CLEARED FOR TAKE-OFF? IMPLEMENTATION OF THE SMALL BUSINESS RUNWAY EXTENSION ACT

[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


   CLEARED FOR TAKE-OFF? IMPLEMENTATION OF THE SMALL BUSINESS RUNWAY 
                             EXTENSION ACT

=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             MARCH 26, 2019

                               __________

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]                               
                               

            Small Business Committee Document Number 116-012
             Available via the GPO Website: www.govinfo.gov
                   
                   
                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
35-608                      WASHINGTON : 2019                     
          
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                 NYDIA VELAZQUEZ, New York, Chairwoman
                         ABBY FINKENAUER, Iowa
                          JARED GOLDEN, Maine
                          ANDY KIM, New Jersey
                          JASON CROW, Colorado
                         SHARICE DAVIDS, Kansas
                          JUDY CHU, California
                           MARC VEASEY, Texas
                       DWIGHT EVANS, Pennsylvania
                        BRAD SCHNEIDER, Illinois
                      ADRIANO ESPAILLAT, New York
                       ANTONIO DELGADO, New York
                     CHRISSY HOULAHAN, Pennsylvania
                         ANGIE CRAIG, Minnesota
                   STEVE CHABOT, Ohio, Ranking Member
   AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
                        TRENT KELLY, Mississippi
                          TROY BALDERSON, Ohio
                          KEVIN HERN, Oklahoma
                        JIM HAGEDORN, Minnesota
                        PETE STAUBER, Minnesota
                        TIM BURCHETT, Tennessee
                          ROSS SPANO, Florida
                        JOHN JOYCE, Pennsylvania

                Adam Minehardt, Majority Staff Director
     Melissa Jung, Majority Deputy Staff Director and Chief Counsel
                   Kevin Fitzpatrick, Staff Director
                           
                           
                           C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Jared Golden................................................     1
Hon. Pete Stauber................................................     1

                               WITNESSES

Mr. David Black, Partner, Holland & Knight, Tysons, VA...........     5
Ms. Megan C. Connor, Partner, PilieroMazza PLLC, Washington, DC..     6
Mr. Brian Morales, President, ProCal Lighting, Vista, CA, 
  testifying on behalf of the National Electrical Contractors 
  Association....................................................     8
Ms. Erin Allen, President, Contemporaries, Inc., Silver Spring, 
  MD, testifying in her role as a board member on behalf of the 
  Montgomery County Chamber of Commerce..........................     9

                                APPENDIX

Prepared Statements:
    Mr. David Black, Parnter, Holland & Knight, Tysons, VA.......    18
    Ms. Megan C. Connor, Partner, PilieroMazza PLLC, Washington, 
      DC.........................................................    35
    Mr. Brian Morales, President, ProCal Lighting, Vista, CA, 
      testifying on behalf of the National Electrical Contractors 
      Association................................................    42
    Ms. Erin Allen, President, Contemporaries, Inc., Silver 
      Spring, MD, testifying in her role as a board member on 
      behalf of the Montgomery County Chamber of Commerce........    49
Questions for the Record:
    Questions from Hon. Jared Golden to Mr. David Black and 
      Answers from Mr. David Black...............................    56
    Questions from Hon. Jared Golden to Ms. Megan C. Connor and 
      Answers from Ms. Megan C. Connor...........................    70
Additional Material for the Record:
    Statement of EA Engineering, Science, and Technology, Inc., 
      PBC........................................................    73
    Statement of Dr. Richard Amos, President, COLSA Corporation, 
      Huntsville, AL.............................................    76

