Government Operations Committee on Feb. 8th, 2018

[The Chair, Conservative, Tom Lukiwski]

Colleagues, I'll call the meeting to order.

I have a couple of points before we get going.

One, we have two witnesses with us today, but they are not in person, and they're not even by teleconference. We do have them hooked up by audio only, unfortunately. I would ask all of you, when you're going to be asking questions, to please identify yourselves so the witnesses realize who they're speaking with, and who's asking the questions. It's a little weird, I understand, but unfortunately it's all we can do at this point in time.

Secondly, we only have the two witnesses. I'm not sure exactly how long the questioning will take. That will be up to committee members. If we have exhausted all of our questions before one o'clock, which I anticipate we will, we'll suspend, and then go into committee business. I'm anticipating committee business perhaps around 12:30 p.m., although it might be earlier, and that all depends upon the people around this table.

With that, I think we'll commence.

As I mentioned, we do have two witnesses with us today, Mr. Eugene Cornelius, Deputy Associate Administrator, Office of International Trade; and Mr. James Parker, Acting Director of the State Trade Expansion Program, Office of International Trade.

Mr. Cornelius, please go ahead with your opening statement.

[Eugene Cornelius, Deputy Associate Administrator, Office of International Trade, U.S. Small Business Administration]

Thank you.

I would just like to say that the mission of SBA as created 60 years ago was to facilitate an environment, an ecosystem, to advance and to grow small businesses in order to heighten employment in the United States market. The U.S. Small Business Administration does this through what we call four pillars. There are three, for capital, counselling and training, and disaster for small businesses, as well as government contracting, which we will expand upon.

We make sure that we are creating level playing fields for our small and medium-sized businesses to compete for products and services. Within that, we have the department that deals with the counselling, contracting, and access to capital that we provide. It is particularly our office of government contracting that we're here to talk about today.

GCP works to create an environment to maximize the participation by small and disadvantaged businesses, and even women-owned businesses, in the federal procurement contracting awards. We do that because the United States is a large purchaser of products and services—we spend over $500 billion annually—so we want to make sure we have small businesses in that arena. We have a goal which we designate as a serviceable goal, and I'll talk about what that is.

Currently, we have a small business goal of about 23%. This is not a mandated goal, but it's a goal that we try to achieve and have achieved in the last three years. We've tried to break that goal down into specific categories; this includes 5% for women-owned small businesses, 3% for service-disabled veteran-owned businesses, and 5% for small disadvantaged businesses. That we'll detail a little more for you.

We also have 3% for what we call historically underutilized business zones. Those are areas in the United States that have high unemployment or low income, or a combination thereof, where we as a government have an interest in making sure economic development occurs. We incentivize small businesses to move into that area and hire people from those areas so that we can stimulate economic development and growth. We do this by offering them a 10% price differentiation when it comes to bidding for federal procurement or federally funded procurement. This is a very active program that we use.

In our small disadvantaged programs, we have a pillar program, which we call the 8(a) program. The 8(a) program is a nine-year developmental program. It's not a contract program, but it's a business development program. We use contracts within the federal government to entice and build these small businesses through exchange. In there, we have government set-asides. If you are a participant in this nine-year program—you have to be either socially disadvantaged, of minority status, or economically disadvantaged—we allow you the first four years for development and the last five years as transitional. We have set-asides of up to $4 million for non-competitive contracts with the federal government, and we have above $4 million, competitive only within the memberships of those people who qualify for that program.

Those are things that we use to make sure we are getting small businesses into the rank of that $500 billion that I spoke of that the United States spends.

Now, all procurement actions that are expected to exceed $150,000 U.S. go through what we call a simplified acquisition threshold. It's an attempt to open up the contract and to make it simple for those people who don't have prior experience dealing with the government to compete and bid for contracts within the unit, or the federal government, though they may not have had the expertise and experience previously to get such an award. That goes higher for other procurement actions that exceed $650,000 U.S., and over $1.5 million U.S. if it involves construction. Those are basic tools that we use as vehicles in our arsenal to make sure that small businesses get contracts.

How do we make sure that small businesses are aware of these contracts? How do we make sure that small businesses have the counselling and technical assistance provided to them in order to succeed in getting these contracts? There we use our field staff and our procurement centre staff and our commercial marketing representatives to make sure that we counsel, train, and develop every aspect in every potential wave of the contracting phases so that the small businesses have access and they know what they're doing.

Our field representation has what we call business development specialists and business opportunity specialists in 68 offices across the 50 states and U.S. territories. Their sole job is to work with those people, these small businesses, to make sure that they understand the business acumen necessary to obtain these contracts and, if necessary, to have the working capital to meet the requirements of these contracts, and also the surety and performance bonds and whatever else is necessary to ensure success for our small businesses that may not have the expertise in their in-house small business to do so.

That is an awful lot of stuff, but I believe that Jim has submitted to you a two-page paper that summarizes what I just said, and I hope that it can be a reference point for you regarding all that I have just said in general, and that we can go to the questions and answers, because I think that would be the best way to communicate to you regarding your direct requests and needs, which we can answer accordingly.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much, Mr. Cornelius. You're right: I think that a lot of the information that you wish to transfer will come out during the question-and-answer period.

I would remind you, colleagues, that we're going into a seven-minute round of questions now and I would ask that you please identify yourselves before you ask your questions so our guests, who cannot see us, will understand who is asking the question.

Mr. Drouin, we'll start with you for seven minutes. Go ahead, please.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

I'm Francis Drouin.

Thanks for your presentation. I've listened attentively to what you have had to say. We've been studying this issue for probably the past few months now. We've obviously been looking at the U.S. model. One of the questions I'm curious about is how the U.S. came to $150,000 for the small business set-aside.

