FAQs for midsize and large businesses

What medium and large businesses need to know about the government’s small-business requirements

Q: I’m no longer a small business, but I’m certainly not big. Is there any contracting category for medium businesses?

A: No. “It doesn’t matter whether you’re small-large, or large-large, or gigantic-large,” said Chip Mather, senior vice president of Acquisition Solutions, a consulting firm based in Arlington, Va. The federal government recognizes two categories of businesses: Small and everything else.

Experts disagree on what a “medium” category would consist of. In a 2003 study of federal spending on information technology services, the Government Accountability Office said, “Industry representatives differed widely on an upper limit” for midsize businesses.

GAO theorized that midsize businesses have an upper limit of $500 million in annual revenue. The agency settled on that upper limit because it was approximately the midpoint of the industry-suggested ranges. But a 2006 study by the Washington-based think tank Center for Strategic and International Studies (CSIS) states that service businesses with as much as $1 billion in annual revenue could still be considered midsize.

“A healthy market is a diverse market, not just small or large.” – Stan Soloway, president of the
Professional Services Council

CSIS’ study, “Structure and Dynamics of the U.S. Federal Professional Services Industrial Base, 1995-2004,” contends that midsize businesses are squeezed from below by federal small-business preferences and squashed from above by big-service powerhouses. Midsize businesses’ share of the information and communication services market declined from 29 percent of the total in 1995 to 13 percent in 2004, the study’s authors wrote.

“We’re not effectively repopulating the mid tier,” said Stan Soloway, president of the Professional Services Council. “A healthy market is a diverse market, not just small or large.”

Other procurement experts don’t believe midsize businesses need their own contracting category. “You’ve had your incubation, you’ve had your protection, it’s over,” Mather said.

Q: What are the advantages of partnering with a small business?

A: Companies with government contracts valued at more than $500,000 — $1 million for construction jobs — must have a plan for subcontracting to small businesses. They can set the goals on a deal-by-deal basis, or they can institute a corporatewide strategy.
Also, partnering with small businesses can bring benefits beyond complying with federal law. “A lot of the innovation that we see, especially on the IT side, comes from small businesses,” said Mac DeShazer, Lockheed Martin’s small-business liaison. “That’s a significant incentive.”

Large companies can also profit from the relationships small firms have built with government agencies. Small businesses often possess close and detailed knowledge of their immediate customers — information that large businesses don’t have because of their size. A good big/small business relationship is like a good marriage, DeShazer said. Both sides should benefit.

Q: What are the disadvantages of partnering with small firms?

A: If those partnerships are like marriages, also keep in mind that divorces are common. Fewer than half of all new small businesses survive more than five years. And during growth periods, small businesses often overextend themselves.

“Sometimes they don’t have the bandwidth that it takes to get jobs done,” DeShazer said.

Like any good relationship, small-business partnerships require attention and care.

Q: We lost our contract bid to a competitor. Should we protest?

A: Companies that believe they’ve been unfairly denied a contract can seek redress with GAO and the U.S. Court of Federal Claims. While the protest is under way, the government usually prevents the winning vendor from starting work on the contract. If GAO or the court rules that the competitive process was unfair, the government typically holds a new competition.

However, companies should resist the temptation to abuse the protest system simply because they’re bitter about losing a contract bid. The first thing to do after losing a bid is to request or attend a debriefing session with the contracting official, said Steve Charles, co-founder and executive vice president of immixGroup, a federal market consulting firm based in McLean, Va.

Debriefings offer an opportunity to ask questions about the evaluation process and hear officials’ explanations of how they made their decision. However, don’t wait until after the contract is awarded to notify contracting officials of unfair provisions in a solicitation. Companies are legally bound to do so within 10 calendar days of spotting such provisions, Charles said.

Also, keep in mind that GAO is validating more bid protests than it once did: It sustained 29 percent of the cases it reviewed in fiscal 2006. Procurement experts say an overstressed and undertrained federal workforce, the growing complexity of the procurement process, and the fact that services have replaced goods as the primary concern of contracting could be contributing to the reversals.

“If you absolutely believe that something was done very improperly by the government, then yes, file a protest,” said Ray Bjorklund, senior vice president and chief knowledge officer at market research firm FedSources in McLean, Va. But you also run the risk of annoying your customer base, so “don’t file a protest for just any reason.”

Q: The government says it wants innovative solutions. Is that true?

A: Consider this situation: The government likes innovation but hates surprises. It encourages technological development through grants and internal programs, and although parts of the government have the most advanced technology in the world, some civil servants make do with Microsoft Windows 2000.

A company with an innovative solution can’t assume that the innovation will sell itself. Especially during the acquisition process, the government might prefer something that has a proven track record of functioning as promised. A federal solicitation often specifies not just the outcomes the government wants, but the methods it wants to use to achieve those outcomes. Even when it designates a solicitation as performance-based, the requirements can still be fairly descriptive, Bjorklund said.

Innovation can be difficult to evaluate, and when confronted with a new technology without any record of past performance, a contracting official might disregard it.

The solution is to educate government customers in advance about innovation, Bjorklund said.

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