Government Operations Committee on April 28th, 2009

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Thank you, Mr. Chairman.

Good morning. I hope you have access to interpretation.

Based on what you have been telling us, the SBA seems to be working very smoothly, without any issues. Do small businesses sometimes tell you about the problems they are encountering and the nature of those problems?

[Joseph Jordan]

Thank you very much. I appreciate your characterization of the SBA, but I do assure you that we have our challenges. In government contracting particularly--and I carve that out because the SBA also does loans and entrepreneurship education and a number of other activities--some of the challenges we face are around how to most effectively implement the contracting programs our legislative body has passed in the statutes.

Since that was what you asked, small businesses most often come to us, from their perspective, with concerns around how they can become qualified in any of the set-aside programs that exist. Getting them the information so they can line up their documentation and comply with all the regulations is sometimes a challenge.

Also, we have certain programs—I mentioned how the SBA handles protests for size standards, whether or not a business is small or other than small, and also for the service-disabled veteran-owned small business. The reason we handle those protests is because we don't, up front, certify companies into that program. It's a self-certifying program.

Then if a party, either the person who finishes in second place in a bidding or another aggrieved party with standing, comes to us and says that wasn't a small business or they knew the ownership and control of this business, and they are not owned and controlled by service-disabled veterans, we then go through handling that protest and that process. So that presents some challenges.

Also, just as an overarching challenge, in any program where you have large federal procurements going on and you have significant dollars flowing through them and you have preferential tools such as sole-source authority, set-aside programs, price evaluation preferences, you're going to have a risk of unscrupulous people taking advantage of those programs through some fraud and abuse. It's a constant challenge on our part, through the things like the technology, training, updating the regulations, to stay on top of that and make sure we're helping the right small businesses and the small business community at large.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

As I understand it, the SBA is there to support, advise and assist small business. One would add that the Administration might even go out and find money to assist small businesses, as well as defending their interests. So, everything is concentrated in your shop; there is no intermediary.

[Joseph Jordan]

You're right that a lot of this is concentrated in the SBA. The banks are the intermediary for our loan programs. So the SBA will guarantee a certain threshold of the loan and participate in the processing and approval process there, but the banks, the private banking system, actually issue the loans.

I can get more detail on that. It's not my particular area of expertise. That's one area where we work hand in hand with the private sector to achieve our goals. In many of the areas we talk about, the education components, the people—we have a field staff of just about 1,000 people and the structure stretches throughout the country. All those are done directly through the SBA.

[The Chair, Liberal, Derek Lee]

Thank you, Ms. Bourgeois.

Mr. Gourde, you have five minutes.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you very much, Mr. Chairman.

I want to welcome our witness this morning.

You referred earlier to your goal of 23 per cent of procurement being set aside for small business. Can you tell us whether that is a mandatory goal and if it is met by all government agencies; also, if an agency does not meet that goal, what action is taken then?

[Joseph Jordan]

Well, sir, you've hit upon the crux of my challenge in my job. Again, these are goals, but they're not necessarily set-asides. There's a slight difference. The set-aside is one of the tools we use to achieve the small business contracting goals. They're not compulsory in that there is no specific punishment for not achieving them. They are goals we would like to achieve and exceed, but that is not always the case. They apply to all federal agencies, although there are a few areas that are not subject to what we call the federal acquisition regulations, for a number of reasons, whether they be security-related or other reasons.

So how do we help the agencies achieve the goals, and what do we do when the goals are not achieved?

On the first part, we work with every agency to set their individual thresholds in each of the small business categories. That's for small business overall, which you correctly said is 23%. But then there are also the subcomponents--5% for women who own small businesses; 5% for small disadvantaged businesses; 3% for HUBZone businesses, and 3% for service-disabled veteran-owned small businesses. We work with them to set individual agency goals, depending on what they're going to procure in the coming year and how they foresee working with small businesses, keeping in mind that the government as a whole needs to hit that entire number.

What do we do when the agencies do not achieve their numbers? That is something we're continuously looking at. What we do now is publish the score card so that people know which agencies have successfully achieved their goals and which agencies have not, and we then follow up. Any agency that does not achieve its goal must submit to my office a plan for how it is going to achieve the goal in the future. We then evaluate those plans and work with them to try to help them be in a position to achieve their goals going forward. But there's not a clearly outlined punishment, so to speak, for not reaching those goals.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Mr. Jordan, do you have a policy on bundling? If so, what are the terms of that policy?

