Dr. HUGHES. Now another problem that exists with the SBA here, here I am, a professor, a scientist, a section head, my wife is a State commissioner for the Toxic Substance Control Commission for the State of Michigan, appointed by Governor Milliken, and she makes the decisions and risk estimates and cancer decisions for the State, the Department of Natural Resources, the Department of Public Health, and the Department of Agriculture report to her and other members, six or seven other members in the area of risk estimate decisions for the protection of the people in this State. I go into Mr. Kennedy's office to get SBA loans and the first thing I hear coming from him is how somebody ripped off some program in New York at a racetrack from some advanced fund that came from somewhere. I'm not even used to people talking to me like that. So I am subjugated, to start with, to all the problems that SBA faces and I'm coming in to get a loan in a very professional manner and then on top of that to add insult to injury—

[Laughter.]

Mr. CONYERS. Do you realize we are laughing with you and not at you?

Dr. HUGHES. Yes, and to add insult to injury-Mr. Kennedy is a kind man but he did do that-but to add insult to injury there is a cold steel uncaring approach to the upper administration of this problem, I mean of this Administration here, this Small Business Administration. These people are like the program people at the National Cancer Institute or wherever they are in research, they are going to operate under 8(a) if they are forced to, otherwise, if there are other laws they can operate under, they will pick the law which they want to break.

Mr. CONYERS. If you recall, the original question I asked some time ago was what we could do to turn this precarious situation around.

Dr. HUGHES. For me?

Mr. CONYERS. Yes.

Dr. HUGHES. I just need, what I need is, first of all, to have the SBA obligation liability off my balance sheet and to go in then and at least pay for it with another loan. My wife and I bought our buildings ourselves, so all of that is personal liability on us because the company didn't have enough money to buy it. So we bought it. We sold our house and bought the building, but I need to purchase the facilities and bring the asset on my balance sheet in Hughes R. & D. so I can float stock.

Mr. CONYERS. Doctor, isn't it possible, even in this difficult situation, that perhaps belatedly the Government may come to your aid, is it too much to dare to hope?

Dr. HUGHES. Sir, if the Government does not come to my aid I will be out of business and probably in the next 30 days. I have a repayment plan to file the first week of April and if I don't have some kind of plan then the hawks are going after me, because I will break that chapter 11 and I won't be around, at least the business won't be be around, the business that performs better in the field of large volume pathology than any other business in the country, minority or nonminority. I have letters to back that up, too, from my clients.

Mr. CONYERS. How many people were originally in your employ and are now currently?

Dr. HUGHES. That's right, that's a good question. I set up, I had maybe 17, 18 people. Now we've got seven or six because I had to lay those people off; one of them was a scientist.

Mr. CONYERS. Well, you couldn't have come to a better meeting in my office because today we just happen to have the assistant regional administrator, the district director, Mr. Kennedy himself may be here for all I know, and a host of all of the Federal resources at my command happen to be within the confines of this hearing room and I would like, with the concurrence of my colleague, to ask at this point very explicitly that all of them, at their earliest convenience on Monday or Tuesday, meet with you to begin taking whatever action may be necessary to render you as much assistance as possible.

Dr. HUGHES. I'm staying at the Pontchartrain, my name is Dr. Richard Hughes and I won't leave Detroit until I can get some help. This is the sad story, we did break, we did contribute to breast cancer research in this country, even if we do go under.

Mr. MCSPADDEN. Dr. Hughes, I have one question for you.

In the list that SBA gave us as to why you were rejected from the 8(a) program, they put down "additional documentation requested, no response." Is that true?

Dr. HUGHES. No, it's not. I called Mr. Kennedy and I told Mr. Kennedy that I have contacted by letter and by telephone these institute directors, and I do not understand why they would not send them a letter.

Mr. MCSPADDEN. He was asking for a possible requirement?

Dr. HUGHES. He was asking me to guarantee a response from a Director of the National Cancer Institute.

Mr. MCSPADDEN. You were happy to cooperate and you were happy to provide whatever documentation you could?

Dr. HUGHES. Oh, yes.

Another thing, it took 14 to 18 months. Any person that does not have a cash flow or does not have any clients at all, they won't even last to go through Mr. Kennedy's procedure. That is another problem and, like somebody said, one of the guys said, did somebody tell you that you need a balance sheet and, if they use the wrong term, you are talking about a difference of $7,000 to $20,000. If you need an "unaudited" balance sheet, it may cost you $1,000; if you need an "audited" balance sheet it would cost me $25,000 in Kalamazoo, at least with the CPA that I was working with before I fired him and got somebody cheaper.

These kind of things, throughout all three offices, with all these inconsistencies and the people don't really know what they are doing. If SBA works the way the 8(a) program works in Detroit, then it ought to be back in Washington.

Mr. CONYERS. Well, let's not be too critical because we are trying to fashion an escape hatch, and we may need to employ some of the same people of whom you are bringing their deficiencies so painfully to public attention.

Mr. Sewell?

