A Fair Shake for Small Businesses: 5 Federal Contracting Reforms

A Fair Shake for Small Businesses: 5 Federal Contracting Reforms

Each year, the Federal government spends almost half a trillion dollars on procurement of goods and services. That’s a lucrative marketplace, especially for a small business.

The Federal government acknowledges the value of having small businesses compete for contracts, and even has a government-wide goal (23%) for awarding prime contracts to small firms.  The thinking goes that it is economically important to have a diverse and healthy industrial base to support the government, particularly in times of war, and that small business participation in federal contracting increases competition, promotes innovation, and reduces the cost of procurement.

Policy vs. Reality

Despite this overarching policy, making sure Federal agencies give small contractors a fair shake is not always easy.   The Federal government’s attempts to meet its small business contracting goals are a mixed bag.  Recent trends show that fewer small businesses are being awarded contracts even while the percentage of dollars flowing to small businesses has increased.  The number of contract actions has fallen 60% in five years.  In other words, bigger contracts are going to fewer companies and participation rates are lower.  Moreover, there are 23 industries in which the government spends over $500 million annually, but less than 10% of those procurements are going to small firms.

Reforms to Help Small Businessses

In recent years, the Committee on Small Business in the U.S. House has pursued various reforms to prod Federal agencies to do right by small firms and to remove barriers that hold small contractors back.   In May, the House of Representatives passed many of the contracting reforms produced by the Committee on Small Business as part of the annual National Defense Authorization Act (the Department of Defense accounts for the lion’s share of government contracts, so this legislative vehicle makes some sense).

Among the reforms in the bill (H.R. 1735), which passed the House by a vote of 269 to 151, are:

1.  Meeting Goals:  The Small Business Administration (SBA) will work to encourage more small business participation in industries where it is lacking; senior agency officials will be held accountable for meeting both prime and subcontracting goals (the latter being an important point of entry to federal work for small firms); and more factors will be considered before awarding an agency an “A” on its small business contracting efforts.

2.  Contract Bundling:  Under current law, contracts that are bundled into one big procurement (making it harder for small firms to compete) must be identified, reasons justified, harm to small firms mitigated, and benefits tracked. But, in reality, those things are not happening.  The bill requires agencies to make a plan to actually comply with the law.  Also, justifications for bundling will be required as part of the contract solicitation (not well after the fact) so timely objections can be filed.

3.  Joint Ventures and Teaming:  As a way to better compete for large contracts, small businesses are encouraged to team or create joint ventures, but some agencies will only consider past performance and financial responsibility of the joint venture or prime contractor (not the members of the team or small firms in the joint venture) in their decision-making process.  To reduce this potential hurdle, contracting officers will be required to look at the qualifications of the team members and members of the joint venture.

4.  Training of Federal Personnel:  The individuals charged with advocating for small businesses within Federal agencies are important to ensuring that small firms are treated fairly and can compete.  The proposed reforms will change the hiring and training of personnel (Procurement Center Representatives and Business Opportunity Specialists) so that more qualified individuals are available to help small businesses.

5.  Small Business Representation on the Federal Acquisition Regulatory (FAR) Council:  The SBA will be given a seat on the council charged with ensuring that Federal agencies’ procurement policies are consistent with the law.

The fate of the House’s procurement reforms depends on how the House and Senate reconcile their different versions of the National Defense Authorization Act (NDAA) before sending it to the President. Given the many important issues governed by the annual NDAA, the bill is often not finalized until the end of the year.