[Joseph Jordan]

We do. That's one of the chief responsibilities of the procurement centre representatives I discussed. These are people out in the field, at either large military installations or at agency locations, where many contracts will be issued from. These procurement centre representatives review each contract that comes through to say that, yes, it was set aside for small businesses, so that's fine, or that no, it wasn't, but the agency has shown us the market research that says small businesses could not perform this function or could not provide this good.

Also, on the contract bundling issue, if they see a contract that's over a specific size, and it looks as if it's a bundling of a number of small buying activities that small businesses either did in the past or could do, in our estimation, we will protest. And we will have discussions with that agency about how they're going to break that apart or create appropriate subcontracting plans in each of those sub-areas so that the small businesses get a fair share of that procurement. Sometimes bundling is allowed if they can demonstrate a measurably substantial benefit or if there's another unique but valid reason. But in the vast majority of cases, we will review and put a hold on that contract until we've worked out a satisfactory solution between the agency and the small business needs and concerns.

I can give you more information in the future, as you would like, about the tools we use and how we evaluate whether a contract has been bundled. But at its core, that is the function.

[The Chair, Liberal, Derek Lee]

Merci, Monsieur Gourde.

We'll have Ms. Hall Findlay for five minutes.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

Mr. Jordan, in our earlier session today, which you may not have had a chance to hear, we heard some interesting suggestions from an office of small and medium enterprises that we have within our public works department. There are some concerns that it hasn't really been doing enough for small and medium enterprises.

One of the suggestions that came up today was to have our office of small business within the government act as a bit of a test bed to encourage smaller enterprises—this was in the context of information technology, and high tech companies in particular—when there might be a concern within government about engaging and contracting with a small business with perhaps less tried and true technology, for example. This is all in the context of encouraging innovation. The suggestion was that the office itself act as a bit of a test bed, to offer the opportunity for companies to try out their technology before the decision is made whether to contract with them or not.

Is that something that you do? What are your thoughts on it?

[Joseph Jordan]

You've raised several very interesting points within that question.

The first is that there's a real education and outreach component to what my office does, in terms of going to the agencies and helping them understand and realize that small businesses can really provide the highest-quality, most innovative goods and services out there. There is a risk aversion, I would call it, for lack of a better word, that sometimes leads them to prefer a large business, and it is a prime function of my office to help educate them. As you know, there are also all of these small businesses that can do these things, and you're not taking on more risk, necessarily, by using them and are often getting a much better product or service.

In terms of proving this out through the SBA or the OME, we do some of that. In an informal way, the SBA is one of unfortunately few federal agencies that consistently hit a number of the small business procurement goals. That is a testament to the fact that, one, there's motivation to find small businesses that can provide these goods and services at the SBA; two, once you start down that path and reap the rewards of these high-quality goods and services from the small businesses and get away from the mentality that only a large business could do X, Y or Z, it's a self-fulfilling prophecy, and you do more and more of it; and then three, we have set up some more formal ways for that last piece we talked about—proving the concept, proving the technology.

For example, we have a program called small business innovation research, the SBIR program. It's a grant program under which federal agencies that have a research budget over a certain threshold must allocate 2.5% into this program. It gives, phase one, awards for proof of a concept; phase two, grants that are slightly larger in dollar amounts to bring the technology along; and the goal is to get all of the participants through phase three, which is commercialization of their technology or their good, their product. The SBA is tasked with overseeing the program and making sure it's running effectively and that agencies are playing by those rules.

Those are a few different things that try to get at what you were asking. I can follow up on any of them, but I hope that was somewhat helpful.

[Martha Hall Findlay, Liberal, Willowdale, ON]

It's very interesting, actually. Thank you very much.

To clarify, when you talk about the agencies, it sounds as though each one has a budget that they have to use for working with enterprises that have products or services or technologies that are not yet commercialized anywhere else.

[Joseph Jordan]

It's more on the research part rather than the procurement part. The goal is to get it to the procurement part. But there are, I believe, 11 agencies whose research budgets are over the threshold at which they need to set aside that 2.5% for this program.

In terms of the procurement, those goals, at 23%, and the individual goals that we set with each agency still apply, but they're not statutory as that other one is.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Finally, do you find that this actually works?

[Joseph Jordan]

It's a tricky one to answer, because I don't know what the alternative would have been, what the state of affairs would look like if these didn't exist. I certainly think it's incredibly helpful or I wouldn't be doing this, but we're constantly looking at ways to improve them.