 
   CLEARED FOR TAKE-OFF? IMPLEMENTATION OF THE SMALL BUSINESS RUNWAY 
                             EXTENSION ACT

                              ----------                              


                        TUESDAY, MARCH 26, 2019

                  House of Representatives,
               Committee on Small Business,
    Subcommittee on Contracting and Infrastructure,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:05 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Jared Golden 
[chairman of the Subcommittee] presiding.
    Present: Representatives Golden, Balderson, Hagedorn, and 
Stauber.
    Chairman GOLDEN. Good morning. The Committee will come to 
order.
    I want to thank everyone for joining us this morning, and I 
especially want to thank the witnesses for being here today. I 
also wanted to take an opportunity to thank my Ranking Member, 
Representative Stauber. I am glad to be getting to know you and 
I look forward to working together to create bipartisan 
solutions to help small businesses all across the country, from 
Belfast, Maine, and hopefully I get this right, to Brainerd, 
Minnesota.
    Mr. STAUBER. Brainerd, you did.
    Chairman GOLDEN. All right. There we go.
    America's small businesses are economic engines that drive 
growth and jobs in the U.S. economy. The nearly 30 million 
small firms in the U.S. represent 99.7 percent of all employers 
and generate two-thirds of all new jobs. Back home in the state 
of Maine where I come from this is very much the case. What is 
very interesting is how many of our small businesses are truly 
very small. We are talking 10 employees or less that make up 
the great majority.
    Firms like this play such a crucial role in our economy, 
and it is critical that Congress enact policies that promote 
small business entrepreneurship, job creation, and also provide 
opportunities for growth. In fact, Congress has created tax 
preferences and loan programs to help small businesses thrive, 
and as one of the largest purchasers of goods and services in 
the world, the Federal Government is in a unique position to 
support small businesses by providing contracting opportunities 
to help small businesses succeed.
    When we establish policies aimed at helping small 
businesses, one of the decisions that Congress has to make is 
how to define a small business. I think very much the subject 
of this hearing as you all know, how we define that business 
will determine who is eligible for contracting opportunities 
and other incentives designed to help small businesses compete. 
Getting that target right is important as I can be too narrow, 
pushing a firm outside the size standard, or it can be too 
broad, allowing a large firm to compete in these programs and 
overpower the small business. The end result is the same--small 
firms deprived of Federal contracting opportunities.
    Last year, this Committee, and Congress as a whole, 
addressed this very issue by passing the Small Business Runway 
Extension Act, which requires SBA to use the gross receipts of 
a small business over 5 years as opposed to 3 years when 
considering granting Federal contracts. This change was 
designed to assist small businesses successfully bridge the gap 
between competing in the small business space and the open 
marketplace against larger companies. The Small Business Runway 
Extension Act is a move in the right direction to ensure that 
small businesses can mature, become prosperous, and create 
additional jobs that spur economic growth without having one or 
two particularly good years or contracts bump that firm out of 
the small business category before it is ready to compete with 
larger firms.
    Unfortunately, since the Runway Extension Act became law 
last year, its interpretation and implementation has been 
contested. Shortly after the bill was passed, questions arose 
as to whether the bill was to take immediate effect. Businesses 
benefitting from the 5-year change hoped, and I believe 
anticipated that the change would take effect immediately so 
they may continue to certify as a small business in 2019. 
Surprisingly, the SBA has suggested that the Runway Extension 
Act applies to every other agency adopting its own size 
standard but not to the SBA itself.
    While the merit of that argument is debated by legal 
experts, the SBA is working on regulations to implement the 
law, and we are doing our own analysis by holding today's 
hearing. It is my intent that this hearing ensure that 
congressional intent is not thwarted and small businesses have 
the Federal contracting opportunities that Congress decided and 
determined last year that they deserve.
    I look forward to hearing from our witnesses and exploring 
the controversies surrounding the implementation of the act, 
discussing potential solutions to mitigate these challenges, 
and examine additional steps, if any, that may be necessary to 
ensure that this Committee and Congress's intent is fully 
implemented and in a timely manner.
    I thank all the witnesses for their attendance and insights 
into this important topic. I would now like to yield to the 
Ranking Member, Mr. Stauber, for an opening statement.
    Mr. STAUBER. Thank you, Mr. Chair. And I, too, look forward 
to working with you, and I appreciate this opportunity.
    The Small Business Runway Extension Act, led by the former 
Chairman of this Subcommittee, was intended to be uncomplicated 
and straightforward. In fact, it changes only one word in the 
Small Business Act. Unfortunately, as simple as that was, the 
actual implementation of the law has been equally difficult.
    The purpose of the Runway Act was to allow graduating small 
businesses more time to build their competitive edge when 
competing against titans of industry in the open market. 
Recognizing the significance of this bill for small businesses, 
the Runway Act easily passed through both the House and Senate, 
becoming law on December 17, 2018. Quickly following the law's 
passage, the Small Business Association put the brakes on its 
implementation. The SBA sent an information notice to all 
Federal agencies halting the switch to the 5-year rule as 
mandated by the Runway Act. The SBA decided they would keep in 
place the previous 3-year calculation currently in regulation 
until the agency could undertake an assessment of the law 
through the rulemaking process.
    Unfortunately for small businesses fluctuating between 
small and ``other than small,'' this conflict in the law versus 
regulation poses significant, real-world challenges in the form 
of potential size protests and uncertainty facing small 
businesses and their recertifications. Advocate for the 
immediate implementation of the Runway Act criticized the SBA's 
reasoning on what they view as a straightforward and helpful 
piece of legislation.
    However, businesses facing declining revenues applaud the 
SBA's cautious and transparent approach. Who is or is not 
considered small is up for debate, and understanding how to 
best achieve clarity in the law may help alleviate this 
uncertainty.
    Regardless of who prevails in the legal arguments 
surrounding this debate, it is important that this Committee 
take a practical, policy-oriented approach to this issue and 
identify how best to respond to the concerns of our small 
businesses.
    At the end of the day, our primary responsibility is to 
small businesses, and we must take the greatest care to uphold 
and protect their ability to compete and succeed.
    I hope through our testimony and our witnesses today that 
we can come to a greater understanding of the problem and 
discover ways to quickly resolve the issue in a manner that 
will provide clarity and consistency for small businesses.
    Thank you, Mr. Chair, and I yield back.
    Chairman GOLDEN. Thank you, Mr. Stauber. The gentleman 
yields back.
    And if Committee members have an opening statement 
prepared, we would ask that they be submitted for the record.
    I will take just a few minutes to explain the timing rules. 
Each witness will get 5 minutes to testify, and each member 
gets 5 minutes for questioning. There is a lighting system to 
assist you. I do not know if you have done this before so I 
will go ahead and lay it out for you. The green light will be 
on when you begin. The yellow light will come on when you have 
1 minute remaining. The red light will come on when you are out 
of time, and we ask that you stay within that timeframe to the 
best of your ability. It goes by quick.
    I would now like to introduce our witnesses. Our first 
witness is Mr. David S. Black. David Black is a partner with 
the law firm Holland and Knight, LLP, in Tysons, Virginia, and 
Co-Chair of Holland and Knight National Government Contracts 
Group. Mr. Black's practice involves serving as a trusted 
advisor, problem solver, and advocate for Federal contractors, 
awardees, and subcontractors in every stage of growth. He 
provides legal advice and representation to help his clients 
secure opportunities, enhance performance, mitigate risk, and 
respond to threats. Mr. Black serves contractors and awardees 
in a broad array of industries with an emphasis on innovative 
technology, cutting age products, professional services, health 
care, and research and development. Welcome, Mr. Black.
    Our second witness is Ms. Megan C. Connor. Megan Connor is 
a partner with the law firm--I am going to get this wrong. 
Perhaps you want to just go ahead and tell us what it is.
    Ms. CONNOR. PilieroMazza.
    Chairman GOLDEN. PilieroMazza, PLLC, in Washington, D.C. In 
that role, she counsels companies on a variety of government 
contracting and business matters. For small businesses in 
particular she assists contractors with regulatory compliance, 
like affiliation issues, limitations on subcontracting, and how 
to maintain size and status. Ms. Connor also represents 
contractors in state and Federal court concerning government 
contracts, business and employment matters. Ms. Connor received 
her Bachelor of Science degree Magna Cum Laude from Boston 
University, and received her law degree Magna Cum Laude from 
the University of Miami, School of Law. Welcome, Ms. Connor.
    Our third witness today is Mr. Brian Morales. Brian began 
his career in the electrical industry at the age of 21 after 
finishing his education at San Diego Christian College. After 
obtaining his contracting license in 2008, Brian began working 
as a regional manager for an energy efficiency company based 
out of Connecticut and has managed large public projects in 
Alaska, Hawaii, Washington, Arizona, California, and Colorado. 
Today, Brian is the proud owner of ProCal Lighting, a minority-
owned small business with a focus on providing equal 
opportunity to all genders, races, and education levels. 
Because of this approach, ProCal Lighting employs amazing 
individuals who represent the best California has to offer. 
Welcome Mr. Morales. Thank you.
    I would now like to yield to our Ranking Member to 
introduce our final witness.
    Mr. STAUBER. Thank you, Mr. Chair.
    Our final witness today is Ms. Erin Allen. Ms. Allen is the 
president of Contemporaries, Inc., a small business owner 
operating locally in Silver Spring, Maryland, and is testifying 
today in her capacity as Vice Chair of the Small Business 
Committee of the Montgomery County Chamber of Commerce. In her 
role as president of Contemporaries, Inc., Ms. Allen provides 
extraordinary staffing services to clients in the D.C. 
metropolitan area, receiving outstanding recognizing from 
satisfied government clients such as the National Institutes of 
Health. In her role as part of the Executive Committee of the 
Montgomery County Chamber of Commerce Board of Directors, she 
has been instrumental in identifying legislative and regulatory 
issues impacting small businesses and advocating for policies 
that benefit the small business community. Welcome, Ms. Allen.
    Chairman GOLDEN. All right. Thank you very much.
    Mr. Black, you are recognized for 5 minutes.

