UNIDENTIFIED SPEAKER. It would appear to me that SBA could play a strong advocacy role on behalf of the contractor. I cannot afford to hire lawyers that GSA has sitting there on payroll waiting to play with somebody. SBA

Ms. CLOHERTY. But that is moral persuasion. Every solution has been a moral solution, as it were. And I know we can beef

advocacy portion.

up the That's the only point I'm making. We had every intention of beefing up that advocacy effort, and I have to tell you that, I reiterate, the Review Board effort itself was very helpful in bringing key people from other agencies into the whole thing and they sweat for months and went through this talk with many of you before and they know— they're much more aware than they were before of what their own agencies do to either facilitate or screw up the process.

That's a good starting point. We've got to keep it up, and I'm quite prepared to do it personally.

Mr. YUSPEH. I think it should be pointed out to you, though that the problem that you just raised in terms of performance on contracts is not too different from problems that every small business experiences.

What I am saying is that that is a problem that has the attention of SBA in terms of all small business contracting. It just gets back to the point that minority enterprises have all the problems of small businesses, plus some more problems.

You just hit on one of the problems that is a problem of all small business. I am sure many of you have spoken to all business people, black or white, who have at one time or another gone through the insanity of contracting with the Federal Government; and that's the way they refer to it. I am just pointing out that that's a problem that has to be dealt with, I think, not only at the minority level but at all levels, because I do think that the Federal Government and small business don't always understand each other in terms of accounting process.

Mr. ATKINSON. Yancey mentioned the fact after going through the Senators, he had a certain amount of success and the only thing we did is try to act as a capitalist and try to act to put some impact on the problem. Wiley mentioned very early one of the things we thought could have some success, the contract officer is not concerned. He has no sensitivity. I know we're all down here on the firing line. The agency people, as well as people like myself and the recipient of the grant, do give a good, typical example.

I went down to see Major Hatch. A year prior he had $200 million worth of business. He didn't give 1 red cent to 8(a).

I go down to Fort Stewart. The Fort Stewart contract officer told me he didn't believe in the program and they had no program. I reported back to Gerald. He felt the same way. So, therefore, they were complimenting each other. And I'm saying that you're going to have to bring these people back together, have some sensitivity, have some commitment to carry out the dictates of Congress before it's applicable and workable.

Mr. YUSPEH. But to do that, don't you think you need something more than a simple Executive order from the President saying that you should double? Don't you need something in a lot more detail?

UNIDENTIFIED SPEAKER. On occasion, where it got bogged down in some negotiations after about a month and a half, I went to Washington, put my hand on the contracting officer at GSA, got him to commit to talk with a counterpart at SBA. Then I went back to SBA in Washington, because they called from down here 50 times, and got the guy at SBA to agree to talk to the guy at GSA. And I put them together in a room and stood outside the door.

When Ray came out the door, the problem was solved. But, going down to Matlock and Matlock calls someone in Washington and he says, "Fine," and he calls the GS-12 and the GS-12 goes back to the GS-12 and it's around and around and around in circles for 6 weeks.

Shouldn't it be the top, having eight people at the top, deal with the people at the top; and when the people at the top get involved and try to deal with people at the top of the other agencies, experience. I am sure my experience is not unique as shown that things get down. But there appears to be some mechanism, you know, for people in this region to get through to the proper people at the central office who can take the ball and run it with the people at the central office in the

agency.

We're talking about guys in Washington with the problem. But Washington, D.C., is the most political in the world with problems, getting them solved, and that's why I presume the central office is here. But it appears to be no mechanism there to do those kind of things. It gets to be truly frustrating.

Mr. YUSPEH. I see right now that we're going to break the morning session. We do intend to reconvene at 1 o'clock this afternoon; and Pat will be here until 3 o'clock so that will give us at least another 2 hours to continue this discussion. The original intent, if you want to do it that way, is to operate it more in terms of a workshop-type setup as opposed to a policy discussion. I guess you would call this a policy discussion that's gone on this morning. Nuts and bolts, problems in the way things are handled here, or in Washington, and in liaison with other agencies, we will get into this afternoon.

UNIDENTIFIED SPEAKER. I'd like to get in one question before we leave, and it deals with bonds.