Do I think they're good programs, and that the goals are good things to have, and that they encourage more small business procurement than would otherwise happen? Yes, I do.

Do I think we have the numbers exactly right? Do we think every program operates perfectly? Unfortunately, no, that may not be the case.

I mentioned at the beginning that the SBA was founded in the 1950s. Here we are 60 years later, and we're constantly utilizing technology, new information—everything we can—to improve every program and every part of each program. There are still challenges ahead, but I do think these are good programs.

[The Chair, Liberal, Derek Lee]

Mr. Roy, you have five minutes.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Thank you, Mr. Chairman.

Good morning, Mr. Jordan.

I have a very practical question for you. I would like to know whether the entire procurement system is grouped together under your Administration. You talk about $400 billion worth of procurement. Is that through a single agency or does each individual agency have its own procurement department? How do you go about obtaining information from each of those agencies? You say that they produce a report, which you then verify, but do you actually validate that report? Do you engage in more in-depth research? Do you ask questions? Finally, is the procurement system as a whole centralized?

[Joseph Jordan]

It is not centralized. Each agency has its own procurement function, with contracting officers and large procurement groups. There are actually over 3,000 buying activities. That's our phrase for places that are issuing contracts. There are 3,000 in the U.S.

How do we, then, track and monitor them? Those are some of the technology pieces that I mentioned we've been developing. This gets to the prior question of how we know whether these things are doing a good job, because we need to evaluate the metrics and say yes, it's doing the right thing, or here's where it needs improvement.

When contracting officers are issuing a solicitation for bids and are getting ready to issue a contract, they need to enter that data into a program that's fed onto a website we have called FedBizOpps, or federal business opportunities. You can go to fbo.gov, and a vendor can see and search for contracting opportunities from any agency and can try to participate.

There are a few other tools, but skipping to the end, once the agency has chosen the winner and the contract is done, we track all of that, because they must enter it into another system called the federal procurement data system, FPDS-NG—NG is for “next generation”—and through that we are able to track what they've actually purchased, whom they've purchased it from, what socio-economic programs may have qualified, all of those types of things.

The last part of your question, which is also very valid and a very big challenge for me, is how do we know they're telling the truth; or, said more nicely, how do we make sure there aren't mistakes made? That's where we come in and work with them. We can see this entire database, and when we see what we call anomalies or inconsistencies, we go back to those agencies and those buying activities and ask them to double-check a contract or piece of data and tell us that either, yes, they did it right or, no, they need to correct it and go back through.

That is a huge challenge when you talk about, as you noted, $400 billion-plus in contracts—which means many, many contracts—issued by 3,000 different places. It's quite a challenge for us to then follow up and make sure they haven't made any mistakes, but it's something we take very seriously, and that is very important when you're trying to get the metrics and the data necessary to make decisions to answer such questions as whether we think these programs are working well.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

I have one final question. We talked about $400 billion worth of procurement, but what is the average value of the contracts that are let? Obviously, if we are talking about military contracts, it may be quite different, but for small and medium enterprises, what is the average value of a government contract?

[Joseph Jordan]

That is a great question. I don't know off the top of my head. Some are quite large, as you know, with the large prime contracts for military-type services, and some are quite small, in the hundreds of dollars.

You know what? I want to know the answer to that, so I'm going to follow up and find out to the best of my ability and I will let you know, because I don't know that off the top of my head.

[The Chair, Liberal, Derek Lee]

Thank you, Monsieur Roy.

Mr. Warkentin, for five minutes.

[Chris Warkentin, Conservative, Peace River, AB]

Thank you, Mr. Chair.

Thank you, Mr. Jordan, for joining us today. We appreciate your testimony and your efforts to communicate what you're doing.

[Joseph Jordan]

Thanks for having me.

[Chris Warkentin, Conservative, Peace River, AB]

In terms of your small businesses and the folks you're working with to ensure access to government contracts, we've had some discussions around our table in terms of, number one, what characterizes a small business to be in fact a small business, and second of all, what type of small businesses do we want to ensure are protected in terms of their ability to access government contracts.

I'll just ask a question in terms of your relationship with small businesses. When you're dealing with a small business, are you looking to ensure protection for those that have a unique or leading-edge technology, or would you go the full gamut? Obviously you have certain small businesses that you want to contract with for different reasons, social reasons, but would you protect a small business that was simply a retailer of a product that you could access through a larger company or a different company, which would provide the exact same product simply because they were retailers selling somebody else's product?