[Eugene Cornelius]

Good question.

The actual $150,000 is not for the set-aside. The set-aside goes up to $4 million. What the $150,000 goes for is the simplified acquisition. It actually starts at U.S. $25,000.

What it means is that we want to make sure that even the smaller contracts, the contracts that are the most likely low-hanging fruit that our small businesses can go for, are not being favoured by certain people and certain things. We have a simplified acquisition process to ensure that everybody has a right to those contracts and they are not just being favourably given to certain people.

Now, having said that, to your question about the set-aside, if you are in the 8(a) program, the nine-year term program, and you are developing your business and you're going for a federal procurement, we can give you a federal procurement contract with non-compete status, a sole-source set-aside, for up to $4 million. That's different. That's open only to those people who are members of that program.

But the simplified acquisition plan is open to all small businesses, whether they're in a program or not.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Once they subscribe to the simplified acquisition threshold, is that procurement process simpler than if the amount were higher? I'm coming from this angle where small businesses don't have the same resources as larger businesses to respond to RFPs and whatnot. Have you simplified that procurement process for small business?

[Eugene Cornelius]

Yes, that's why it's called a simplified process, because it is different.

If it is above those thresholds that I quoted, then it becomes a little more rigid and what we call the federal acquisition regulation rules come into play. Those rules can be very stringent and they can be very detailed.

This is a simplified process that makes it easier for these acquisitions and awards to be made, given the amount.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Is there a best practices adopted or suggested across the U.S. government in terms of limiting the number of pages that a potential proponent must answer to RFPs?

For example, here in Canada, we have heard that RFPs can be up to 400 or 500 pages, but we have heard that in the U.S. they limit responses to 15 pages. Is that something you guys work on as well?

[Eugene Cornelius]

Yes, and that is very true.

Through our contracting officers in the 24 different federal agencies across the United States government, SBA does monitor that to make sure that they are not add-on, burdensome requirements that will not facilitate small business participation.

We give the 24 agencies a scorecard on their ability to reach that 23% goal that we hope to make, even though it's not a mandated goal. We do look at them and we ask, “Are you allowing small business participation? Are you simplifying and making easier access for small businesses to participate? And are you awarding small businesses contracts up to the level goal?” And we give them a rating of red, green, or yellow based on their ability to meet those goals.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thanks.

The other issue we're struggling with here is whether past performance should be taken into account for future opportunities. I'm wondering if that's something that the U.S. government does. In order to allow a new business or a former business to apply for potential new business, do they assess the past performance of that particular potential proponent?

[Eugene Cornelius]

I love that question. Thank you so much.

Yes, we do. However, we have mediation mechanisms to help with that. When you're in the nine-year program, the 8(a) program, we have what we call the “mentor-protege” agreement. You may not have the prior experience, but you team up with a mentor who does. They can give you the expertise and lend to you to make you qualify for a joint venture contract. We always say that 60% of 40% of a contract is better than 0% of a contract. It gives you a leg up, as a small business, for meeting the requirement of future procurements, because you now have gained prior experience by having that joint venture or by the mentor-protege working together to get that first contract.

So we do support that.

[The Chair, Conservative, Tom Lukiwski]

Sorry, Mr. Cornelius, we're out of time.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you.

[The Chair, Conservative, Tom Lukiwski]

Mr. McCauley, our next intervenor, might ask you to expand on your last response.

Mr. McCauley, you have seven minutes.

[Kelly McCauley, Conservative, Edmonton West, AB]

Gentlemen, good morning. This is Kelly McCauley from Edmonton.

Mr. Parker, I should just let you know that there's a famous football player, James “Quick” Parker, who played in Edmonton several decades ago.

[James Parker, Acting Director, State Trade Expansion Program, Office of International Trade, U.S. Small Business Administration]

Oh. That's very nice to hear. Thank you so much.

[Kelly McCauley, Conservative, Edmonton West, AB]

I was hoping it was you.

[James Parker]

No.

[Kelly McCauley, Conservative, Edmonton West, AB]

At any rate, Mr. Cornelius, did you want to finish off what you were talking about with regard to the mentorship program?

[Eugene Cornelius]

Yes.

You'll remember that I said the 8(a) program is really not a contract program but a business development program. One of the things in our arsenal for business development—we're the federal government, we're not a business—is how do we develop businesses from here in the federal government? One of the key things we do is we take our graduates of the 8(a) program, we take medium-sized businesses, and we create mentorships with our incoming 8(a) participants, those who are in the first four years, the developmental years, of that nine-year program. We have learned that it is easier for them to get a contract when we create joint ventures and mentor-protege agreements and have them compete for a contract in the federal government.

[Kelly McCauley, Conservative, Edmonton West, AB]

You have the breakdown for your set-asides, such as disabled vets and women in business. Do you do the same kind of mentorship or help them out with the joint ventures as well?

[Eugene Cornelius]

Yes, we do.

[Kelly McCauley, Conservative, Edmonton West, AB]

Is it all under the same same program, or is it done separately?

[Eugene Cornelius]

Even though it is very active in the 8(a) program, the mentor-protege program itself is a separate program that is used in the 8(a) program and outside of the 8(a) program. Joint venture agreements can be used by any small business. What we do is we create matchmaking facilitated events where we will match people with people who have the same lifetime experience or industry interconnections. We see if they can gel together and become a joint venture and go for a bid. The individual, without that, would not have been successful in getting a bid.

[Kelly McCauley, Conservative, Edmonton West, AB]

Great.

You mentioned at the beginning that you have a goal of 23% to small businesses of government procurement. Is that 23% by dollar volume or by number of contracts awarded?