A new push to rethink the small-biz contracting payoff

Federal programs aimed at aiding the growth of small businesses through federal contracting are not a good investment if they simply set up those firms to fail, some experts say.

The problem is that when small businesses become midsize businesses, they lose access to set-aside contracting programs and end up struggling to survive in the eat-or-be-eaten world of federal contracting. Some firms find a way to get by, but others end up selling out to bigger competitors.

That is not necessarily a good return on the federal government's investment. But help might be on the way.

Rep. Gerry Connolly (D-Va.), who has many IT contractors in his district, is pushing a pilot program to help ease newly graduated small businesses into full-and-open competitions against the biggest contractors.

In his plan, only the General Services Administration could award contracts through the set-aside program. As important, the midtier company could win a set-aside contract only if GSA officials believe a small business likely would not have received it. In addition, the midtier company must mentor a smaller company.

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The ghosts of small businesses past

Connolly’s goal is to continue helping the once-small contractors that the government has invested in and nurtured through the years after they become midtier competitors.

He said he questioned the benefit to taxpayers if small companies are sent “into a Darwinian world where they are, on Day One, expected to compete with the big guys.”

Others have reached a similar conclusion — and have come up with their own solutions.

At a hearing Sept. 14, Rep. Nydia Velázquez (D-N.Y.), ranking member of the Small Business Committee, pointed out that GSA already has the Business Breakthrough program, which prepares small companies for the next level.

The program is available to a range of companies, and officials envision it being particularly useful to companies that are too large to qualify for small-business advantages but not large enough to successfully compete with the nation’s largest corporations. It's just want Connolly wants with his proposal.

GSA also has its mentor/protégé program. There are 81 active agreements between businesses of all sorts, from large companies to a variety of small-business types. The agreements can result in lasting business relationships and prepare the smaller firms to enter the bigger market.

Any of those programs might help, but only if federal agencies are willing to support them.

However, one industry executive said that for the most part, agencies aren’t looking beyond the small-business credit.

“No matter how well a small business does in support of an agency, it seems that once that business has outgrown the specific small-business program, the agency just turns to the next small business for support,” said Randy Slager, CEO of Catapult Technology, a mentor in GSA’s program.

Without a diversified set of customer agencies, a newly minted midtier company can quickly lose its customer base — a major factor in the high rate of failure among small businesses, he said.

Bill Jaffe, senior vice president and general manager of Tape, a service-disabled veteran-owned/woman-owned small engineering firm, said the 8-year-old company will cross the threshold into the full-and-open competition marketplace by December, and he’s going to face off for work against the Lockheed Martins and Northrop Grummans of the world.

“Companies do go through the process and survive,” Jaffe said, “but many of them do not survive.”

He is one of the leaders of a new industry group called Mid-Tier Advocacy that seeks to support such companies in a tightening market. But overall, it’s the company’s responsibility, Slager said. Businesses must plan and strategize well before the growth begins.

“I don’t think that this is a factor that is government-dependent,” Slager said. “It rests with the senior management of the small business.”

Another businessman has a different idea: Why make growth the main goal in the first place?

A reader calling himself Stay-Still-Stan recently commented on an “Acquisitive Mind” blog post by advising his peers to bask in the small-business perks. Most government contracting companies, including his own, strive to grow but are rarely happy when they do, he wrote.

His advice? “To be most profitable, government contractor: Find a niche, become the best, be a ‘disadvantaged’ company for special perks, stay not-for-profit and employee-owned, and keep company size under one of the government-defined limits to minimize the paperwork you need to do,” he wrote. “Do this, and everyone in the company will retire quite wealthy and happily.”

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

Cyber. Covered.

Government Cyber Insider tracks the technologies, policies, threats and emerging solutions that shape the cybersecurity landscape.


Reader comments

Sun, Oct 30, 2011

GSA?? The surest way to kill small business is GSA just look at how they killed their VETS GWAC. The best way to help small business through the mid tier process is to either increase the NAICS Size Standards by 100% or create a new Mid Tier Set-Aside Program. Some small businesses do make it like Stanley Associates and they were just small not 8A. The worst offenders of just selling seem to be the 8a companies they sell and return to their country of birth.

Fri, Oct 28, 2011 Bean There

This is entire process is a flim flam system. THe entire process of contracting out government work neeeds to be revisited. Many small business and targeted awards are plainly setup to foster wealth transfer without value transfer. Most small firms cannot perform on these contracts at the breadth and scope stated in the requirements. Then comes the "TEAMING." This is the big boys scamming the taxpayer and the government by gobbling 50% of the action to perform the work. So what is loast? The employees invariably lose as the big team members need not comply with any pay/wage stipulations stipulations, the government loses because they get minimal to marginal performance,and the little contractor (remember them?) they are ill-prepared to perform at a higher level when it is time to graduate other than to sell to the highest bidder for a tidy profit and then to repeat the process.

Fri, Oct 28, 2011

Really Stay-Still-Stan ? America is about growth and advancement not only does your "idea" inhibit any advances that could be devolped from a larger team working on a project but it adds to the unemployment epidimic going on right now.

Tue, Oct 11, 2011 DC

You know what is ironic about Connolly's plan? The mandatory preference programs of FAR Part 19 don't apply to FAR Part 8.4 procurements, so that would mean that GSA would constantly be doing new procurements and not taking advantage of the negotiations already done in setting up a FSS contract

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