Research Report

Small Businesses Play a Crucial Role in ITES Program

Small businesses play an increasingly major role in Army procurement. In FY 2015, they accounted for $17.5 billion from close to 127,000 contract actions. That’s slightly less than one-third of the available total small-business eligible dollars. The current ratio of contract dollars spent on services versus products is roughly 80/20.

How to best use small businesses as IT product and service providers has been a shifting focus for the Army. On the one hand, it acknowledges the importance of small businesses for the innovation and flexibility they provide. Ensuring those small businesses grow and thrive as a network of suppliers has also become an important public goal for the Army.

Getting there has proven more of a problem. The Army realized the traditional role of small businesses as subcontractors to contract primes wasn’t getting the job done. To get around that, it formulated a separate IT Services-Small Business (ITS-SB) contract as an adjunct to ITES-2S. Set to run initially from July 2012 to February 2016, it comprised 13 ID/IQ contracts with a maximum of $400 million.

The Army recently extended the ordering period for ITS-SB out to April 2018. Any current task orders issued prior to Feb. 15, 2016, however, have to be completed within 24 months of that original contract’s expiry date.

Thomas Neff, project director for the Army’s Computer Hardware Enterprise Software and Solutions (CHESS) program, which runs the ITES contracts, has gone on record about the Army’s disappointment with ITS-SB. The Army claims that contract vehicle did not meet projected revenues. One possible reason is the narrower scope of the contract compared to the much broader ITES-2S.

Because of that, there’s more optimism for the upcoming ITES-3S, whose final RFP was released in February 2016. The terms and conditions of that contract do away with the separate small business contract. Instead, ITES-3S lets small businesses bid for even the largest task order, right along with the major contractors. And of the 24 total ID/IQ awards on the contract, 14 will be reserved for small businesses. They’ll have all task orders under $150,000 to themselves.

The $5 billion ITES-3H contract, which was awarded just after the ITES-3S RFP came out, is similarly weighted towards small business. There were expected to be just eight initial awards, evenly split between large and small businesses. In the end, 17 companies received awards, with nine going to small businesses. That’s a substantial step up from ITES-2H, where just three small companies received awards out of a total of eleven.

Iron Bow Technologies has seen this development from both sides of the divide. It had been a large company on ITES-2H until a change in ownership pushed it into the small business classification. It was subsequently awarded one of the small business slots on the ITES-3H contract. It doesn’t expect the small business designation to change the way it does business off the contract.

“Even though we are classed as a small business, our customers are still able to get world class solutions from us,” says John Meier, Iron Bow’s general manager for DOD East & Intel sales team.

In some ways, he thinks the small business moniker may even have some advantages, especially given the emphasis the Army is putting on trying to elevate small businesses to the same level of the playing field as the large systems contractors. It’s letting them compete as primes instead of subcontractors.

“All (buyers) have to do is specify on particular ITES-3H bids if they prefer a small business to bid,” says Meier. “That lets them meet their small business goals, while still having access to those world class solutions.”