Mr. SEWELL. Let me say something in deference to what Dr. Hughes is talking about. We had a very similar problem in that we could not get additional funding through SBA because we have or had an SBA guaranteed loan. We could not get additional funding for operating

capital. So through the Government contract we thought we were going to receive, we were going to use that for operating capital. We also had to file for chapter 11 for protection under the Federal Bankruptcy Act of chapter 11 for different but similar reasons. So I can say, in support of Dr. Hughes, that his problems are not imaginary, they are real.

Mr. CONYERS. That's the least-I don't think there is anybody in this room that would imagine that they are but we thank you very much, sir. Our offer of bringing together the necessary forces to turn this around are at your service.

Dr. HUGHES. Thank you, sir.

Mr. DAUB. Thank you for coming.

Mr. CONYERS. We now call GSA procurement officials Mr. Kenneth E. Nale, Mr. Thomas Grafton, Mr. Harry S. Gordon; and the Director of the Office of Small and Disadvantaged Business Utilization, Mr. William F. Madison. Will you gentlemen please come forward.

Thank you very much. We welcome you to the hearing. We will incorporate all of your prepared testimony in the record, as well as copies of letters sent by SBA to GSA indicating the lack of certified 8(a) contractors. Thank you for your cooperation and you may proceed in your own way.

Welcome, gentlemen, you may proceed.

STATEMENT OF WILLIAM F. MADISON, DIRECTOR, OFFICE OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION, GENERAL SERVICES ADMINISTRATION, ACCOMPANIED BY KENNETH E. NALE, THOMAS GRAFTON, AND HARRY S. GORDON, PROCUREMENT OFFICIALS

Mr. MADISON. Good afternoon, Mr. Conyers, Mr. Daub.

My name is Bill Madison, Director, Office of Small and Disadvantaged Business Utilization, with the General Services Administration in Washington. I appreciate the opportunity to be here today to discuss with you the operation of the 8(a) program in my agency.

Before responding to the specific issues contained in your letter of March 24, 1981, I have two brief general observations.

First of all, during my 2-year tenure as GSA's OSDBU Director, the 8(a) program has had a very high priority. This is because I personally believe that this important program offers unique contracting opportunities for minority-owned businesses and it is the responsibility of Federal officials to see that the program's full potential is realized. In addition, each of the administrators I have served under has been a strong proponent of the 8(a) program and has encouraged maximum participation from top management in GSA.

My second observation deals with the role of the Small Business Administration. It has been my experience, as both a contracting officer and as a program manager, that SBA officials as a group are dedicated and hard-working employees committed to accomplishing a difficult task with limited resources. To be sure, there have been differences between SBA officials and myself over how best to achieve our mutual goals. But I do not find this unusual and I must say that in most cases we have been able to work out our disagreements.

A case in point concerns the matter of 8(a) offerings made by GSA and rejected by SBA. About a year ago it came to my attention that there might be a problem in this area, that SBA was possibly rejecting too many offerings and making it difficult for GSA to meet its 8(a) performance goals. As a result of these indications, I communicated our concern both in writing and through meetings with Paul Browne, SBA Associate Administrator for Business Development.

Subsequent to our meetings the number of rejected offerings declined. I cannot say with any certainty what factors accounted for this decline but it is possible that the meeting with Mr. Browne had some impact. I do expect to continue to pursue this matter with SBA since I believe the number of rejected offerings may still be too high.

I have attached to this statement the answers to the questions contained in your letter of March 24, 1981. This concludes my formal

statement.

However, I would like to briefly highlight a few points, if I may?
Mr. CONYERS. Please do.

Mr. MADISON. Question one requests that I discuss briefly the recent national survey on section 8(a) offerings made by GSA during fiscal year 1979, which were rejected by SBA, and the findings of that

survey.

Well, I did conduct a national survey made by the agency in 1979, and of the 13 offices queried, only four responded with dollar values of rejected projects.

More than 117 projects were rejected by the SBA for various reasons. Where records were maintained, the value of projects rejected exceeded $6.3 million. Although the SBA accepted 238 offerings in fiscal year 1979 from GSA which resulted in 8(a) awards valued at $70.1 million, we believe these rejected projects are significant, not only as lost income to the small disadvantaged business community, but also, as a severe impediment to GSA's participation in the 8(a) program.

I would like to point out that our original survey revealed that $4.3 million worth of 8(a) offerings were rejected. Since that initial recapitulation of data, we have identified an additional $1.9 million worth of 8(a) offerings in the Chicago region during fiscal year 1979. This now brings our total rejected fiscal year 1979 8(a) offerings dollar value to $6.3 million.

The subcommittee also asked that I discuss briefly my specific findings in the Chicago region including the types of services and R. & A. contracts rejected.

With respect to service contracts which were rejected, these included office machine repair, vehicle and heavy equipment repair, furniture painting and refinishing, fire extinguisher servicing, household appliance repair, vehicle rustproofing, ground maintenance equipment repair, precision instrument repair, carpet, rug and drapery service, television receiver repair, venetian blind service.

Some of the repair and alteration contract opportunities offered and rejected included entryway improvements to a Federal building in Minnesota, installing a flagpole at a Government installation, and window replacement.

The associated dollars were in the area of service contracts: $2,629,319, and in repair and alteration: $403,900, making a total reject rate for region 5 in fiscal year 1979 8(a) rejections of $3,032,319.