STATEMENT
Of the Honorable Judy Chu
Subcommittee on Contracting and Workforce Hearing
"Subpar Subcontracting: Challenges for Small Businesses Contractors"
October 6, 2011

Today, small businesses are looking for opportunities to grow stronger and expand. As the driving force behind nearly two-thirds of employment gains, this is critical for the economy. One way that we can enhance small firms' job creating-power is through the federal procurement marketplace. In the last decade, the government has doubled its contracting efforts to more than $500 billion per year. This makes the U.S. government one of the largest single buyers of goods and services in the world.

Typically, prime contracts are generally viewed as the most lucrative way for entreprneurs to participate in this marketplace. However, subcontracts are nearly as important and I am glad that today's hearing is focusing on this important issue.

In fact, last year small businesses received $97 billion in prime contracts, while receiving an additional $74 billion through subcontracting opportunities. For subcontracts, this totaled 35.4 percent of all contracts, just shy of the 35.9 percent goal. The reality is that subcontracting is a critical avenue for entrepreneurs to work with the government, particularly for those dealing with the current economic slowdown.

Although subcontracts are an important entry point, more needs to be done to make them accessible to small firms and today's hearing will help us shed light on this. The preparation and enforcement of subcontracting plans is a critical area that needs to be strengthened. For businesses – like the one's here today, such plans are absolutely essential to winning work. However, given recent GAO reports, it is clear that more can be done to make these plans more effective.

One of the main issues is that limiting the effectiveness of these plans is both a lack of SBA personnel – namely PCRs and CMRs – and I am glad the agency is here today to address this point. An adequate and thorough review of these plans is important, but there is simply not enough staff to do so. With more than 3 million contracting actions each year, the less than 100 staff assigned to such reviews is insufficient. Additionally, it is well understood that there is a lack penalties and incentives regarding the implementation of a subcontracting plan. This means that in many cases small businesses will continue to be an afterthought, rather than a primary focus.

I am also looking forward to exploring the tools that exist for small businesses to become subcontractors. For example, the SBA operates a database called SUB-Net. Through this system, prime contractors can post subcontracting opportunities and small businesses can search through these entries.

However, as posting is not mandatory, the website presents limited opportunities – a current search of the database reveal only about 100 active solicitations. If we want to draw in more small businesses, particularly those that are not regular government contractors, we must improve mechanisms like this.

Finally, in light of recent allegations about fraud and abuse in SBA's contracting programs, it is worth talking about subcontracting from another perspective.

Unfortunately, in some instances, subcontracts have become a means to defraud the government and take opportunities away from legitimate small businesses. To prevent these abuses from occurring, more resources must be directed to oversight and penalties must be strengthened.

Despite these challenges, subcontracting remains a vital means for small businesses to access government contracts. Channeling more procurement opportunities to them is a smart policy.
Doing so spreads the economic power of the federal procurement marketplace to more companies and communities.

With the economic challenges on the horizon, this is more important than ever. While we are always talking about the need for diversification in business models, the slowdown has made that particularly important, especially for small firms. For these businesses, government contracts put another option on the table.

By further opening the federal marketplace to small businesses, we can ensure entrepreneurs have an opportunity to win new customers in a new market. This is key, because while our economy is showing promise, the recovery remains fragile. Before we can really turn a corner, we'll need to see significant job growth--the kind that can only come from small businesses.

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