Mr. CONYERS. We want to thank you very much. You have been very helpful. I would like to express our appreciation to you for sticking in on a very tough assignment. I think you have been performing in a very superior manner in terms of trying to keep a small business afloat in our community and it's about time we acknowledged that.

Ms. RAYMOND. Thank you very much.

I am committed to this responsibility that I have as the MBOC Executive Director, and certainly would like to see the minority business community and the Federal community in a position to work together and to be very productive.

Mr. DAUB. By the way, where is your office now?
Ms. RAYMOND. Right here in this building.

Mr. CONYERS. We now have the president of the Inner-City Business Improvement Forum, Mr. Walter McMurtry; and the executive director of the National Association of Minority Auto Dealers, Charles Patrick; and the chairman of the board of the Booker T. Washington Foundation, Mr. Alvin Carson. Is he present?

[Witness did not appear.]

Mr. CONYERS. We welcome both of you gentlemen and accept in the record your prepared statements and allow you to proceed in

STATEMENT OF WALTER M. McMURTRY, JR., PRESIDENT, INNERCITY IMPROVEMENT FORUM

Mr. MCMURTRY. Thank you, Congressman.

Good morning, Congressman Conyers and Congressman Daub. My name is Walter McMurtry, I am the president of the Inner-City Business Improvement Forum here in Detroit. We are a local business development organization funded by the Minority Business Development Agency, U.S. Department of Commerce, and also by a local urban coalition by the name of New Detroit.

You already have our prepared testimony. I will read some of it but not all of it. There are certain key points that I want to bring out, and then I will be more than happy to answer any quest ons that you might have.

We at ICBIF believe that if minority businesses are to survive and grow, in order to enter the economic mainstream of the Nation's business, it becomes imperative that the programs designed to achieve this end be effective and should do the job. Since the late sixties the emphasis on both private and public sectors has been focused on economic development programs to assist minorities rather than social programs. Although the Federal Government has taken the initiative in spearheading some of these programs that are designed to assist minority businesses, many of the programs are falling far short of our expectations and I also think the expectations of Con

gress.

In a General Accounting Office report, that was requested back in 1977 by Senator Gaylord Nelson, who was then the chairman of the Senate Small Business Committee, the 8(a) program which we are discussing today was determined to be a failure. They found

that the major shortcomings in that program were many and varied. Senator Nelson said, among other things, that according to the GAO report, the 8(a) program was more like a program for business failure, not a program for business development.

He also said that that report showed that since 1968, only 149 out of 3,700 firms that participated in the program actually completed the program or graduated. Of those 149 only 33 ended up with a profit.

A GAO report also found shortcomings in the way that the Small Business Administration administered the program goals for the Federal agencies to follow in awarding contracts to SBA participants. These weren't clear. Goals set by SBA often did not reflect the needs of the minority firms. For example, SBA sometimes would arbitrarily decide to concentrate on certification of companies in certain industries while totally ignoring firms who wanted 8(a) certification in other industries. Targeting may be a fine tool to use, however, one should not deny the opportunities of other companies who want to be in the program nor access to it because of the simple matter of targeting and that being an arbitrary targeting.

Delays by SBA staff has resulted in loss of contracts for 8(a) participants. For example, the report I mentioned earlier stated that SBA rejected more than half of $41.3 million in contracts offered to the program by GSA and the VA alone.

Now really that was an old report, approximately 2 or 3 years old, but nothing much has changed in the administration of the program despite the passage of Public Law 95-507. Since the Nelson report has been made public, nothing really has changed.

The decisions that are made by officials of both the Federal, the State, and local governmental agencies many times have resulted in minority groups receiving far less than their fair share of the services the programs provide.

The lack of program administration or misinformation on the program is another key reason that the minority business community has been shortchanged, we believe, especially here in the Detroit area. In our area, however, some effort is being done to correct some of these deficiencies in programs offered by the following organizations. Our organization, ICBIF, the Association of Minority Contractors, Hispanics Organized For Entrepreneurship, HOPE, Community and Economic Development Department for the city of Detroit, Greater Detroit Chamber of Commerce, the Booker T. Washington Business Association and the Detroit Economic Growth Corp. Some of these services these people provide are general business advice, technical and management assistance, loan packaging, purchasing advice and contract, investment capital, as well as facility location and feasibility studies.

