STATEMENT
of the
Honorable Nydia M. Velázquez, Chair
House Committee on Small Business
“Small Business Participation in the Federal Marketplace”
March 24, 2010, 1 p.m.

“Whether we’re taking about the credit crunch or the small business regulatory burden, there’s no question that the last few years have been challenging for entrepreneurs. According to a recent survey, however, their greatest stumbling block isn’t a lack of capital or an excess of red tape—it’s a shortage of customers. With consumer spending sluggish and new clients in short supply, the federal marketplace has become an increasingly attractive option. In the last decade, it has more than doubled in size—outpacing virtually all other markets and reaching $528 billion in 2009.

“Given its remarkable growth, you would think this sector would be an oasis of small business opportunity. In reality, it’s more of a mirage. While it’s true that the U.S government is the single largest buyer of goods and services, the fact of the matter is that it purchases very little from small firms. Small companies represent 99% of American businesses, and yet they account for less than a quarter of federal contracts.  When you factor in overseas contracts, their market share shrinks into the teens. 

“In today’s hearing, we’ll examine the state of small business procurement. In doing so, we’ll look for ways to improve the process for entrepreneurs, and ensure they have the tools they need to win contracts and create jobs.

“In 2009, federal agencies missed their small business contracting goals by 2%. Procurement officers will tell you that number is negligible, and no big deal. But while a 2% shortfall may not sound like a lot, it ultimately cost entrepreneurs $10 billion in missed opportunity. Or, to put it another way, it cost Americans $10 billion in lost job creation. Small contractors, like all other small firms, create roughly 70% of new jobs. So when their ability to win contracts is compromised, employment numbers are too.

“SBA’s contracting programs should be a critical tool for small firms. However, many of these initiatives are outdated, and have fallen into disrepair. In some cases, the agency has failed to implement them all together. Recent reports from the IG and GAO suggest significant room for improvement. Perhaps most notably, investigators have uncovered hundreds of billions of dollars in fraud within both the HUBZone and Service Disabled Veterans programs. As a committee, we have held several hearings on that issue, and are working to root out waste, fraud and abuse at SBA.

“But the committee’s concerns are not limited to SBA programs alone. Overall, procurement has become increasingly complex for small companies. Misguided efforts to streamline the process have contributed to a surge in contract bundling and a culture of cutting corners. Yes, these changes have made things simpler for agencies and easier for procurement officers—but at what cost to our economy? With unemployment at 9.7%, we shouldn’t be looking for ways to make the process easier for bureaucrats—we should be looking for ways to make it easier for entrepreneurs to find work. After all, theyare the ones out there creating jobs. 

“We’re always talking about the need for diversification in business models. The recession has made that particularly important, especially for small firms. For these businesses, government contracts put another option on the table. By restoring integrity to the federal marketplace, 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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