Preference cutoff handcuffs DOD

The government's effort to funnel more business, including information technology contracts, to small and minority-owned businesses took a hit last month when the Defense Department suspended for one year the preference it gives small and disadvantaged businesses when awarding contracts.

The preference freeze was not a policy dreamed up by the DOD procurement shop. It is one Congress imposed in the 1999 Defense authorization law. Authored by Sen. Rick Santorum (R-Pa.), the provision requires DOD to suspend the preference for one year when or if the amount of business that so-called SDBs receive exceeds 5 percent of the total value of contracts DOD awarded in fiscal 1998. The preference amounts to a 10 percent price advantage granted to small businesses to allow them to compete against large vendors' bids.

The suspension is similar to a backhanded compliment: It rewards performance by taking away the incentive that fueled the original accomplishment. With SDBs working on razor-thin margins, any loss of business could mean the difference between staying in business or closing shop. Government is not in the business of artificially sustaining small business, but as a matter of policy, Congress has said society benefits from the presence of a host of small entrepreneurial firms.

Also, with fewer SDBs, DOD has fewer choices in contracting for IT. Any economist will tell you that having fewer choices means less competition, higher prices and poorer quality.

The preference suspension is bad policy that can only serve to hurt business and the quality of IT products and services government buys. The best move Congress could make, as DOD officials hope, is to remove the preference freeze guidelines this year and continue to support the SDB community.

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