Is it true that SBA only has up to $250,000 guarantee at 95 percent, and above that it drops back down to 80-I mean, up to 80 percent? Ms. CLOHERTY. Correct.

UNIDENTIFIED SPEAKER. Some of the experience that I have had dealing with other contractors, indirectly with other bonding companies, it really began to create a hardship on contractors as such now. The bonding companies are asking for a 10 percent of the contract down as an irrevocable letter of credit; but in their beginning, they ask for a 1 percent of the total contractor, their people, and administer the

contract.

So their hardship is really there with an 8(a) contractor of trying to be-first of all, once it leaves SBA, it's sort of beyond them and they can't do anything about the contract or officers as to the way they make you perform the job. So you've got to be almost twice as cheap, twice as good, and twice as fast in order to still be an 8(a) contractor.

And the hardship is really there when you try even with the bond. If you're talking about a half a million dollar job and you get the job, you've got not only to have that 1%1⁄2 percent of bond in the company, but you've got 21⁄2 percent, plus the 10-percent letter of irrevocable credit.

So this issue needs to be advanced if you're changing in the bond regulation or the thinking about the bond regulation.

Ms. CLOHERTY. That was the statement in which we were planning to look into another possibility of increasing the guarantee. The other aspects you mentioned, I have to look at them. I'm not familiar with them. I don't know.

UNIDENTIFIED SPEAKER. I would like a copy of that report on that. Ms. CLOHERTY. The Review Board report?

UNIDENTIFIED SPEAKER. I just found out a couple of your people aren't going to be able to come back. Is it possible we can wrap it up and stay a little bit longer now and wrap it now?

Mr. YUSPEH. Why don't we carry it on just through 1:15, 1:30, and we'll do it that way.

UNIDENTIFIED SPEAKER. You've got a problem with what?

Mr. O'NEAL. The resurgent's meeting at the Stadium Club, and we have a speaker there on minority business; and I think some of us are going to have to be leaving.

Ms. CLOHERTY. Why don't those who want to stay and continue, I'll just stay right here.

UNIDENTIFIED SPEAKER. Pat said that she could just stay for those, too.

It looks like we're going to lose most of the people.

Ms. CLOHERTY. I just want to say, I was very pleased at Senator Nunn's bringing you all together because we are really committed to trying to make this program work and your suggestions just-we heard a lot in the course of Review Board activities, but they continued to be fresh and helpful. And I really appreciate it. I wish I had an opportunity to visit your companies.

Mr. WILLIAMS. Let me make a statement for the record, because I'm afraid that one of the responses that we had in relationship to an earlier statement might be misleading.

When I and several other members mentioned there should be greater cooperation among the various groups of the SBA and others and so forth, we did not mean to imply that there is not cooperation. I believe Mr. Messick stated that everybody is welcome and so forth. That is true. We worked with the gentlemen here over a period of years in a very, very productive capacity.

For example, now we are trying to make the contract loan program work because the bank is uncomfortable with it. SBA does not have the staff to monitor it. So, as a group, we are trying to come between and build a program and management around that big item. SBA is very coordinative in the find end in the bonding department. We couldn't ask for more coordination and so forth. So we didn't mean to imply that we lack cooperation.

What I mean to imply is that we should have more structured program planning and cooperation.

Ms. CLOHERTY. I understood it in the fragmented sense, that it needs to be more focused in terms of what to do.

Mr. WILLIAMS. In other words, if you're having a problem with bonding companies, the guy who headed the surety industries committee ought to work with the SBA national to set it up in Macon, Ga. We could get him up here, find out what his association's members problems were, and maybe set up something around educating and training and so forth, dealing with that industry.

Mr. YUSPEH. Well, some of that is already known. In fact, there are only two contractors that account-Balboa is one and American Fidelity is the other for virtually all the bonding within the program.

One of the issues that has come up with them is that the guarantee is not necessarily a full faith and credit guarantee, that SBA reserves the right under certain circumstances, other than just simple fraud, which would always obviate the agreement, in which they may not honor it.

Now, this happens rarely. But if it happens even a little bit, the surety companies don't want to get involved. And that's because the surety industry, as I understand it, has a rather curious attitude. It's not actually based structurally on risk. Sureties believe that issuance of a bond represents no risk of failure to complete the contract. Given that, many of the blue chip surety companies have said that they won't participate in the SBA program, no matter what.