STATEMENTS OF DAVID BLACK, PARTNER, HOLLAND & KNIGHT; MEGAN C. 
 CONNOR; PARTNER, PILIEROMAZZA PLLC; BRIAN MORALES, PRESIDENT, 
      PROCAL; ERIN ALLEN, PRESIDENT, CONTEMPORARIES, INC.

                    STATEMENT OF DAVID BLACK

    Mr. BLACK. Good morning. First, I want to say thank you, 
Chairman Golden, thank you Ranking Member Stauber for the 
invitation. It is an honor and privilege to be here today to 
try to assist the Subcommittee look at the implementation of 
the Runway Extension Act.
    Points I would like to make today are, first, Congress did 
a really good thing back in December. The current status is 
that it changed the 5-year standard. That is a law that went 
into effect. I have a little bit more on that in a moment. And 
small businesses have been relying on that change in the law. 
For the past 3 months, small businesses that would be large 
under the 3-year standard but are small under the 5-year 
standard have been submitting proposals for set-aside 
contracts, and they put a representation in their proposal 
stating that based on the change in the law, we are an eligible 
small business under the 5-year standard. And contracting 
officers are within their discretion to recognize that. And so 
it has been a good thing. And I think when the Subcommittee 
looks at the status quo, it needs to realize this is something 
that has been completed. It is done. It is in the books. And 
you know, from my perspective as a mid-tier contractor lawyer, 
the community has been relying on that. And so to delay 
effectiveness or push that back at this point would be to take 
something away from the mid-tier small business contracting 
community that Congress has already provided. And so it is a 
good thing and it should stay in effect.
    So what has been happening is basically, SBA has been 
kicking up some sand and dust. And they have sort of put forth 
two arguments that have pretty easy solutions in the existing 
law. First, in the information notice that you alluded to they 
say, well, you read the Runway Extension Act and there was no 
effective date. So that means it is not effective until we 
issue our regulations. Well, the Supreme Court has an answer to 
that, and this is sort of basic principles of statutory 
construction. That when Congress passes the law, the omission--
this is a quote from Johnson v. United States, a 2000 case. You 
should feel comfortable about what you did in December because 
the omission of an express effective date simply indicates that 
absent clear congressional direction, it takes effect on its 
enactment date. And everybody knows this. And so the small 
business contracting community has relied on the absence of an 
effective date. There is no clear direction that Congress 
intended to delay it. Quite the contrary. And so, you know, 
this ship has sailed. And SBA is just legally erroneous when 
they claim that it did not take immediate effect.
    And so the other thing they say is that Section 3 of the 
Small Business Act, and that is where Congress has put these 
size regulations, the provision that sets forth the parameters 
for size standards, that is where the 3- and 5-year standards 
are, were and are, that somehow that does not apply to SBA. And 
I think everyone was surprised to hear this position. I mean, 
when you read the statute, that subsection says that no 
department or agency may prescribe a regulation that conflicts 
with that. And there is a definition of Federal agency in the 
statute that clearly includes SBA. And so the only carve out 
from this is unless specifically authorized by statute. So 
Congress said, well, we might for another agency specifically 
authorize by statute. There is a subsection SBA points to. 
There is nothing in there that specifically says you are exempt 
from the size standard requirements that are in subsection 
(a)(2)(C).
    So, again, the solutions are clarifying amendments at most. 
Congress has done a good thing. It is not to push the deadline 
back. You do not want to take something away that is 
benefitting the community and push it back. Keep it in effect. 
You do not really need to clarify the effective date but you 
could. December 17, 2018. And then the other thing is to 
clarify that the subsection C, (a)(2)(C), when you talk about 
Federal agency, you could just put a little carrot there and 
say ``including the administrator of SBA.'' And these are 
clarifying amendments that are not changing the law, so they 
apply retroactively. You would just be clarifying what Congress 
has meant for decades, that SBA does not have this license to 
come up with its own size standards. And it maintains 
Congress's hook. You all want to set the policy in this area. 
You set it by applying it to every Federal agency in that 
subsection and you want to maintain that mechanism.
    So with that, again, thank you for the opportunity, and I 
look forward to answering the Subcommittee's questions.
    Chairman GOLDEN. Thank you, Mr. Black. Ten seconds to 
spare.
    Ms. Connor, you are next. Thank you.

