the Administrator goes in and gets an accounting firm, for example, to agree he will give so many hours small business, wherever they send him. For a certain fee he contracts for so many hours then if Mr. Singleton needs some accounting help he can call Atlanta and they will see that he gets this accounting help or estimator help, you know, provisions that they will need as they graduate their skills to carry them through a higher level so then they can do it themselves.

Yes, they are definitely going to need that help. It would be better to subcontract a lot of that out than to try to put all that expertise into SBA because then you are building another tremendous bureaucracy there. So, much of that can be done but it ought to be SBA contracting that out. Do not give that person sort of control because if he gets into there with control then you are right, the small minority businessman is not going to learn anything.

Senator NUNN. Well, we also have a pilot project going on with the universities in about 15 States that are set up basically to try to offer expertise not only to minorities but any small business

man.

We have had testimony before this committee that most of the failings of small business is due to lack of planning and so forth. That applies to white, black, women, and all of them.

Senator CHILES. That could be a tremendous benefit and you are not going to worry about them taking away the contracts or taking away all of the assets because there again, you are dealing with them through a different arrangement.

Senator NUNN. These two purposes could be melded together, maybe not exclusively along that line, but as part of the overall expertise.

Senator CHILES. I think so.

Senator NUNN. Thank you very much, Senator Chiles, for your excellent work. We look forward to continuing to get your advice as we work through this legislatively.

Senator CHILES. Thank you, sir. I again want to thank my distinguished colleague from Louisiana for allowing me to precede him. Senator NUNN. Senator Johnston, delighted to have you. I appreciate your leadership in this regard. You have been a real stimulus to a lot of activity in this area, not just on this bill but several others, and I have enjoyed working with you.

STATEMENT OF HON. J. BENNETT JOHNSTON, A U.S. SENATOR FROM THE STATE OF LOUISIANA

Senator JOHNSTON. Thank you, Mr. Chairman. That is mutual and I hope this is the year that we will get this legislation passed and the Carter administration is committed to it.

Senator NUNN. Mr. Chairman, in my view minority business legislation is exceedingly important. It is I know in my State where we have 20 percent living in substandard housing; 10 percent on welfare and a whole underclass that has been, for decades, unable to join in the mainstream of business and the economic life of our State.

A Government program to give these people as I would say a fair shake is needed are without that, they are going to be permanently

in this underclass. We have large numbers of people of skill and ambition, drive, dedication, all the good American qualities who just do not have a chance because of capital, because of training, because of just not having been given that break.

Only through this kind of a program are they able to be furnished with those skills and that expertise and money and help, the whold area of services that are necessary to get them started. Let me say I had not planned to get into the question of whether this program should be reserved to what you might call traditional minorities, blacks or hispanics or whether it ought to reach out and include women, et cetera. I would hope we would not expand the program beyond the traditional minorities. The program will be completely meaningless if we do. If you include poor women, for example, or needy, I do not know how you would qualify the

women.

Senator NUNN. I think socially and economically disadvantaged would do it according to some of the testimony. Or might "socially or" be better?

Senator JOHNSTON. What does "socially" mean?

Senator NUNN. Well, I was going to ask you that.

Senator JOHNSTON. My wife seems to think I am socially stunned at times.

I honestly do not know what that means. I know what "economically deprived" means but when you include the 51.3 percent of the population I guess it would mean they would meet it and then you say well, if you are going to include women why not men if they are socially and economically deprived? Then you have the whole entire population included if they are needy.

I think the problem we are trying to get at is the deep problem in my State of a whole underclass. What we are talking about in my State is black people who have been deprived educationally for decades and that, in turn, has led to economic capital deprivation.

They do not have fathers and grandfathers and uncles and cousins who are in the business and so they have to have somebody to act in locl parentis or locl unclities or whatever you want to call it, Mr. Chairman. They have to have somebody to play that part and that is what we need and we should not proliferate this program and make it meaningless by expanding it beyond that.

Early in the 94th Congress I introduced legislation to restructure the minority business programing effort. My original bill, S. 607, attempted to provide statutory underpinning for minority enterprise development by consolidating minority business programing within the Department of Commerce.

I have revised this bill and introduced S. 2296 because I have since concluded that the logical statutory agency to assume management of the minority business development program is the Small Business Administration.

The Small Business Administration already has established authorities, responsibilities and procedures to resolve the financial, management, technical and marketing problems that minority small businesses encounter. While business development requires a multiplicity of services, it does not require a multiplicity of servicers.

I have consistently and persistently maintained that the multiplicity and duplication of Federal programs supporting minority entrepreneurs are wasteful and wrong, and that something must be done to turn this situation around.

For those who say that the Small Business Adminstration has failed in the past to provide effective support of the minority entrepreneur, I ask that they show a Federal agency which has been completely successful and without fault. Again, I want to emphasize that Federal programs established to develop minority enterprises are too fragmented and diluted, and need consolidation. I have used this opportunity thus far to push legislation which would bring the many diverse elements of the Federal effort to assist minority businesses into a single, coordinated whole. Let me now focus on the bill which is presently before this committee. This legislation states that the power to let sole source Federal contracts pursuant to section 8(a) of the Small Business Act shall henceforth be used only as a tool for developing business ownership among socially and economically disadvantaged persons.

The section 8(a) procurement was originally established for emergency small business problems, and utilized as a low key vehicle through which to assist in establishing minority owned businesses. The program has since developed into an enormous SBA sponsored minority program.

