Tough times for 8(a)s

Procurement reform takes a bite out of minority firms federal IT sales

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Procurement reform may have been a blessing for agencies, by lowering the

cost of information technology and reducing the time it takes to place the

latest gadgets on federal desktops. But for small businesses and minority-owned

firms, reform has made doing business with the government tougher, federal

IT procurement experts say. The latest evidence that small, minority-owned

firms including IT companies may not be faring well against bigger companies

came in the form of a report released this summer. From 1997 to 1999, the

number of small-business federal contracts dropped from 6.4 million to 4.9

million a 23 percent decrease according to a study conducted by Rep.

Nydia Vel·zquez (D-N.Y.), the ranking Democrat on the House Small Business

Committee.

In the study, "Failing to Meet the Grade," Vel·zquezs staff graded

21 federal agencies to evaluate their progress in meeting their small- business

contracting goals. The 21 agencies reviewed are responsible for 96 percent

of all federal contracts, and not a single one received an "A" (see box).

The study gave more than half the agencies below-average grades for

bypassing small businesses in favor of large companies. The Energy Department

got the only "F," while the Interior Department and the General Services

Administration did the best, each receiving a "B."

According to the study, so-called contract bundling rolling numerous

smaller contracts into one large pact has cut into the business of small

firms, many of which are owned by minorities or women. Although the smaller

companies can meet the requirements of smaller contracts, they rarely have

the manpower and infrastructure to satisfy the needs of larger ones. As

a result, smaller businesses must enter into subcontractor roles with the

larger companies that win bundled contracts. Because bundling leaves small

businesses at the mercy of the larger prime contractors, it negates all

statutory and regulatory protections, the study concluded.

"Someones asleep at the wheel," Vel·zquez said in a press release.

"Youve got small businesses firing this new economy and the government

is still in "good old boy mode. Not to mention that what these agencies

are doing is clearly against the law."

Vel·zquezs last point is debatable, small-business experts say. Agencies

agree to "negotiated goals" with the Small Business Administration for doing

business with 8(a) firms, but there is no statutory requirement or penalties

if agencies fail to meet those goals.

David Steward, chief executive officer and chairman of World Wide Technology

Inc., the top 8(a) IT company selling to the federal government, said small

firms must show federal agencies the value they can provide if awarded a

contract.

"If you want to stand toe-to-toe with the best-of-breed companies, the

value proposition has to really be there," said Steward, whose company specializes

in e-business solutions and enterprise resource planning. "Theyre not coming

to us because its easy. Theyre coming because they have a problem, and

whether youre an 8(a) or not, you usually only get one shot at it."

Steward, whose St. Louis, Mo.-based firms 8(a) contract revenues were

$64 million last year, said small companies need to take time to establish

relationships with customers and other vendors, to earn a reputation for

"credibility, integrity and content the intangibles."

Improving the federal governments spotty record of achieving its 8(a)

goals will require a greater effort by agencies and companies, he said.

"There are responsibilities on both parts to find better ways. They need

to tell us what they need because the 8(a) businesses are more than willing

to make the commitment."

Added Steward: "Small firms can turn on a dime and [they] appreciate

the business. They are creative, entrepreneurial and can solve a problem

for you at a much higher level than agencies give them credit for."

Soza & Co. Ltd. placed third on FCWs list of top 8(a) firms. The

Fairfax, Va.-based company, which specializes in systems engineering and

consulting, graduated from the 8(a) program in 1997. But it fulfilled nearly

$50 million on its 8(a) contracts in fiscal 1999, said James Good--ridge,

Sozas chief operating office

Goodridge said the 8(a) program helped

Soza get established in the marketplace. Its federal IT revenue from 8(a)

contracts will dip to about $19 million this fiscal year, as a result of

the companys exit from the program.

Other companies still in the program could see federal IT revenue drop

if a bill passed by the Senate Small Business Committee in March becomes

law, Vel·zquez claims. Section 612 of the Small Business Reauthorization

Act of 2000 would remove federal preference for the 8(a) program by placing

it on par with the Historically Underutilized Business Zone (HUBZone) program,

which is designed to provide federal contracting money to businesses in

areas of high unemployment, low income or within the boundaries of American

Indian reservations.

The HUBZone program does not specify that businesses must be minority-owned

and was originally created by Senate Republicans to create a "race-neutral"

alternative to the 8(a) program.

According to a spokeswoman for Vel·zquez, "Shes going to make every

effort to educate members and the minority community to the destructive

language in the Senate legislation. Shes on the conference committee, so

if the Senate language ends up in the SBA re-authorization bill," shell

do everything she can to stop it.

The programs have different purposes, added the spokeswoman, and the

8(a) program could be wiped out if the two are forced to compete.

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