Is. CLOHERTY. I think most of you have a copy of this. I'll review nd then just open it up entirely.

appreciate this opportunity to appear here today to discuss SBA's business development program. My comments here will center the 8(a) Review Board report and the GAO report on the 8(a) gram as the Senator has requested.

Unfortunately, I will not be able to respond to your requests reding comments on the House omnibus bill on minority enterprise all business development companies and procurement opportunis for minority and disadvantaged business persons. The Administion has not had time to evaluate fully the bill in its final form so at I could not express an opinion here today.

As you know, we appeared last week before a joint meeting of the ouse and Senate Small Business Committees to report the findings the 8(a) Review Board.

In spite of the fact that I will be repeating myself here, I must uch on some of the issues contained in the Review Board report hich were covered at that hearing.

The 8(a) business development program, we believe, is an extremely mportant element in the Federal Government's effort to assist disdvantaged businessmen and women. Under the program, as you now, SBA contracts with other Federal agencies for goods and servces and, in turn, subcontracts the performance of these contracts with firms in the 8(a) program. We all know that there have been -ome problems and some abuses in the program.

Last July, SBA Administrator Vernon Weaver told a subcommittee of the Senate Committee on Governmental Affairs that he was taking actions to end the abuses and to correct the problem.

As part of corrective action, Administrator Weaver placed a moratorium on new entries and completions so that an evaluation could be made of the firms in the portfolio. That moratorium was maintained for a little over 3 months. Although all firms at this time have not been evaluated-there are some 1,500 in the portfolio-the working time provided by the moratorium has been extremely helpful. That evaluation of individual corporations is continuing; and those of you that are 8(a) contractors probably know that. Surveillance seems to have been out working on it.

The Administrator said at the July hearing that he would appoint a Review Board to study the 8(a) program and make recommendations for improvement.

The Review Board which I chaired was established on August 25 and met weekly through January 1978. The Board was made up of four persons from SBA and representatives from the Department of Defense, the General Services Administration, National Aeronautics and Space Administration, the Department of Transportation, and three other Federal agencies.

Our objectives were to determine the effectiveness of the program, how to reduce opportunities for abuse, and how to structure the program so that it impacts upon that segment of society it was intended to impact upon, specifically, the socially or, particularly, disadvantaged individuals.

Board members visited procurement offices; reviewed the distribution of firms as represented by industry and minority preparation; heard presentations from various individuals, representatives, and industry representatives in the contractor, contracting sales business

persons interested in getting into the program and not currently in it; and participated in discussions with Government procurement personnel.

In addition, 5 full-day workshops were held during which the Board received oral and written comments on the operation of the program.

The Board concluded that the goals of the program are difficult to achieve. Providing solutions for complex socioeconomic problems without a firm legislative mandate has been difficult for SBA, difficult under any circumstances, mandate or not.

In the past, the basic thrust of the program has been toward placing contracts, as opposed to assisting 8(a) firms in becoming strong and competitive and independent businesses.

Bonding emerged as a main problem. 8(a) companies have had difficulties in obtaining bonding. The proper use of BDE, business development expense, moneys has been unclear. There is a strong need for training programs for both SBA staff and for 8(a) contractors, as needed in very specific bases. Inadequate resources and lack of personnel has been a serious problem. It has hampered the operstion of the program.

GAO REPORT

At approximately the same time that the 8(a) Review Board was gearing up, the General Accounting Office was asked by Chairman Gaylord Nelson of the Senate Select Committee on Small Business to compile a report on the 8(a) program. The findings and conclusions were similar and, in many cases, identical to those of the 8(a) Review Board.

Issues included problems of inadequate staffing; the technical qualifications of the SBA staff; information flow, use of BDE moneys; bonding; and the business development aspect of the program.

The 8(a) Review Board developed 51 separate recommendations for Administrator Weaver to consider.

