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Hearing of the House Contracting and Workforce Subcommittee of the Small Business Committee - "Putting the Strategy in Sourcing: Challenges and Opportunities for Small Business Contractors"


Location: Washington, DC

Thank you, Mr. Chairman, for holding this important hearing.

Our Committee has long acknowledged the critical role small businesses play in the $500-billion-a-year federal marketplace. When small firms are awarded contracts for government agencies the result is a win-win. The government receives good value for their money, as small companies have the dexterity to provide high quality goods and services at competitive prices. That means taxpayers' resources are spent wisely. Not only do the agencies benefit by using small businesses, but the economy does as well. Equally important, unlike larger businesses, small businesses must often add staff to meet government demand for their products and services -- which results in further job creation. With our economy continuing to recover, it is vital that we pursue every mechanism possible to foster job creation by the federal government-- and that extends to the procurement process.

As more federal agencies adopt the strategic sourcing initiative, questions are arising about whether the "SSI" --promotes competition and fosters small business participation in the federal marketplace. With 19 agencies moving to make SSI mandatory, many small firms are starting to suffer. One analysis focused exclusively on suppliers of office products. It found that, on average, small firms previously competing under the GSA schedule for this business lost anywhere between $20,000 and $10 million in revenue. The Committee has heard from a number of entrepreneurs who suggested that these changes are already resulting in layoffs. If SSI is hurting small businesses and the economy, we must examine this issue closely. I want to make sure businesses like Data Conversion Laboratory in Fresh Meadows, New York -- or Defender Security Services in Rego Park, New York -- are still able to compete for federal contracts on the same playing field they are today.

Small firms not included in the Blanket Purchasing Agreement tell us they find themselves effectively locked out of a $1.4 billion market. In the meantime, large corporations like OfficeMax and Staples are expanding their presence in the federal marketplace. If small firms that previously won contracts through the GSA schedule are being denied the opportunity to compete -- even when they could provide the same goods at a lower price -- then we have to wonder whether SSI functions as intended.

There are also concerns about whether SSI is sacrificing long term competiveness in order to reduce short term costs. If the vast majority of small business contractors are not chosen to participate in SSI and, as a result, stop bidding on federal work, will agencies have fewer options in the future? And, when prices begin creeping up, wouldn't we want a larger pool of small firms to compete for right to deliver these goods and services? Without a diverse range of companies in the federal market, we may find that over the long term SSI has failed to reduce prices, but instead reduced the number of firms participating in the process.

Setting aside questions about how this initiative impacts entrepreneurs, it is important that SSI not be used as a "one size, fits all" approach to procurement. What works for the purchase of physical products may be ill-suited for contracts related to services. Similarly, not every agency may find SSI to be a good match. Media reports suggest agencies are feeling increasing pressure to adopt the SSI standards for all purchasing decisions. Although it remains to be seen whether SSI saves the taxpayer money, it seems intuitive that if there are savings, the program should be applied only where it works -- while the former GSA schedule should remain intact where it keeps costs low and quality high.

All of this is not to say that the SSI program is without merit. We certainly do not want agencies using less efficient and more expensive procurement processes. However, if small firms that have been offering quality services are being locked out --even having to let go of staff -- then it may be time to take a hard look at whether this initiative is achieving the desired result.

On that note, I look forward to hearing from the witnesses and thank them for shedding light on this critical topic.

I yield back.

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