                  STATEMENT OF MEGAN C. CONNOR

    Ms. CONNOR. Good morning. Good morning, Chair Golden, 
Ranking Member Stauber, and distinguished members of the 
Subcommittee. My name is Megan Connor, and I am a partner at 
PilieroMazza, a law firm serving government contractors for 
over 30 years. We represent companies of all sizes in a variety 
of industries, and our firm supports the Runway Extension Act, 
and specifically changing how small businesses calculate their 
receipts from a 3-year basis to a 5-year basis.
    However, we believe in implementing this change there are 
three issues that need to be addressed in order to avoid 
negative impacts on small businesses. First, small businesses 
deserve clarity as to the effective date of the change from 3 
years to 5 years. Second, we strongly recommend a transition 
period during which firms may adjust to the new 5-year 
calculation. Third, the System for Award Management database 
must be updated to account for this change. I will address each 
of these issues in turn.
    First, there is widespread confusion in industry as to the 
effective date of the Runway Extension Act. Although it was 
signed into law on December 17, 2018, as Mr. Black stated, the 
SBA has taken the position that it is not presently effective. 
While we would normally advise clients that Federal law 
supersedes SBA's regulations, SBA's regulations still state 
that 3 years is the basis of calculation and the information 
notice that SBA published has left contractors in a state of 
confusion.
    To illustrate the confusion this is creating, a client of 
ours submitted a proposal in October 2018, when the company was 
small under a 3-year calculation. As of January 1, 2019, that 
company is no longer small under a 3-year calculation but is 
small under a 5-year calculation. It recently had to update its 
representations and certifications for that same proposal. The 
company reiterated that it was small at the time of its initial 
proposal with price, which is the relevant date for size 
purposes, and also stated that it remains a small business 
pursuant to the Runway Extension Act.
    This company, and others like it, should be able to take 
advantage of the Runway Extension Act now. Accordingly, we 
recommend that Congress make clear its intent as to the 
effective date of the Runway Extension Act. It is my 
understanding that the Committee is currently drafting 
legislation to address this. We appreciate the Committee's 
efforts and urge the Committee to ensure that firms that are 
benefitted by the act may take advantage of it as of the date 
it became law.
    The second issue the Committee should address in 
implementing the Runway Extension Act is a transition period, 
which would allow firms that are small under a 3-year 
calculation, but not small under a 5-year calculation, to 
adjust to this change. The reality is that the Runway Extension 
Act unintentionally may harm small businesses that are 
experiencing financial downturns. For example, if a contractor 
unexpectedly loses a valuable follow-on contract or graduates 
from the SBA's 8(a) program and is no longer eligible for 8(a) 
contracts; in both scenarios the contractor often experiences a 
decrease in revenues after years of increases.
    Fluctuations also could be driven by the types of contracts 
a contractor has. For instance, if the company is a contract 
holder on a large contract vehicle and has won large dollar but 
short-term task orders in some of the recent fiscal years but 
not every year, then it could experience these types of swings. 
Small businesses should be given the option to choose which 
calculation is most favorable for them, 3 years versus 5 years, 
for a short transition period. In this way, firms that are no 
longer considered small under a 5-year calculation will have 
time to prepare to compete as a so-called mid-size firm in the 
unrestricted marketplace.
    Lastly, in implementing the Runway Extension Act, the 
System for Award Management database (SAM) should be updated to 
account for the change from 3 years to 5 years. When completing 
SAM registration, contractors must insert one amount 
representing their 3-year average receipts. To conform to the 
Runway Extension Act, SAM should be updated to request a 5-year 
average receipts calculation.
    In conclusion, the Runway Extension Act is a positive 
change for government contractors, but in implementing it, any 
potential negative impacts should be mitigated through clarity 
for industry, a transition period for firms that are not 
benefitted by the change, and an update to SAM.
    On behalf of PilieroMazza and the government contractors we 
represent, I would like to commend the Committee for continuing 
to consider how best to implement the Runway Extension Act, and 
I would like to thank the Committee again for the opportunity 
to appear before you today. I look forward to your questions.
    Chairman GOLDEN. Thank you, Ms. Connor.
    Mr. Morales?