Although the Administrator's initial reaction to the report has been favorable, he has not had time to review the report in depth and to really analyze the report. He has also exhibited, in talking with all managers in a given period of time, which he's currently doing, to get some comments from them on it before he makes his own determination. Recommendations are designed to introduce a true business development orientation in the program. We anticipate that strengthening the companies will enhance their abilities to work off an increased number of larger contracts.

The first recommendation of the 8(a) Review Board is that the business development purpose of the program be reduced and imple mented in balance with the contract placement objective.

The Board also recommended that representatives from the Office of Business Development examine the feasibility of limited competi tion within the 8(a) program.

The Board recommended that SBA develop the capability of iden tifying potential commercial markets for 8(a) firms and intensified management and technical assistance efforts and specifically recommended that the SBA initiate a training program for SBA 8(a) personnel and for 8(a) contractors.

In order to deal with the bonding problems of 8(a) companies, the view Board recommended: First, that the surety bond guarantee ogram of SBA be reviewed and that consideration be given to reasing the percentage level of guarantee where 8(a) contracts e involved. Second, the legislative action increasing the bonding quirement level from the present $2,000 minimum level under the iller Act be taken.

The importance for full participation by the procuring agencies in e 8 (a) program surfaced as one of the underlying themes of the port, and recommendations were made to address this concern. These cluded: (1) Increasing the level of involvement by the user agencies contract identification, contract negotiation, and in the contract ministration process; (2) a recommendation that the SBA surveilnce reviews of Federal agencies include 8(a) participation as an ement of small business involvement. Generally, this is not currently

one.

Also (3) there was a recommendation to develop a program to ncrease the effective use of excess and surplus Government equipment. Senator NUNN. Excuse me just a minute, Pat.

What do you mean by No. 2, a recommendation that SBA surveilance reviews of agencies include 8(a) participation? I'm not sure what that means.

Ms. CLOHERTY. In our small business set-aside program currently, ve have a surveillance process whereby teams go to selected procuring agencies annually to see how much business they're doing, how well they are handling the small business set-aside program.

It takes about 3 weeks; and the teams, often, are three-person teams. So, there's quite a bit of energy put into it and they look at the whole process of how they break out contracts and set them aside for small business.

That kind of examination of the procuring agencies is not made for the 8(a) program; it is made only for the small business set-aside. Senator NUNN. I see.

Ms. CLOHERTY. So that in the GAO report, it focused on that aspect of the procuring agencies and how they do or don't free up contracts for 8(a).

Senator NUNN. I see.

Ms. CLOHERTY. But we didn't examine it and we thought it would be a good idea to do so.

As soon as there has been opportunity for comment and evaluation, Administrator Weaver intends to implement the recommendations he believes to be the most effective and the most responsive to deficiencies that have been identified in the program.

That's the formal statement, and I'd be happy to talk with any of you and to hear comments, questions.

Senator NUNN. Let me raise about four or five issues here, for listing purposes. Do not address them now. I think it might be helpful if we just went around and identified the various problems that people want to talk about in list form. Then we can come up with some form of agenda for discussion. I believe that might be more orderly.

Let me just list a few of them; and, Larry, you can take some notes here.

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The first one that you raised is inadequate staffing. Certainly, I'm sure that's one that a lot of people here are concerned about.

The second one that you have also raised is poorly trained staff. and this includes contract negotiators and business development specialists.

The third one is the lack of use of business plans to determine the kind of contracts needed for 8(a) participants. In other words, procuring agencies are making the total choice without regard to the particular expertise of 8(a) participants.

A fourth one is too many nonprofessional service contracts and too few professional service and high-technology contracts.

A fifth one is inadequate and sometimes no management and technical assistance available to the 8(a) contractors.

A sixth one is the question of bonding problems, which you have also raised.

A seventh one is SBA's unwillingness to use business development expense funds to make up differences in negotiated contract prices.

Now, those are seven that I want to raise and I think if we could just go around the room and add to this list, then we can come back and discuss these things in whatever order you want to.