The above listed organizations should be commended for their efforts. I believe quite frankly that the majority of 8(a) contracts that we have is due approximately 90 percent to their efforts, and their tenacity in working for their clients and giving particular 8(a) certification for work done. We have had some success in getting them. My experience has been that it has been extremely difficult. I cannot help but wonder how many more certifications we could have had, had the road not been so tough, getting the few that we have done.

We feel that the major problems in the 8(a) program are as follows: Filling out the application, the documentation is difficult, it's time. consuming, it's costly. Many entrepreneurs do not have the expertise, the time, or the resources to complete that application, nor can they cut through the bureaucracy and the red tape that is involved. Some small examples, if you will.

The president of a local construction and property management company here in Detroit applied to SBA for certification in March 1979. Thirteen months later, after reams of correspondence flowing between the minority company and the local and Federal SBA officials and elected officials, the company is still trying to participate in the 8(a) program.

Another example-this is outside of Detroit-the president of an aviation company that was located in Holland, Mich., attempted to get involved in the 8(a) program sometime back. The company negotiated a contract with the Postal Service, $75,000, and went to a bank in Grand Rapids and arranged a line of credit, which was approved. They returned to the SBA for what they thought was entry into the 8(a) program. They were told that the firm was still ineligible. That company is now out of business.

The president of a maintenance firm, Grand Rapids, tried in August of 1973 to get into the 8(a) program. After many meetings, far too much correspondence, and unnecessary delays, 14 months to be exact, they were finally approved. However, they still had not received any Government contract.

Mr. CONYERS. Pardon me.

In this Holland example you are citing, they sent the businessman out to get the contract first?

Mr. MCMURTRY. Now in the Holland contract they had negotiated. a contract with the U.S. Postal Service, they had done that. They wanted to have it set aside.

Mr. CONYERS. They just wanted to get certified?

Mr. MCMURTRY. That's right.

Mr. CONYERS. Which would have entitled him to what additional benefits?

Mr. MCMURTRY. Well, if one can be certified as 8(a) there are a lot of benefits that inure to that. Supposedly you can get advanced payments on your contract that would help you to provide some working capital in carrying it out.

Second, you become eligible for what we call business development expense funds. In other words, the Government is authorized to utilize the funds to help you to upgrade your capital equipment to a competitive status, if you will, so that you can finally graduate from the program and be competitive with all other agents.

Mr. DAUB. Do those business development expenses have to be normally part of the contract applied for in the 8(a) in negotiating contracts? In this case, that contractor would have already had his postal contract. It may not have been an advantage although the advanced payment provision might have been.

Mr. MCMURTRY. The advance payment probably would have been an advantage. I was just speaking to what kinds of extra things one becomes available for. My experience is that our clients have applied for them subsequently to receiving a contract, or sometimes simultane

ously with receiving a contract, if it is known that the business development expenditure can assist them in becoming more competitive at this particular point in time.

This particular case was one where the contract was set up, so that it could be set aside as an 8(a). Unfortunately it didn't get to that certification.

Mr. CONYERS. Did he ever get the contract?

Mr. MCMURTRY. No; not that one. I don't know about subsequent

contracts.

Mr. CONYERS. Do you know why it went down the drain?

Mr. McMURTRY. All we know is it couldn't be worked out. It couldn't be negotiated out.

Mr. CONYERS. Well, did the failure to get certification have anything to do with the failure to get the contract?

Mr. MCMURTRY. He got the certification. He just didn't get the contract.

Mr. CONYERS. He was subsequently certified?

Mr. MCMURTRY. Right, and, as you know, in an 8(a) program, the Small Business Administration becomes the general contractor and they negotiate the contract with the small business person and that's what happened.

Mr. CONYERS. Does he have any different feelings about the role that SBA played in negotiating the contract?