                   STATEMENT OF BRIAN MORALES

    Mr. MORALES. Thank you, Chairman Golden, Ranking Member 
Stauber, and members of the Subcommittee, for inviting me to 
testify today.
    On behalf of the National Electrical Contractors 
Association (NECA) and ProCal Lighting, I greatly appreciate 
the opportunity to submit a statement for the record. The 
Subcommittee is to be commended for holding this hearing to 
better implement and enact a prudent bipartisan reform signed 
into law in the previous Congress.
    My name is Brian Morales. I am the president and CEO of 
ProCal Lighting, which is located in Vista, California. As a 
second generation Mexican American and a participant of the 
NECA IBEW program, I founded my company in 2014 with my father, 
Anthony Morales, a Purple Heart recipient and a Vietnam War 
veteran. Since that day, ProCal Lighting has provided energy-
efficient design and installations to public schools, 
government buildings, and some of our Nation's largest private 
industries. We at ProCal Lighting are proud members of the 
National Electrical Contractors Association, which serves as 
the voice of the 4,000 electrical contractors who make up the 
$171 billion electrical construction industry that brings 
power, light, and communication technology to buildings and 
communities across the U.S.
    Risk is inherent with any business venture, and a 
successful entrepreneur knows how to navigate this risk. In 
order to build a sustainable business and avoid undue risk, a 
business owner needs to be informed. For my company to continue 
to grow, our estimating team needs to consider the 
competition's approach and determine what level of risk 
exposure we have through formal requests for information and by 
receiving clear deliverables. The small business classification 
has allowed, and continues to allow ProCal Lighting and many 
other NECA contractors the opportunity to understand this risk, 
learn from it, and be better suited to grow.
    On a personal note concerning ProCal Lighting, the small 
business classification has opened numerous opportunities for 
us to sit at the table of government procurement and 
competitively offer our services. Thanks to our small business 
classification, we, as a company, have seen benefits including 
access to various workshops, increase relationships with 
vendors and industry resources like Federal small business 
loans, and complementary SBA training. These resources have 
aided our company in competitively securing government 
subcontracts, working on energy efficiency projects such as the 
Marine Corps Recruit Depot in San Diego, as well as the Customs 
and Border Patrol facilities in San Diego and Orange Counties.
    We at NECA and ProCal Lighting were pleased to learn about 
the bipartisan legislation from last Congress, the H.R. 6330, 
which extended the small business calculation for average 
receipts from 3 to 5 years. This legislation is of particular 
benefit to companies like my own, who can say over a 5-year 
period given the measure of our current anticipated revenues 
for this year and the following, ProCal Lighting would still 
hold its certification as a small business. If the same were to 
be evaluated over a 3-year period, we would lose our 
certification after year 2020. If we were to engage in 
discovering projects with the Federal Government, by the time 
the projects were funded and released for 8(a) certified 
contractors, we would be disqualified from participating and 
lose all that investment in developing and promoting this work. 
The new 5-year period, when combined with a finite phase-in 
period benefits companies like mine by providing a measure of 
flexibly in determining our small business status. It also 
allows ProCal Lighting the ability to hold its small business 
certification for a longer period of time.
    This phase-in period would allow both contractors and the 
SBA time to properly account for the 5-year calculation, while 
preparing businesses for the full implementation of the rule. 
Upon enactment of the previous Congress's legislation, ProCal 
Lighting can begin to acquire new clients on long-term 
contracts, having them become long lasting revenue sources and 
subsequently move our company into a safer financial position.
    With nearly 80 percent of NECA's contractor members 
classified as small businesses, legislation allowing our 
contractors to fully benefit from a small business 
classification is of utmost importance. As a small business 
contractor, I am extremely encouraged by this Committee's 
efforts to revise and strengthen the Small Business Runway 
Extension Act. The further clarification and guidance of this 
legislation will be a key component for small business owners 
like myself and the 3,200 NECA small business contractors in 
mitigating the inherent risk of competing in our industry.
    Thank you again for the opportunity to testify. Both ProCal 
Lighting and NECA applaud the Committee's unwavering efforts to 
reexamine the benefits of government programs for small 
businesses, and I look forward to answering any questions you 
may have.
    Chairman GOLDEN. Thank you, sir.
    Ms. Allen?

