Small businesses face federal market storms

The federal budget crunch could crush small businesses without more agency support, warns columnist Jaime Gracia.

 Jaime Gracia is president and CEO of Seville Government Consulting, a federal acquisition and management consulting firm.

There is no question that the federal contracting market has been and will continue to be an extremely challenging environment. 

The small-business community in particular is receiving the brunt of the storm, and it requires more support from procurement officials — or else some companies might not survive.

Let’s start with the positive. In addition to existing governmentwide acquisition contract vehicles that target small businesses, Congress is working on several initiatives that focus on small businesses and set-asides for small businesses. Organizations such as the Centers for Medicare and Medicaid Services, General Services Administration and Veterans Affairs Department have several large contracts for IT and telecommunications aimed toward small businesses.

The House Small Business Committee has been leading the charge with the 2012 Small Business Contracting Reform Initiative, a total of eight bills. Those bills seek to address requirements bundling, increase the percentage of small-business set-aside contract dollars, and provide more teeth to agencies' offices of small and disadvantaged business utilization.

Those are steps in the right direction, no doubt. 

But even if those bills are signed into law, their execution and the institutional issues that plague the small-business community will need to be addressed to initiate any real change.

The devil is always in the details.

The decrease in contract dollars overwhelmingly affects small businesses. Large companies can absorb lost contracts, but small businesses do not have the infrastructure or the contract volume to withstand the blows. The Small Business Advocate Act of 2012 (H.R. 3851) addresses the topic but with little specificity.

We have seen agencies use fuzzy math to justify insourcing, only to see some of those decisions reversed when proactive firms raise questions. How many positions have been insourced and not reported?

Further, agencies are already missing the mark on small-business contracting goals. If they can't get to 23 percent, it is difficult to imagine raising the standard to 25 percent, which is the focus of the Government Efficiency Through Small Business Contracting Act of 2012 (H.R. 3850). This bill would add a measure of accountability but little direction for procurement officials who are supposed to meet that goal.

The real impediment to successful small-business contracting is the overall contracting process itself.

Many government officials simply do not trust small businesses and prefer to work with known quantities — large businesses and firms that dominate the federal market. Some agencies feel that small businesses do not have the performance record to show they can succeed, and thus they believe the risks are too high.

That's certainly a legitimate concern. But that sentiment is why requirements development is so important. However, the reluctance of many agencies to communicate and collaborate with small businesses hinders the ability to develop requirements and makes that assumption a reality. From there, agencies go down the path toward bundled contracts, allowing small businesses to fight for scraps of a large contract that they lack the resources to take on as a prime contractor. 

The problem is particularly acute at the Defense Department, where direct awards to small businesses have been decreasing since 2009. DOD had a goal of awarding 22.3 percent of eligible prime contracts to small businesses in fiscal 2011 but reached only 19.9 percent.

The continued focus on small businesses is certainly a positive development, but the government must address the institutional issues endemic to small-business contract failures.

Government can achieve its small-business goals, no question. It is the desire to change, along with a concerted effort by leadership, that is required to succeed.

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