And then there are other so-called specialty companies that don't like to participate or wouldn't participate in the program because of the cloud on the guarantee. Now, we have a bill in "we," meaning the Senate Small Business Committee-to try to clean up the guarantee. But SBA has written letters saying they won't accept that, the problem being this: In the 7(a) program the turnaround time is fairly long. It may take 6 weeks, 4 weeks, 2 months. It varies, but it takes a while. SBA does make a full search to determine that the loan is in order, that the application from the bank is in order, and that they can issue the guarantee. It issues then, "A full faith and credit guarantee."

In the surety industry, you don't have that kind of time. You have to make your decisions within a week, 2 weeks at the outside. SBA says that they must reserve its right that under certain unusual circumstances, the guarantee may not be approved.

While this all sounds sort of technical and complicated, it has been something of an insurmountable problem with the Agency in terms of negotiations between the Senate Small Business Committee and SBA to get some kind of a solution to it so that we can possibly get some more companies into the program. And I don't know where that's going to go. But I would assume that anything that can be done to get the surety companies themselves more educated and willing to participate in the program and maybe even if they do it on the basis of a social mission-might be a way to go.

I don't think it's legitimate; I think a lot of times corporations see things as social when they don't have to see it that way. It's just good business. But if that's what it takes for the corporation to get involved, then that's what we should try. But if you're willing to work with us, we'd be more than happy-I mean, the committee staff-I'm sure I can speak for Senator Nunn-to work with the surety people on the contracts to the private sector here in Georgia, and try to move this out to the national area and get more companies involved, more business and more minority small business.

Mr. JOHNSON. I'd just like to make a couple of comments. Before the Senator left, he indicated some get back time together. I'd like to suggest that we do so within a 90-day interval. The longer you put it off, the less interest we have in trying to get a particular problem solved.

Mr. YUSPEH. Perhaps on a quarterly basis.

Mr. JOHNSON. Another thing I would like to suggest, and I use our organization as a prime example, when we first entered into OMBE, the national organization, I saw OMBE Washington was coming up with programs, an infusion of the grassroot people who were out with us in the field, trying to help them to do things. No; I don't think you would have effective service unless you know what we're doing out in the field.

My point is that if SBA is going to come up with solutions, then they must know where the problems are in order to go out in the field. And I didn't get quite that on the couple of questions that were asked. So I imagine that this is something done; but, in order to help regional or the district, then you've got to know what their problems are before you can design programs. You need that infusion from the local level.

Ms. CLOHERTY. Let me just say in response, I am in my sixth month. at SBA and I have encountered 600 participants across the country in virtually every major city. I have met with them. I mean, that's only me. The staff has really done the same thing. The same with SBA people, as you know, the workshop; and that is, we have brought people in.

So we have made every effort. I'm aware of this as a general defect in program construction companywide. But I must say in this instance the process has just been like this today, longer, more detailed. And we have had inputs, we have been in the cornerstone of the approach to moving forward. I really feel we have done it, done it in this instance and we look to do it.

Mr. YUSPEH. We'll go to him and then to you.

Mr. Murphy.

Mr. MURPHY. I'm Bill Murphy, assistant regional director of SBA. I'd like to address your group and this program by putting a question to Mr. Williams.

Are you pointing to a steady flow of contracts? Is that the primary way to get at it, or are there other ways to approach it?

Mr. WILLIAMS. Well, first, if a business is to grow, you must have that steady flow of contracts based on some production or what have you. Backing that up, you must then be adequately financed and have technical assistance. So I think you've got to put all of them together; but, up front you've got to have the contracts.

The primary interest should be on contracts, but

Ms. CLOHERTY. Combined effect?

Mr. WILLIAMS. Right.

Mr. ANDERSON. I think so much of what you have heard is from people who are either directly or indirectly semicontrolled by the U.S. Government. You had very few comments from individual private companies. So, as is typically the case in dealing with Government matters, much too much of what you hear is from your own folks, either directly or indirectly.

First of all, I realize that several difficult questions were asked but were not answered. I just want you to know that I recognize that they weren't answered, even though they were chosen not to be answered, but to talk about them on a philosophical basis. We're in Georgia. You talk about MESBIC's being cash. The MESBIC here has nothing, no money.