                    STATEMENT OF ERIN ALLEN

    Ms. ALLEN. Good morning. Thank you, Chair Golden and 
Ranking Member Stauber. I want to thank you for the opportunity 
to testify on this very important topic.
    My name is Erin Allen. I am the president of 
Contemporaries, and I am testifying today on behalf of the 
Montgomery County Chamber of Commerce out of the state of 
Maryland.
    I am here for two reasons. First, to thank you so much for 
the Committee to work with us to pass the Small Business Runway 
Extension Act last year. And also, to press for expedited 
implementation on this important law which affects millions of 
businesses all over the country just like mine.
    As government contracts become larger and small business 
grow, it is inevitable that they will face very tough choices, 
the first being to grow beyond the small business programs to 
compete with large companies. The second is to stay small to 
avoid the difficulties of competing in the full and open 
market. Another option is to sell, and unfortunately, the last 
and rather tragic option is to go out of business. As a result, 
there are only 1,700 mid-size businesses doing Federal work 
today. These firms compete not only with very large businesses, 
but also with small businesses who receive set-aside Federal 
work.
    Before I go any further I want to tell you a little bit 
about my company and our story and why it is important to me. 
Excuse me. Allergies are crazy.
    I am a second generation business owner. My parents started 
the company back in 1991. When I was tapped as president back 
then, we had just $4 million in sales. Fifteen years later, we 
are one of the largest providers of staffing services to the 
NIH and as a result of that steady growth, we find ourselves at 
the top of our size standard, which is revenue based. Our size 
standard is $7.5 million, which is microscopic in comparison to 
the very large businesses in our industry. My concern comes 
from having the time to accommodate future growth in a steady 
manner. The last few years have been really good for us, but 
the downside of that is that we risk losing that momentum 
should I continue that growth or be awarded a large contract. 
If the Runway Extension Act goes into effect, I will have a few 
more critical years to build my infrastructure, develop talent, 
and comply with some costly new cybersecurity requirements. In 
the end, my goal is to grow the company, to create new jobs, 
and to contribute to the economy.
    Last year, a fellow chamber member, Steve Ramaley, 
recommended changing the formula for small business eligibility 
to the lowest of 3 of 5 years to this Committee. Ultimately, 
the legislation simply changed the current 3-year revenue 
average to 5 years for the purposes of determining size. The 
rationale behind this proposed change can be stated simply--
competitiveness takes time to build. Revenue is not an 
indicator of present competitiveness. It is an indicator of 
future competitiveness. Having a good year or even a couple of 
good years does not mean that a company will continue to grow. 
Moving from the current 3-year lookback to a 5-year lookback 
would give firms more time to adjust to the full and open 
market.
    Not just bigger small companies and midsize companies 
benefit from the Runway Extension Act. Any small business that 
intends to grow will eventually benefit from these changes. 
Further, having more well-qualified firms under the revenue 
standards will increase the chance that solicitations will be 
set aside and therefore, will give all firms more opportunities 
to compete. Large businesses will also benefit because it 
increases the pool of well-qualified subcontractors.
    The Runway Extension Act as passed by the last Congress 
addresses these issues. We expected the change to be effective 
immediately. However, since its passage into law, the SBA has 
posed the argument that the size determination changes would 
not take effect immediately as the agency should first be able 
to utilize the rulemaking process and seek public comment. This 
decision by the SBA puts businesses in limbo.
    According to the Administrative Procedures Act, an agency 
can issue a final rule without publishing a proposed rule. And 
I quote, ``Congress has already directed a specific regulatory 
outcome into law.'' We believe that there is no question as to 
the intent of Congress. There was a hearing. There was a mark-
up. There was a clear congressional record, and specific 
statutory language leaving no discretion with respect to the 
regulatory outcome.
    While it seems unnecessary for Congress to reiterate its 
intent through this new legislation, we support any effort to 
insist on implementation. The damage caused by the delay is 
impacting small businesses all over the country, not just 
inside the beltway. The longer implementation takes, the more 
uncertainty and confusion there is for all small business 
owners. On behalf of small business owners everywhere, I 
implore you to press for implementation of the Runway Extension 
Act.
    Thank you for the opportunity to testify today.
    Chairman GOLDEN. Thank you very much, Ms. Allen.
    I appreciate all the testimony that you have all just 
shared with us, and I will begin now by recognizing myself for 
5 minutes of questions.
    One of the recommendations that we just heard to deal with 
the delay and the implementation of the Runway Extension Act is 
for Congress to pass legislation providing for an interim 
period in which the 3-year and 5-year formula would apply, 
leaving to contractors to decide which one to use. And this 
interim period would sunset on the date when the Runway 
Extension Act became effective or when the SBA issues their 
rules, whichever happens first. I believe, Ms. Connor, this is 
an approach that you have advocated for, and I see you are 
reaching for your button. But I think in the interest of having 
more opportunity for all of you to kind of talk about your 
different proposed solutions, I also want to lay out an 
alternative to deal with the delay would be to pass a 
legislative amendment, something that Mr. Black talked about.
    So in the interest of furthering the discussion for 
everyone, I might ask Mr. Black what you think the advantages 
and/or disadvantages of the proposed interim rule may be.
    Mr. BLACK. Sure. Well, you know, I think it is not a bad 
thing to help what we call backsliding businesses, businesses 
that have emerged from small and may be struggling to compete 
and are experiencing a reduction in revenues.
    At the same time, I think if Congress wants to help that 
part of the community, it needs to keep what it has done in 
place. It needs to maintain that continuity for the growing 
small businesses who are relying on this law that went into 
effect on December 17th. And so there is a way to do that where 
you clarify that the 5-year amendment went into effect on 
December 17th but then we are doing a new amendment to add back 
at the 3-year standard for a period of time. And these are all 
sort of judgment calls.
    So, you know, anecdotally in my practice I think you are 
helping more small businesses who are the growers. I do not 
have hard data. Just I have my experience in my day to day. And 
my experience says, this law is benefitting--there are more 
businesses who are large under the 3 but small under the 5, and 
then there is a subset of the community. I just think it is 
smaller. And so this is one of those where Congress wants to 
think about are we letting the tail wag the dog? If we do want 
to help the backsliders, let us do it in a way that makes sure 
we keep the help in place that we have given to the growing 
small businesses.
    Chairman GOLDEN. Thank you, Mr. Black.
    Ms. Connor, I thought I would ask you a similar question. 
If you could put a different cap on maybe and think a little 
bit about the proposed solution that Mr. Black has. What are 
some of the flaws with that approach or any potential benefits 
from your perspective?
    Ms. CONNOR. Well, the benefit is that, obviously, SBA is 
not implementing this change, and so the major benefit would be 
that they would have no choice. I think it is unfortunate that 
it has come to that because that subsection of the act, when 
you read it, it is clear that it applies to SBA because it 
speaks to a Federal agency issuing size standards. And to my 
