FAQs for agencies

What you need to know about how you buy — and what to avoid

Q: Why do agencies have small-business requirements?

A: The federal government has promoted small business within its ranksfor generations. The Smaller War Plants Corp. oiled the wheel for small businesses during World War II. In 1953, Congress established the Small Business Administration and charged it with ensuring that a fair proportion of government contracts go to small
business.

Meanwhile, advocates for small business tout the value a healthy small-business sector offers the economy and government. According to an April SBA Office of Advocacy report, small businesses generated half of the U.S. gross domestic product — excluding farms — between 1998 and 2004. “Economic policy needs to take into account the needs of small businesses, because those businesses drive our economy,” said Chad Moutray, chief economist at the SBA Office of Advocacy, commenting on the report.

The larger the industrial base from which government can draw, the more likely the government will get good prices, said Arthur Collins, SBA director of government contracting. “You don’t want the government to be reliant on one or two” big companies, Collins added.

Q: What are agencies’small-business requirements?

A: When Congress passed the Small Business Reauthorization Act in 1997, it mandated that agencies hire small businesses to account for at least 23 percent of their annual prime contracting dollars.
Each year, SBA sets small-business goals for federal agencies and different agencies have different capacities for doing business with small companies. As a result, SBA stipulates distinct levels of small-business participation for different agencies while still ensuring that the percentages add up to 23 percent of the total value of prime contracts. A particular agency’s yearly goal can range from the Energy Department’s fiscal 2007 goal of 4.42 percent of its annual contracting worth to 60 percent at SBA itself and nearly that level at the Interior Department.

In May, the House approved the Small Business Fairness in Contracting Act, which would increase the annual governmentwide target to 30 percent. However, the Bush administration opposes the bill, and the Senate Small Business and Entrepreneurship Committee has not considered it.

A minimum percentage of agencies’ prime contracts must also be with certain federally recognized subcategories of small businesses: Small companies owned by women or service-disabled veterans, businesses in Historically Underutilized Business Zones (HUBZones) and disadvantaged small businesses, also called 8(a) firms.

Encouraging those businesses’ economic development has positive effects for society, many say. Governmentwide contracting goals for those subcategories range from 3 percent to 5 percent of total prime contracting dollars. A prime contract with a subcategory business counts toward the overall 23 percent goal.

Q: Does any agency ever meet those preference goals?

A: In fiscal 2005, the federal government spent about 25 percent of its prime contracting dollars with small businesses, or $79.6 billion, according to data from the Federal Procurement Data System-Next Generation. FPDS-NG is the government’s official, though privately run, procurement information database.

Other sources say the fiscal 2005 amount was actually lower — just 21.6 percent, according to Democratic members of the House Small Business Committee. Almost $12 billion worth of purchases credited to small businesses actually went to large businesses, universities, state and local governments, or nonprofit organizations, those Democrats said in a July 2006 report. SBA said the final fiscal 2005 numbers would have been higher if the FPDS-NG reporting system had captured the data more accurately.

Many procurement experts agree the federal government more or less comes close to the 23 percent goal. What it doesn’t always do is meet the contracting goals for the four subcategories of small businesses. For example, federal contracts with compnies owned by service-disabled veterans were less than 1 percent of the total in fiscal 2005.

Q: What are the advantages of using a small business?

A: Congress, SBA and watchdog groups closely monitor how well agencies do in satisfying their small-business goals.

But there are other advantages to using small businesses beyond merely satisfying the statutory goals, small-business advocates say. A fundamental advantage is innovation, Collins said. As a group, small businesses often are quicker to seize on technological innovations than larger businesses that are too heavily invested in the status quo. Many technologies taken for granted today were the exclusive purview of small businesses only a few years ago.
Small businesses also can be less bureaucratic and less costly to do business with than large companies.

Q: What are the disadvantages of using a small business?

A: Each federal contract entails a certain amount of government overhead for administration and compliance monitoring, among other things. The federal contracting workforce has shrunk, and both the executive and legislative branches like to penny-pinch on agencies’ administrative costs. Collins said the advantages small business offer to government outweigh the operating expense of dealing with them. However, he said agencies must still strike a balance between small-business utilization and their own administrative costs.

Q: What criteria should I use to assess whether work should be done by a small business?

A: During the planning stages of procurement, agencies should consult with their local small-business contracting advocates — every agency should have one. Agencies should conduct market research on how robustly the small-business market can respond to a set of requirements.

Officials should be realistic in the scope of projects they reserve for small business, said Chip Mather, senior vice president at Acquisition Solutions, a consulting firm based in Arlington, Va. Shoving too large a requirement into the small-business arena won’t help anybody — not the government, not the small businesses. “It’s when it’s abused that [small-business preferences] become a problem,” Mather said.