Mr. MCMURTRY. If my memory will serve me correctly in the particular negotiating of the contract, it got down to the point where he said, I'm not going to make a profit and it doesn't make any sense. Quite frankly, this contractor probably would have been better off if he had bid on the contract outright without seeking 8(a) assistance at all. Mr. CONYERS. Has that happened before?

Mr. MCMURTRY. That has happened with quite a few other contractors. Many contractors who are 8(a) certified would tell you we would be better off bidding on this without the 8(a), simply because when 8(a) got the contract and negotiated with them on the contract, the price went down so far they could hardly make it. Now there has been some use of the business development expense fund to subsidize the price on the contract, but that's frowned upon, quite frankly, by, I know, the Small Business Administration in Washington. And it's really not the purpose of this development expense fund to subsidize the price of the contract.

Mr. CONYERS. Of course not. The fact of the matter is that it's generally perceived that if these contracts are negotiated in excess of the going rate, that that would be an acceptable practice because this is in fact a disadvantaged firm which is why it was certified in the first place.

Mr. McCURTRY. That is absolutely correct.

Mr. CONYERS. Now for them to be ending up in contractual situations in which they end up wishing they had never been certified, completely reverses the character of the function that SBA was supposed to be playing.

Mr. MCMURTRY. Again, that is absolutely correct. It appears to be a vicious dichotomy, quite frankly; that is perfectly acceptable to negotiate an 8(a) contract at some price that is higher than the normal market price, but on numerous occasions they have been negotiated at prices that would be quite lower.

Mr. CONYERS. Could you help us identify those incidents in which this may have taken place or was believed by the minority business to have taken place?

Mr. MCMURTRY. We certainly can and we will, and I think that throughout the day in testimony from specific business persons you are going to hear from them that contracts that they negotiated under 8(a) actually ended up in a loss for them.

Mr. DAUB. Do you know, I'm trying to focus on this problem. Have you ever participated alongside of a client, a disadvantaged applicant, certified, in the actual contractual negotiation once the award was planned?

Mr. MCMURTRY. We have never sat down with them side-by-side on that. The closest that we have come to it is with a client, not here in Detroit, but one in Rhode Island, where we did supply information, primarily because we sit on their board of directors, and they were negotiating contracts with the Supply Logistics Command people.

Mr. DAUB. I asked that question because I am aware of one similar experience. Would you care to comment in that particular instance you mentioned about when the SBA part was involved. Even though they may have been good people, they didn't have the experience to actually assist in the negotiating of the contract? In other words, they didn't understand that particular area, so the disadvantaged business person wasn't able to communicate or negotiate effectively. Mr. MCMURTRY. Congressman Daub, you are absolutely correct. What I found, and one of the things I state later on in this report, is that the SBA personnel do not understand, a lot of times, what it is that they are supposed to be doing, quite frankly. The negotiations that I sat in on was a simple matter. It was a matter that the Defense Logistic Command people said, our budget says we are to get X for these chemical warfare boots that we want to buy from this company. The company was saying, the price of those boots is X plus something. The SBA's role was to try to get plus something down to where the Defense Logistic Command was. That's all they knew about it. They had no idea about the cost of manufacture. They had no idea that this product was made out of butyl rubber. They had no idea that butyl rubber is a very difficult thing to deal with, that there's high scrap involved with it. We even had to go to England for technology on it. They knew nothing about that at all. They knew nothing about that.

Mr. DAUB. The point, without a maligned intention to the SBA people involved or to any other facilitating agency it was a guideline and paperwork again that brought parties together with good intentions but maybe they were hamstrung.

Mr. MCMURTRY. Absolutely.

Mr. DAUB. They ultimately were without the technical ability to make that price come into line.

Mr. MCMURTRY. That's absolutely correct and the only reason that that contract, that particular contract was let to our firm was simply because it just so happened that the price that we quoted was also the lowest price that anyone else would do it for and that's how it got through that way. There was even talk of using 8(a) dollars for subsidizing the bottom line but that did not materialize.