knowledge, there is no other Federal agency that issues size 
standards besides the SBA. And it speaks to the SBA's 
rulemaking process for doing so. So it is unfortunate that the 
Committee and Congress are put into that position by another 
branch of government that they are refusing to implement this 
very simple change.
    But with that said, I think my one concern would be that 
the SBA size standard process is so slow and it does not, in my 
opinion, capture small businesses fairly. The current size 
standards have been in place since 2012 and are based on data 
from 2010-2011, and if you look at businesses now, it is 9 
years later. They have different expectations, different 
operating costs. It is just not a fair representation. So I 
would hate for anything that would slow down the size standard 
process any further.
    Chairman GOLDEN. Thank you, Ms. Connor.
    You know, in light of the delay that is taking place I just 
thought I would ask if you have any questions as well in the 
last few seconds that I am leaving you here. You know, what 
confidence might the Committee have that taking, you know, the 
approach that you propose would not result in further delays of 
the process from SBA?
    Ms. CONNOR. The transition period creates all winners. That 
is what is so great about it. If you are small under 3 years, 
you are still small until some date in the future. If you are 
small under 5 years, you are small and you can continue to 
pursue procurements for the next, whatever the transition 
period is, and then thereafter, when the 5-year rule is 
permanent and effective. So the transition period in my mind 
just creates a pool of winners instead of winners and losers. 
And I do not know what SBA's intent is and why they have issued 
that information notice and why they are slow to act. But if I 
had to speculate, I suspect that they might be concerned about 
the losers under the Runway Extension Act, i.e., the businesses 
that are small under 3 years but are not small under 5. And the 
transition period addresses what I think could be their 
concern. So I understand the delay but once it is in the act, 
and then if the Congress says that this is to be an interim 
final rule and comments would be allowed, then it is done.
    Chairman GOLDEN. Thank you very much. My time has expired.
    I now recognize the Ranking Member of the Subcommittee, Mr. 
Stauber, for 5 minutes.
    Mr. STAUBER. Thank you, Mr. Chair.
    A couple of questions or comments before I ask a question.
    The passion is, I hear loudly and clearly, to immediately 
implement it. Mr. Black, you made a couple of comments that 
really resonate. Sometimes the intention or what we desire in 
Congress does not make it to the implementation the way it 
should. And so this hearing is to change it. I, as one member, 
hear loudly and clearly, so the goal is to make this happen, to 
work with the SBA to make sure that it is understood, that it 
helps a small business. Each and every one of you talked about 
how it will help us. NECA is very involved. That is very 
important for us to hear that. I have been a small business 
owner for 28 years. I get it.
    And so a couple of questions I will ask Ms. Allen. You 
know, you mentioned in your testimony the administrator 
committed the agency to start working on the rulemaking 
immediately. Are there any consequences, both long term or 
otherwise for firms that might lose their small business status 
during these months but gain it back once the SBA issues its 
final ruling?
    Ms. ALLEN. So, you know, uncertainty is never good, right, 
in small businesses. And so I would just urge honestly, 
whatever decision is going to be made, just make it and get it 
done and over with. I mean, honestly, that to me is the 
biggest, if I can say nothing else, it is that. But insofar as 
small businesses, the wishy-washy is a problem. For me as a 
small business, I know that it was the greatest Christmas gift 
I could have ever gotten because this has been weighing heavily 
on my head for a long time over what is going to happen to us? 
And we have been planning and making infrastructure changes and 
hiring new employees, and I know that a lot of my colleagues 
within the business community are doing the same. So it is 
super critical for us and I think that the 5-year lookback is 
going to be huge for us.
    I do not know if that answers your question. Does that? 
Yes? No?
    Mr. STAUBER. Not allowing our small businesses to be in 
limbo is critically important. That is where you are right now.
    Ms. ALLEN. Absolutely.
    Mr. STAUBER. And to Mr. Black, your point of looking and 
researching other case law, it makes sense that the intention 
was to have it enacted immediately.
    One of the questions that I had was I know that in the 
small business community there are ups and downs. In any 
lookback, give me both a positive and a negative lookback from 
either the implementation or nonimplementation of this 
immediately. So what is the positive and what is the negative? 
You alluded to it but I want to hear it again.
    Mr. BLACK. Okay. Well, the positive, of course, is that 
businesses--the small business size standard is relevant on the 
date you submit a proposal for contracts. That is the date. If 
you are small on that date and you win the contract, you are 
small for the rest of the life of the contract. And so that 
date, the benefit, if you are small, if you are small under the 
5 year but not the 3 year, that means in 2019, you have 
opportunities that you would not otherwise have. And if there 
is ambiguity or SBA's Office of Hearings Appeals reaches a 
different opinion and a business loses a size protest, these 
opportunities are not coming back. 2019, they will lose the 
revenue. Contracts for programs are typically awarded every 5 
years. It will not be coming around. They will not be small. 
And so it is critical. The positive and the negative are the 
same thing. When it is clear you are small, you have 
opportunities now. When it is unclear or you are not small, you 
lose those opportunities and you will not get them back.
    Mr. STAUBER. I just go back to the fluctuation in the 
mindset of the small businesses. Our goal is to make sure that 
you know where you sit and the rules are present today and the 
standards are there for the small businesses. I think all in 
all I really appreciate your comments and your success in small 
business. It is not easy.
    I have said this many times in this Committee that small 
businesses are the engine of our economy, and I know that the 
Chair and I feel the same way. Coming from rural America, you 
are Main Street businesses and I really appreciate your 
testimony today.
    Mr. Chair, I yield back.
    Chairman GOLDEN. Thank you. The gentleman yields back.
    We will now recognize the gentleman from Ohio, 
Representative Balderson, Ranking Member of the Subcommittee on 
Innovation and Workforce Development, for 5 minutes.
    Mr. BALDERSON. Thank you, Chairman.
    Good morning, everyone. This question is for Ms. Allen. 
Good morning, Ms. Allen.
    In your testimony you talked about the midsize crisis of 
the contractual growth. Can you share how these 2 extra years 
from the Runway Act can help a small business successfully 
integrate into the open market without kicking the can down the 
road?
    Ms. ALLEN. Yeah, though I would like to kick it further 
down the road. But yes.
    It really helps because it gives us an opportunity to, as I 
said, to grow our infrastructure, to hire new employees. If we 
want we could acquire other small businesses to make us larger 
or more competitive, or to joint venture with them, to develop 
some of those relationships that we would not have otherwise 
needed. As a small business, you can kind of do your thing. You 
do not need to be, you know, Mammoth. You do not need to have 
as many joint ventures to operate. But when you are competing 
against the Lockheed Martins and the SAICs and Leidos of the 
world, you need to have a whole army of folks with you. So it 
would give us time to put that consortium of people together.
    Mr. BALDERSON. Thank you. I have one follow-up question for 
you. In your opinion, how has the over the 3 or 5 year affected 
contracting firms' willingness to hire new employees and expand 
their work force?
    Ms. ALLEN. Sure. I mean, any uncertainty as a business 
owner, you know, if I am in a position of, okay, well, so next 