Mr. O'NEAL. Senator, I think one of the key questions that might be raised here is why were no users of the service included on the review panel, which would probably have helped eliminate some of this long process of deciding what needs to be done and when.

Senator NUNN. All right. Let's make that one. Put that on that list. What other particular points?

Mr. ANDERSON. The program doesn't work for everybody. Most times, it doesn't work. Just like the rest of the SBA programs, they don't work.

Senator NUNN. In what particular sense, now?

Mr. ANDERSON. In this program, a contractor goes to the SBA office here. He says, "Well, I'm a widget manufacturer." He says, "Well, I want to get certified as an A 8(a) contractor." And the guy says, "Well, I can't certify you because I don't have any work for you." He calls the guy in Washington and he said, "We're not going to certify any kind of widget manufacturer. You can't get certified because there's no work."

There's no work and-you know, it's just like all the rest of these people. It's a circular kind of thing, as far as you—

Senator NUNN. How could we best describe that item, just the fact there's no relationship between the contracts and the work that is set aside or very little relationship?

Mr. YUSPEH. I think that really gets to the contract-type prob lems in terms of SBA not playing a role with the contracting agencies to set aside the right types of contracts. Presently, the set-aside process sets goals only for the dollar volume of contracts. And there's never any valid search in terms of the capabilities of the potential firms.

In fact, it leads to a basic problem in the program where SBA almost works backwards. Instead of trying to determine which types of firms would likely be successful in the private sector and look the private sector to see what demands there are for firms, they look

the other way around. They look to see what the Federal Government is buying, and then they bring in the firm because the Federal Government is buying a lot of whatever the business makes.

It creates a basic problem where sometimes the Federal Government is the only buyer for certain goods, and you create firms which probably never will be able to succeed in the private sector.

Ms. CLOHERTY. He's raising both inadequacy and inappropriateness of the contracts which affect entry into it, in both issues.

Mr. JOHNSON. Well, I don't know if I'm getting lost in the process or not, but I want to phrase it another way. I would like to have some clear definition as to whether or not the client has to be qualified before the job or does the job have to exist before the client is qualified. Senator NUNN. All right. I think this whole area right here ought to be the first item which is discussed.

What other major items have we got?

Mr. WILLIAMS. I would like to see some reevaluation of the total certification process, especially as it deals with the determination of who is disadvantaged. Some minority clients that we work with find it a bit embarrassing to go through some of the procedures we feel that they must go through in order to be certified."

Second, I feel that there is a lack of procurement coordination between SBA, 8(a) section, and the agencies that are involved. This could be due to a lack of staff, which is one of the problems already mentioned. But we see in many instances that there are several agencies not participating at all; they simply do not send requirements in. We see other agencies that will tell us on the side-I don't know what they're telling SBA, but they tell us that they sent procurements over and we never get contracted. They come back. So there seems to be a lack of coordination.

We have requested in the past as a remedy to this, and I don't want to get into much discussion, but that those of us who work with the client, work with SBA in a coordinated effort at the beginning of each fiscal year to determine what might be coming down by way of projects and try to then do some planning.

Senator NUNN. Advance planning?

Mr. WILLIAMS. Advance planning to match clients with our items. There is an audit requirement for recertification that's causing an extreme financial hardship in some instances on small clients to recertify. We find at times that the requirement for audit, say, $50,000 exceeds the requirements of the general industry relating to construction. Banks don't require it; surety companies don't require it.

If a a guy only did $55,000, he probably only found a 10-percent profit; an audit may take up all of his profit. So he can't use that to run his business.

Those are some of the concerns that I have.

Senator NUNN. Good. Curtis?

Mr. ATKINSON. In keeping with what Herb's saying, there many times seems to be a lack of committee sensitivity, desire, committed to the program based on the procurement officer at the installation. If he does not feel as if the set-aside program should exist, then he put forth no effort to send anything to the SBA. Equally, as well as vis-a-vis, that if SBA, lack of sensitivity on the part of SBA, there is no transferral of a commitment to the program, if you talk to the