Recognizing the importance of Government procurement contracts to its development, the minority business community desires more 8(a) negotiated contracts. The Small Business Administration, responding to the national emphasis put on minority enterprise development, has attempted to provide more 8(a) negotiated contracts to minority firms. However, a recent report submitted by the 8(a) Review Board to A. Vernon Weaver, Administrator of the Small Business Administration, found that since its inception, the 8(a) program has been more effective in the placement of procurement contracts than it has been in the development of the companies which perform these contracts.

This bill not only establishes the unquestionable legislative authority for the minority type 8(a) programs, but also provides the legislative framework within which the comprehensive development of 8(a) companies can take place.

While I am not so naive to suggest that this approach will guarantee success, I do believe that the business development framework provided by the bill will turn around the historical performance of the program.

Everyone must certainly agree that the history has to be turned around. Since it was created, 3,665 firms have participated in the 8(a) program with a little more than $1.9 billion worth of contracts let to them.

Of those 3,665 firms, there have only been 103 that have successfully completed the program. About 1,085 firms were dropped from the program by the Small Business Administration for various reasons and another 543 firms withdrew voluntarily.

Over 350 firms left because of business failure. I am convinced that poor program design of the 8(a) program has been the primary cause of this poor record. By providing a legislative framework to

operate the 8(a) program, this bill effectively addresses this problem.

One of the most important reasons to provide a comprehensive framework for the development of minority businesses is that the Federal investment and the taxpayers' dollars are better protected. Bills of dollars are at risk through direct and guaranteed loans. It simply makes good business sense to provide a little additional support to these high risk ventures to assure that the Federal dollar is effectively utilized and protected.

Mr. Chairman, I am very happy to note that the supportive framework in this bill is taken directly from my comprehensive reorganization bill, S. 2296.

I am confident that this bill resolves the problems of 8(a) program design. It can also serve as the starting point for an accelerated reorganization of minority business programing.

I thank my distinguished colleague for inviting me here to testify today and look forward to his support in passing S. 2296.

Senator NUNN. Thank you very much, Senator Johnston. I am running very late myself to introduce Acting Director Jim McIntyre to the Committee on Government Operations to be Director of OMB. I will recess now for about 10 minutes and I will come back. [Brief recess.]

AFTER RECESS

Senator NUNN. The subcommittee will come to order. Our next witness is Mr. A. Vernon Weaver, who has inherited these problems that we have been discussing, and who has not been the cause of them.

Mr. Weaver, I know that you have worked long and hard on this and we are delighted to have you here to testify today. I am sorry I had to leave for a few minutes.

STATEMENT OF HON. A. VERNON WEAVER, ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION

Mr. WEAVER. Mr. Chairman, I will be glad to dispense with the reading of my statement.

Senator NUNN. It is not too long. Go ahead. I find sometimes that it takes longer to summarize than to read the statement. Mr. WEAVER. Mr. Chairman, I appreciate this opportunity to appear here today to discuss the proposed "Small Business and Capital Ownership Development Program."

I am pleased to state, Mr. Chairman, that the Small Business Administration strongly endorses any proposed legislation that strengthens assistance to the socially or economically disadvantaged involved in SBA procurement program areas.

We recognize this to be the objective of your draft bill. However, before endorsing this proposal, we believe certain modifications are appropriate.

The proposed program established by the bill would provide SBA with a single point of accountability for its 8(a) programs of assistance to socially or economically disadvantaged entrepreneurs.

SUGGESTED MODIFICATIONS

First, with respect to the management structure of the program outlined in your bill, we believe that placing a Presidential appointee at a level comparable to the Deputy Administrator could create conflict of authority.

We would prefer that the individual be appointed by the Administrator, at a level below that of the Deputy Administrator, in line with the Agency's program management structure.

Second, we do not believe the establishment of a separate information center as outlined in section 2 on page 3 is necessary. This function can be adequately performed under existing programs. Third, we object to the provisions of the second section which would inject SBA into an area which we believe properly falls within the jurisdiction of the Department of Labor, namely, projects designed to increase employment among the chronically unemployed. Small business loans can be an important tool in generating economic activities which, in turn, produce employment. To the extent that small business loans can be used for that purpose, SBA can and should work with other agencies to achieve that goal. However, we do believe that assisting companies to achieve an overall healthy condition should continue to be our primary goal. Fourth, we do not support the changes in section 8(a)(3)(A) which have the effect of requiring contracting officers to let 8(a) contracts when certified by SBA.

This function is now discretionary with the contracting officer. The bill provides that differences of opinion on terms and conditions between SBA and the contracting officer may be appealed to, and decided by, the head of the procuring agency. In our view, making the award of contracts mandatory in this fashion may be self-defeating.

An agency not disposed to cooperate with SBA could easily set unmeetable contract terms and conditions. The 5-day period allowed SBA to proceed with a contract or withdraw its certification after receiving an agency head's decision on the terms and conditions is hardly sufficient time. And finally, this process would unquestionably require additional personnel who are qualified as contract analysts.

Given the short time period involved, the need for interagency cooperation, and the amount of resources and personnel required if SBA is to act in a timely and prudent manner, we suggest that a better approach might be to provide SBA with statutory authority to redelegate its 8(a) authority in selected situations to the agency issuing a particular contract.

Responsibility for administration of a contract would be placed with the contracting agency and for oversight with SBA. Such a procedure would require a lower level of SBA resources and would result in less duplication of effort between SBA and contracting agencies. It might also result in more timely and effective assistance to companies implementing contracts.

Fifth, section 8(a)(4) provides that no small business concern shall be required to provide any amount of any bond as a condition of receiving any subcontract, if the program director determines that such an amount is inappropriate, given certain provisions.