month I am going to be small or am I going to be large? I am 
not going to take that risk and hire new employees. It just 
does not make sense to the bottom line, and then have to turn 
around and get rid of them because, oh, my gosh, now I cannot 
afford, I am not going to be able to compete for those 
businesses because I am no longer small. And so that really 
puts huge pressure on businesses. And so, yeah, whether you are 
large or small, that uncertainty is not good.
    Mr. BALDERSON. Thank you very much for your answers. And I 
yield back my remaining time.
    Chairman GOLDEN. The gentleman yields back his time.
    We will now recognize for 5 minutes Representative Jim 
Hagedorn.
    Mr. HAGEDORN. Well, thank you, Mr. Chair, and Ranking 
Republican Member Stauber, fellow Minnesotan. It is pleasure to 
be here. Thanks to the witnesses and the staff and everyone.
    I would first like to recognize a friend of ours who is in 
the audience, former Congressman Tom Davis. Tom, appreciate 
your public service. It is nice to see you today. Hope things 
are going well.
    Ms. Allen, so the concept here, I guess, is that small 
business begins to grow, you are involved in these contracts 
and other things, and we should maybe set some different 
limitations or, you know, expand it so we do not have to just 
stop the whole process. I get that. We want businesses to grow. 
We do not want to disrupt the apple cart and all that. But, and 
by the way, I thought the concept of maybe the 3 lowest years, 
that might make more sense if you are looking over 5. But if 
this is a good concept and we do not want to have businesses 
run out of business or limited because of bad government, why 
do we not apply it to everything else that the government 
mandates? I mean, look at labor laws. Look at health care with 
Obamacare.
    I have spoken to a lot of business owners in southern 
Minnesota who are concerned that their business is getting too 
good. They are starting to grow. They are starting to hire more 
people. They were thinking about going out and buying other 
businesses and, you know, doing all sorts of things. But 
because of the limits that are imposed on them and Obamacare 
and other statutes by the Federal Government, they had to think 
twice about that. And oftentimes they deferred and decided not 
to.
    What do you think about that concept? Should we be maybe 
looking at other statutes and seeing how it impedes small 
business progress?
    Ms. ALLEN. Absolutely. Amen. Let us do it.
    You know, I think that anything that impedes the growth of 
particularly small businesses is, you know, welcome. You know, 
are there other statutes and limitations? I am sure there are, 
and I think that, yeah, that would be valuable. I think all of 
us would applaud that. You know, what are the right ones to 
change and monkey with? I will leave that in your very capable 
hands.
    Mr. HAGEDORN. I am just saying, if this is a good idea, if 
this is a good bill, it seems to be bipartisan, maybe we should 
look to apply it to all other aspects of government to make 
sure our small businesses can prosper, thrive, and grow and 
expand and compete ultimately with bigger businesses.
    With that, I yield back. Thank you.
    Chairman GOLDEN. The gentleman from Minnesota has yielded 
back.
    I will now move into a second round of questioning for 
those who want to. And I think I will start myself for an 
additional 5 minutes.
    I wanted to ask Mr. Morales, I think if I understood 
correctly, during your testimony you were saying that under the 
3-year rule in 2019, you are small. By 2020, you would have 
grown out of that. So I wanted to ask, or just give you another 
opportunity to tell us about how the delay in implementing this 
law has left you in limbo with a little bit of uncertainty. How 
is that going to impact your planning for what you do compete 
for or take on in 2019 looking beyond to 2020?
    Mr. MORALES. I think some background information about our 
company would be beneficial in this case. We started in 2014, 
so we are a relatively new company. Because of our tremendous 
growth, we have been able to go through a lot of processes that 
the SBA programs have helped us go through and understand. This 
current year is going to be our largest revenue year to date 
and when I was mentioning that if we continued this same type 
of revenue for the following year, under the 3-year rule we 
would lose our small business status. Now, that is not to mean 
the previous years in which I started the business were even 
close to breaching that. We just had a really good successful 
year this year. So again, the idea is we are a small 5-year-old 
company who just had a tremendous year and still are learning 
from the process of contracting with the government that we 
need to understand more formally. A big part particular to our 
company is we began our 8(a) application last year, midyear 
last year. It has been quite a bit of time that we have 
divested into this program. A lot of office time, a lot of 
monies trying to get that 8(a) certification. It is currently 
in the part of being processed, and if we were to continue our 
revenues, we would get the 8(a) in 2019 just to lose it after 
2020. And that is under the 3-year rule. So if we were to have 
the 5-year rule implemented immediately, that would help us 
plan. It would help us to look at what kind of solicitations we 
need to do. What type of contract engagements we need to have 
and patriciate in. We also want to start in right away with 
creating mentorship programs under the 8(a). And if we began 
that process only to lose that certification because we are no 
longer a small business, then it would be a lot of wasted time 
and effort and monies also.
    Chairman GOLDEN. I thought I might ask if you would just 
follow up in your experience. Probably you know businesses, 
maybe even your own, struggling with the same kind of 
uncertainty and challenges that Mr. Morales was talking about. 
But I was wondering if there are other common repercussions 
that you might speak to as a result of the delay of the act.
    Ms. ALLEN. The delay really puts us in a precarious 
position because there are contracts that we would love to go 
after. But if we are going to be considered large we cannot. 
And teaming arrangements that we have put together. We do a lot 
of mentoring with--not formal mentoring relationships but 
mentoring of other small businesses that we help and they 
subcontract under us. And if that change happens, not only does 
it affect me but it affects all those other smaller small 
businesses that no longer can team with me. And some might say, 
well, we could reverse it. They are not in a position to be 
able to prime a contract. They are not large enough. They are 
not a large enough small to be able to prime those small 
businesses. So it really puts all of us in this really wonky 
period. So, yeah.
    Chairman GOLDEN. Thank you all very much.
    I want to thank all the witnesses for taking the time out 
of their schedules to be here with us today. I understand there 
are no additional questions.
    I will say that ensuring that small businesses can thrive 
is the number one priority of this Committee. We have heard 
today the SBA's delay in the implementation of the Runway 
Extension Act is creating widespread confusion and uncertainty. 
It is clear from our hearing that there are several 
alternatives that can be implemented to address this issue. I 
look forward to working with my colleagues on both sides of the 
aisle to ensure that small businesses have access to Federal 
contracting opportunities that Congress intends so these 
companies can continue to grow and add jobs to the economy. I 
think that the Ranking Member and I agree that we are looking 
for the fastest solution to provide the quickest clarity for 
everyone that is out there that will be impacted either by 
further delay or hopefully a quick resolution.
    With that, I would ask unanimous consent that members have 
5 legislative days to submit statements and supporting 
materials for the record.
    Without objection, so ordered.
    If there is no further business to come before the 
Committee, we are adjourned. Thank you very much.
    [Whereupon, at 10:56 a.m., the Subcommittee was adjourned.]
                           
                           
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