Carrot or stick?

Having a small-business subcontracting plan is one thing, but adhering to it is quite another.

What's the solution? Contractors may be hit with liquidated damages for failing to make a good-faith effort to meet their small-business objectives. But performance-based contracting offers an alternative — a financial carrot rather than a statutory stick.

Under a performance-based contract, an agency may link the award fee to the contractor's ability to reach small-business goals. "We have an award-fee contract, and one criterion for the award fee is our progress on small-business subcontracts," said Ellen Glover, president of Impact Innovations Group LLC's Impact Washington, D.C., division. She is also industry liaison and vice chairwoman of the Industry Advisory Council. "So of course we are paying attention to it."

"We, quite frankly, like the concept of performance-based contracting," said Andrew Robinson, executive vice president of Exeter Government Services LLC and chairman of IAC's Small, Minority and Woman-Owned Business Shared Interest Group. The financial incentive has "a lot of teeth in it," he added.

Some forward-thinking prime contractors, meanwhile, are including small-business goals as a performance measure in their program management plans, said Kathy Conrad, a vice president at Jefferson Consulting Group LLC.

Overall, motivation rather than punishment is the way to go, said Ira Kirsch, president of Unisys Corp.'s U.S. Federal Government Group. "The best thing to do is incentives."

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