your hard work to build your business and mentor others. What I want to say is that 99 percent of businesses in Nevada are small businesses, and so we understand their importance not just to our community and to our families but, of course, to our states and country. Congress has historically worked to enhance the integration of our small businesses in the Federal contracting process. In Fiscal Year 2020, Nevada small businesses received over $500 million in Federal contracting dollars. More than $220 million was awarded to small disadvantaged businesses, minority-owned businesses that are also economically disadvantaged, but $157 million awarded to woman-owned small businesses. So I'm pleased that in recent years the Federal Government has met its goals on small business contracting; but, of course, there's always room to improve minority- and women- owned businesses in Nevada and across the country. Ms. Caldas, can you tell me what you think we could do to improve not just the process but increase opportunities for women-owned businesses and just really increase the awareness that these things exist? And also do you think the resources that you needed were available to you through the process of seeking your opportunities? And what might you add, future resources that you think SBA could put in to help women and minorities and others in their quest to get their own small business going? Ms. Caldas. Several things regarding the woman-owned small business. I think the process of getting certified should be streamlined and should be easier. I mentioned in my testimony that we go through the process, for example, 8(a), we have proven that we are a U.S. citizen, that we belong to these groups, and that we have control of the business, and then we need to go through the same process to prove that we are woman- owned, controlled by a woman. So reciprocity between the 8(a) and the WSB. If we submit an application for the 8(a) and I already have proven that I am the sole owner, that you can get the WSB certification without having to go through the process is one thing. I think woman-owned small businesses need to receive some education in how to market to some of the agencies and have the resources available to respond to the requirements that agencies have to at least demonstrate that woman-owned small businesses out there are capable of doing that work. And I think at the same time agencies and government buyers and the contracting officers need to have a better understanding of setting aside work for woman-owned small businesses. Some agencies are doing better than others, and I think it's just a matter of some education and training and understanding. Just playing devil's advocate, sometimes the buyer needs to buy the services quickly, and they are going to go the fastest and easiest way to do that. So if they have an ability and they have an understanding of how to tap into the woman-owned small businesses out there, I think it's just going to benefit both the agencies and also the companies that are owned by women. Senator Rosen. Thank you. I think you're right about improving outreach and awareness. That's always an important factor. Mr. Rubio, I want to thank you for your service to our country. Of course, in Nevada we're proud to be home to over 225,000 veterans, and one in eight of our small businesses are veteran-owned. We also have one of the largest Latino populations per capita in the U.S., so really part of our small business ecosystem. So what do you think Congress can do to improve Federal Government's contracting numbers for veterans like yourself and being sure that there's outreach and awareness? What do you think you can add in the short time I have left? Thank you. Mr. Rubio. Thank you, thank you. It's basically the same thing. Also with the certification, after going through the 8(a) process, I had to get certified as a WSB, and we had to go through exactly the same process, although you can self- certify. But in order to get that CVE, you had to go through the process. It's education, going back to the same thing. The programs like VIP and the 8(a) Accelerator are things that we need. You need to get training like that before you get your certification because, like Ms. Caldas mentioned, you get your 8(a) or CVE and you go, okay, I'm ready, and crickets. Nobody comes or calls. You think that the phone is going to be ringing off the hook. And I get the part where we have to do marketing, we have to reach out to clients, but it's education on both sides, because your clients, the clients you've been dealing with, they don't even know how to use it. Senator Rosen. Well, thank you. I think this has been really informative. Outreach and training on both sides, streamlining, duplication in the process, that's going to make it easier for everyone, and then hopefully more effective for small businesses to move forward. Thank you, Mr. Chairman. Chairman Cardin. Thank you, Senator Rosen. You all have really put a lot before us, and we're going to be taking that into consideration. We did talk about the mentorship programs and the limitations that are there with the way that it has been merged with the Protege program, so we will be taking a look at that. We haven't had a chance yet to talk about HUBZones. I understand, Ms. Caldas, you did participate in a HUBZone. I don't know if you have any suggestions on how we could improve that program to make it more effective. We know it's important, but we do get concerns as to whether that's being most effectively designed in order to help underserved communities. Ms. Caldas. Yes. We were HUBZone very briefly. We entered the HUBZone program in 2009. It is very difficult to qualify in the HUBZone and maintain it because of the requirement that 35 percent of your employees should also live in a HUBZone, and you cannot dictate where your employees are or where they're going to move to. And then with the Census of 2010, a lot of companies like mine, zones change, and we lost the certification. So making it easier to maintain with the HUBZone would be one thing to take a look at. Also, make more opportunities available for HUBZone companies. When we were in the HUBZone program, a lot of the requirements that were released under that program, we couldn't find enough technical work aligned with what we were doing that we could pursue. What helped us was to be part of being a subcontractor because the large companies had to meet the goals of having a certain percentage of work contracted to HUBZone. So that's the only thing that we were able to take advantage of when we had the HUBZone. So looking for opportunities for HUBZone companies that are really good opportunities for the companies to do the work. You don't find a lot of IT work under HUBZone. I think I saw one a few months ago, and even though we were not HUBZone, I was just so happy to see that something real and tangible was really good work. More opportunities released under the HUBZone, but also facilitate the certification process. I know that there have been some changes lately in the HUBZone, but still the opportunities that are set aside for the HUBZone are very limited. Chairman Cardin. Thank you. I know that Senator Hickenlooper was attempting to be here. He may have an opportunity to ask questions for the record if they're asked. I want to thank both of you again for your testimonies. I can assure you we're going to be following up on the points that you have raised, and I think we will have opportunities during this Congress to respond to many of the points that you brought to our committee. So, in the legacy of Parren J. Mitchell, we're going to be doing everything we can to make sure that the tools available to the SBA are there to serve the underserved communities, minority businesses, woman-owned businesses, veteran-owned businesses, which Congress has intended to make sure it's carried out to its fullest. And with that, the committee will stand adjourned. Thank you very much. Ms. Caldas. Thank you. Mr. Rubio. Thank you, Senator. [Whereupon, at 3:32 p.m., the hearing was adjourned.] APPENDIX MATERIAL SUBMITTED [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [all]