denied an award for reasons of capacity and credit did not pursue the COC route?

Mr. MEYERS. We don't have figures but it's a very small amount. Mr. Lusk. The number that do not apply is quite substantial, it's in the neighborhood of about, between 60 and 70 percent do not apply, mainly because the contract for which they are applying is rather small and the procedure for a small contract to go through the certificate-ofcompetency procedure, they must get an up to date statementMr. ROBINSON. Is it expensive?

Mr. Lusk. It is rather expensive.

Mr. ROBINSON. Do you think at that stage they are being discouraged in some instances?

Mr. LUSK. We're certainly not discouraging them, we are encouraging; actually we will have our financial people sit down and help them but we can't go back and draw data together from a backlog of a year and prepare a statement.

Mr. ROBINSON. I didn't mean that SBA may be discouraging them, but if the small contractor who is the low bidder and who feels he is entitled to the award is told by the contracting officer, "I'm sorry, you don't have the capability to perform this contract," or, "I'm sorry, you don't have the money in the bank or the credit to perform the contract," do you find at that stage this small firm gives up the right to proceed with a COC application?

Have you found that some of these firms are discouraged since, let's say it's too expensive to pursue the route further?

Mr. LUSK. They are discouraged but not for the reasons you gave. The contracting officer does not normally tell the contractor he lacks capacity, that he lacks credit. They run their preaward survey and they tell him nothing regarding capacity or credit.

They refer the matter to SBA and SBA then has the obligation of advising him that his capacity or credit is defective.

Mr. ROBINSON. You mean to say the contracting officer doesn't even say to the small businessman, "Now, look, if you should put in another machine here, or if you put some more money in the bank or if you did thus and so you would qualify for the award?"

Doesn't he give him a debriefing?

Mr. LUSK. They make just a strict survey, "This is what I would like to have from you," and they make their assessment on what he furnishes.

Mr. ROBINSON. Very well. I'm also interested in what you said, Mr. Lusk, about a number of these COC applications not being completed because your office indicates to the contracting officer that you're going to recommend the issuance of a COC and then the contracting officer reverses his original decision.

Mr. LUSK. Normally he makes a resurvey of the firm. Sometimes he will take the facts that we generate and use that as a basis for it, but in more instances than not he will send the team back in and resurvey certain aspects that we indicate have been improved or are satisfactory because we found more money or we showed the man how to get more money or we've improved the process or found a machine tool for him or some other things that is required to make him satisfactory.

Mr. ROBINSON. If he doesn't change his decision then you proceed to issue the certificate.

Mr. LUSK. To issue a new certificate.

Mr. ROBINSON. And this determination by SBA is based upon an independent survey by your regional office?

Mr. LUSK. Completely independent survey by the regional office which is by a review committee in our area.

Mr. ROBINSON. You have industrial specialists on your survey team? Mr. LUSK. Some of them are engineers and industrial specialists, in the production phase.

Mr. CORMAN. How many certificates in a year would you grant, roughly?

Mr. LUSK. I don't have that exact figure.

Mr. CORMAN. Just approximately?

Mr. LUSK. I think last year we issued about, as I remember, 20, all to GSA, we issued none in Department of Defense that fiscal year, all were retracted and issued direct and I cannot give you that figure. I don't know what it is.

Mr. CORMAN. That certificate, it covers just that contract?

Mr. Lusk. Just that specific contract. Now, I might add if they do not make an award within 1 month after a certificate is issued the certificate becomes no longer valid and a new review must be made on it.

Mr. CORMAN. What has been your experience with those persons to whom you granted certificates, in how many instances have they failed to perform?

Mr. LUSK. In this area during my tenure, which is roughly 5 years we have had one failure to perform and it was not capacity or credit, it was perseverance and desire, he could have produced had he so desired to produce.

Mr. CORMAN. That's a pretty good record considering the fact that you're dealing with persons who have already been rejected by somebody else, something you may be proud of.

Mr. LUSK. I might add that in this area we have had one contractor to whom we issued a COC for a contract in excess of $2 million who was in chapter 11 of bankruptcy at the time we issued the COC. He has been completely successful, he produced the contract 6 months before the final due date and has since received from the Navy additional contracts for similar items.

Mr. MEYERS. I would ask that it be put in the record that we issued five COC's to a small company, which had to be small in order to go through the process which today is the 66th largest prime contracting firm in the United States.

Mr. CORMAN. If anyone wonders why we have an SBA he should read this part of this record.

Are there other questions?

Mr. BURTON. One more question. Mr. Meyers, you mentioned that your jurisdiction for procurement includes parts of the State of Arizona?

Mr. MEYERS. All of Arizona.

Mr. BURTON. Do regional boundaries vary according to the program?

Mr. MEYERS. Yes, may I explain that the regional office has jurisdiction, as I stated, over southern California except these two counties, but the procurement division, represented by Mr. Lusk, is on a post-ofduty status and has wider jurisdiction.

