The Small Business Administration recently issued a glowing “scorecard” on the federal government’s small business contracting goals. The federal government, according to the SBA’s assessment, “earned an ‘A’ on this year’s government-wide scorecard.” But after you remove the undeniably rose-colored glasses, a less compelling picture emerges.
While it is true that the federal government has met its goal of awarding 23 percent of prime contract dollars to small businesses for five years running, those dollars are heavily concentrated in just a handful of firms.
Of the 58 million small businesses in the U.S., just 200 companies categorized as small businesses won 25 percent, or $28 billion, of the $110 billion in prime small business dollars awarded by federal agencies in fiscal 2017. Furthermore, the number of contracts available to small businesses is shrinking. In fiscal 2007, the federal government awarded nearly 800,000 new contracts to small businesses. That number fell 31 percent to about 550,000 in 2017.
Put simply, fewer small businesses are winning fewer federal contracts. The unfortunate dirty secret in federal contracting is that everyone already knows who will win small business contracts: It’s the companies that have already been winning.
For example, one small business that won its first federal prime contract in 1999 managed to grow its prime contracts from $744,000 that year to about $65 million by 2009, pushing it out of the definition of small business for federal services contracts. The heavy advantage of federal incumbency carried forward, and the company went on to capture $2.3 billion in prime awards from 2009 to 2017 — $1.6 billion of which the federal procurement data system still categorized as a small business win!
Every year, hundreds of small businesses seek to enter the federal market, but find themselves hitting a wall bricked with barriers to entry for new companies.
For starters, $31 billion, or 30 percent of small business dollars, were awarded without competition in 2017, as sole source contracts. Since the government doesn’t publicize the statements of work or notices of intent to avoid competition that describe the projects, no one knows what this work is before or after the award, except for the awardee.
The hard truth is that most small businesses are effectively shut out of the most popular way the government buys. By 2017, only 25 percent of dollars awarded to small businesses were available via open competitions outside of contract vehicles. With 75 percent of the market locked up, many companies spend years trying to break in, or run the other way.
The federal government’s need for contractor support is rising significantly with the two-year budget agreement that Congress reached, pushing a boost in requirements on to agencies that the private sector can help achieve. But the system is stacked against most small businesses.
Many fixes could create a more fair and open marketplace for small businesses, but some are simpler than others. For example, procurement officials should post all intentions to award sole source contracts on FedBizOpps.gov with a statement of work, giving a chance to other companies to present their case to compete.
In fact, all solicitations, even those issued on vehicles that include General Services Administration schedules, should be accessible. This transparency can help new small businesses access those bids as subcontractors.
Simplifying procurements would help, including more oral proposals replacing written proposals, which often lead to qualified companies losing on technicalities.
Contracting officers need more training on how to make contracting more accessible to companies with commercial, not just government, experience. More dialogue with industry will help, particularly if agencies communicate their goals and needs in advance.
Finally, Congress could change small business contracting goals to measure not just how many dollars small businesses get, but also how many small businesses get them.
Federal lawmakers of all ideological stripes frequently sing the praises of small businesses as the American economy’s backbone — a wellspring for productivity, innovation and growth. Federal procurement policy must, accordingly, ensure that agencies routinely tap into the innovation available from the nation’s millions of small businesses, rather than effectively hinder those companies from supporting Uncle Sam and benefiting our citizens at large.
Olessia Smotrova is president and CEO of OST Global Solutions, and author of the book How to Get Government Contracts: Have a Slice of $1 Trillion Pie. Brian Friel is co-founder of BD Squared and a leading federal contracts market analyst.