Q: Does subcontracting work qualify for my small-business goals?

A: Subcontracts don’t count toward agencies’ annual prime contracting goals, but they do count for their smaller subcontracting goals. Federal law requires companies with a government contract valued at more than $500,000 — $1 million for construction jobs — to give small businesses the maximum practicable opportunity to win subcontracts. The government sometimes can settle on subcontract goals on a deal-by-deal basis, or it can accept a company’s prenegotiated corporatewide small-business contracting strategy. An agency with sizeable prime goals can have smaller subcontracting goals and vice versa. “It’s going to vary widely from agency to agency,” Collins said.

Q: What if I contract with a company that is a small
business, and they grow or
are bought by a large business. Do I no longer get credit?


A: Until June 30, federal classification of firms as small lasted for the duration of a contract. This caused inaccuracies in federal small-business statistics because large companies sometimes acquired small ones or small businesses grew during a contract’s lifespan.
However, SBA implemented new corrective regulations June 30.

Companies are now required to recertify their size status immediately after they acquire, merge with or are acquired by another business. The new regulations also require small businesses with government contracts of longer duration to recertify their size status every five years and anytime an option to extend the contract is exercised. In an official statement, SBA officials said giving small businesses a five-year period until recertification takes “into consideration the operational issues and costs for small businesses” and the needs of the agencies to fulfill their missions.

Federal law also generally requires small businesses awarded contracts under a preference program to do at least 51 percent of the work specified. In theory, this prevents agencies from hiring small businesses on the understanding that they will subcontract with a large firm to do the actual work.

Q: Why would I pay another government contracting center to buy stuff for me?

A: The complexity of government procurement has grown even as many simple tasks have become automated. Services have replaced goods as the largest category of government procurement. Simultaneously, the federal procurement workforce has declined or stayed static. As a result, many agencies have assisted-services contracting centers that, for a fee, will help define your requirements, perform market research and write your contracts. Assisted-services centers, which depend on customer fees, can be quicker than typical local contracting shops, which often get overwhelmed.

Going outside one’s department carries risks. Cost is a point of contention. For example, during fiscal 2005, GovWorks used GSA schedules for at least 58 percent of the purchases it conducted for the Defense Department. DOD auditors are angry about this, contending that the department could have avoided GovWorks’ 4 percent transaction fee and gone straight to the schedules program, saving itself $1.66 million. Interior officials have said in response that DOD lacks resources to handle all its contracting needs. DOD’s acquisition workforce fell by about 3 percent between 1999 and 2004.

Other bureaucratic sticking points surrounding interagency contracting include who retains responsibility for monitoring contract compliance. Is it the interagency middleman or the local agency? Inspector general reports have come out of such swampy territory. Neither Congress nor auditors are fond of seeing their agency’s procurement dollars go elsewhere. Still, few deny that interagency contracting is likely a permanent feature of the federal landscape.

Q: Why would I use a GWAC?

A: Historically, governmentwide acquisition contracts offer a convenient way of buying information technology products and services. GWAC executive agencies have already approved a GWAC-listed business’ technical offerings and prices — in effect, placing a stamp of approval on them. From a federal perspective, task orders placed via GWACs have the advantage that other companies can’t protest them except on the grounds that they are out of the GWAC’s scope.

Some GWACs permit only small businesses to gain a slot. Using a small-business GWAC for an in-scope requirement is an easy way to guarantee that small businesses will gain a contract. Small-business GWACs include GSA’s 8(a) Streamlined Technology Acquisition Resources for Services vehicle, its Veterans Technology Services GWAC and the Commerce Department’s Commerce Information Technology Solutions NextGen contract.

Q: Can any federal agency use the GSA schedules?

A: Any federal agency can, with varying degrees of paperwork hassle, buy products and services using a GSA schedule.

Federal buyers often find the GSA schedules a convenient way to satisfy federal requirements for private-sector competition. Agencies only need to obtain quotes from three prospective schedule contractors, for example, before awarding a contract. Schedule contracts with small businesses count toward an agency’s annual small-business goals. Also, the vast majority of schedule holders are small businesses.

Although GSA certainly wants agencies to use its higher-fee acquisition service offerings, agencies do not need GSA’s assisted services to write a schedules contract for them. The local contracting shop is just as entitled to use the schedules as GSA itself.

Q: Can federal agencies negotiate down GSA schedule prices?

A: Yes. In theory, GSA has already negotiated the best price possible for products and services offered on its schedule. GSA requires schedule holders to offer government buyers their best, most-favored-customer prices.

GSA officials concur. Agencies “are encouraged and empowered to seek price reductions” of listed schedule prices, the GSA Web site states.

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