There was a time, for example, when the COC process in Hawaii was in the Los Angeles office.

Mr. LUSK. It still is.

Mr. MEYERS. At the present moment it is all of southern California and all of Arizona and four counties in Nevada of which we have total jurisdiction in procurement activities.

Mr. CORMAN. Is that all? Again, gentlemen, we greatly appreciate your cooperation.

Mr. MEYERS. Thank you for the opportunity.

STRATEGIC INDUSTRIES ASSOCIATION

(The subcommittee's invitation to testify follows:)

SELECT COMMITTEE OF SMALL BUSINESS,

HOUSE OF REPRESENTATIVES,
Washington, D.C., March 8, 1968.

Mr. ELMER WARD,

President, Strategic Industries Association,
Los Angeles, Calif.

DEAR MR. WARD: This is in further reference to the hearings being conducted by the Subcommittee on Government Procurement and Economic Concentration of the House Small Business Committee to review Government small business procurement policies and practices.

Following preliminary discussions between your association's representatives and our Subcommittee counsel, Henry Robinson, we are pleased to invite you and such officials and members of your association as may be designated to testify on March 21 at 11:00 a.m. in Room 1345 of the Federal Courthouse, 312 North Spring Street, Los Angeles, California, regarding the following items: 1. Problems encountered by small business in obtaining and performing contracts and subcontracts for Government work.

2. Effect of existing Government procurement and contract administration policies, regulations and practices upon small business.

3. Such comments and suggestions as the witnesses may care to make in connection with the subject matter of the hearings.

It will be appreciated if you would let Mr. Robinson know as soon as possible the names of the witnesses and arrange to have twelve copies of each statement forwarded to this office by March 18. If you wish, additional copies may be supplied at the time of the hearing for distribution to the press and other interested parties.

Your cooperation is appreciated.
Sincerely yours,

JAMES C. CORMAN, Chairman, Procurement Subcommittee.

Mr. CORMAN. Our next witness is Elmer F. Ward, who is president of Strategic Industries Association. He is accompanied by Fred Kuykendall of Delmar Engineering Laboratories; William Ŏ. Fisher, of Swedlow, Inc.; and Arthur B. Rozell of Sierracin Corp.

It might be well, if you want to, to bring all your witnesses up. We may then listen to their initial presentation and develop our inquiries with all of you here.

Mr. Ward, you have appeared before the committee, you've been helpful in past years in calling to the attention of this committee the problems of small business. We hope some of those things have been changed but these things happen and sometimes those conditions persist.

(814)

TESTIMONY OF ELMER F. WARD, TASK CORP., ANAHEIM; ACCOMPANIED BY WILLIAM O. FISHER, SWEDLOW, INC., GARDEN GROVE; FRED KUYKENDALL, VICE PRESIDENT, DELMAR ENGINEERING LABORATORIES, LOS ANGELES; AND ARTHUR B. ROZELL, SIERRACIN CORP., LOS ANGELES, CALIF., ALL OF STRATEGIC INDUSTRIES ASSOCIATION

Mr. WARD. Thank you. Before we get into our presentation let me take a moment in behalf of SIA to welcome the committe to southern California, and to express our appreciation for the opportunity to testify. Small business is grateful to you for your interest.

Strategic Industries Association is based in southern California and is an organization of small-business contractors, all of whom conduct at least a portion of their business through the Department of Defense. I might also remind you at this time that SIA represents largely the creative element of small business. By this we mean our products are produced to our own designs and represent our own development. In the main we do not manufacture to the drawings and specifications

of others.

In my position as spokesman for SIA I shall introduce to you three other gentlemen of the small-business community. Each of them will highlight a particular problem which we believe unnecessarily interferes with the establishment and maintenance of a satisfactory business relationship between industry and the Government.

Despite a continuing effort by some to improve the Federal procurement environment we find that in actual practice there is a steady erosion of the Government-industry relationship. This fact is of great concern to us and it deserves our most diligent investigation and appraisal.

The problems and sometimes proposed solutions which we present today are, in truth, only symptomatic, only surface evidence of a far deeper malady which has led to an atmosphere of distrust between Government and industry. It is part of our hope that today we may strike a spark of interest in the underlying complex of affairs that have brought us to this condition.

We believe, as I am sure do you, that a healthy, vigorous, productive and growing industry is essential to the Government as well as to the commercial procurement community of our country. It grieves us to encounter policies which have and are continuing to drive essential talent out of the government procurement market. Several of our members have abandoned this market, others have substantially curtailed their operations and have ceased all initiative or investment. I cannot believe this is a favorable sign.

In September SIA made a presentation to various members of the Congress. The problems we discussed at that time have not been substantially changed since. Much of what we shall say here today is a repetition or adds to the comments we made at that time.

Mr. Bill Fisher will be our first speaker. He will touch on the area of privity of contract.

Mr. CORMAN. Thank you; Mr. Fisher, we shall be pleased to hear

from you.