Small Firms Lament State of Government Contracting

Witnesses at a July 18 Senate committee hearing decried the state of government contracting for small firms, saying poor data and lax enforcement of rules are exacerbating the problem.

One of their chief concerns was not enough contracts were making their way to small firms.

During the hearing, Sen. John Kerry (D-Mass.) cited a study by Eagle Eye Publishers that found only 20 percent of all prime contracts went to small businesses last year, which is 3 percent less than current government requirements. That translates to a loss of more than $12 billion to the small business community. In fiscal 2005, the goal was achieved with 25.4 percent awarded.

Ronald Newlan, chairman of the HUBZone Contractors National Council, said that funding for HUBZones also fell short. These 13 designated areas across the nation encourage business development in regions with concentrations of unemployment or low household income, with most of the federal contracting dollars going toward small businesses. The government allocated 1.94 percent of funding for HUBZone in fiscal 2005, and although that fell short of the 3 percent requirement, it was the closest to that goal the government has come, according to Newlan.

Magdalah Silva, a small business owner representing Women Impacting Public Policy, testified the government has failed to meet its goal for women-owned businesses. She urged the Small Business Administration to implement a law aiding women-owned businesses that contract with the government.

"For seven long years, women have waited for the SBA to implement this program," she said. "For seven long years the SBA has studied and restudied this issue. We have waited long enough."

She also urged prompt payment to subcontractors. Currently, the government must pay contractors promptly, but Silva urged the law to be expanded to cover subcontractors as well.

Todd McCracken, president of the National Small Business Association, said small business federal contracting is "underwhelming," considering the huge and integral role small businesses play in the U.S. economy." He added that small firms employ more scientists and engineers than large firms and generate five times more patents per research and development dollar than large firms, but they only get 4.3 percent of federal R&D funds.

The agency "recognizes the need for improving our government contracting programs," said Paul Hsu, an associate director at the SBA and a former small business owner. He also outlined several initiatives such as a plan to publish a small business "goaling report" for fiscal 2006 "very shortly."

The SBA also plans to publish the first small business procurement scorecard as a way to measure federal agencies' efforts in offering small business opportunities in the federal marketplace. It will reflect current performance and progress in a traffic-light style grading system, similar to President George Bush's Management Agenda.

Hsu told lawmakers that the SBA is in the process of implementing new recertification rules governing the size of a business. The new regulation requires small firms to recertify their size status on long-term contracts at the end of the first five years of a contract and whenever a contract option is exercised. Recertification also will be required for short-term contracts when a small business is bought or merged with another business.

Additionally, SBA has asked more than 1,000 large prime contractors to identify any small business contracts they or their subsidiaries and divisions hold in order to more accurately report small business awards to Congress.

Anthony Martoccia, director of a small business program at the Defense Department, said training on the impact of bundling smaller contracts into a larger one "is a significant issue." This approach often shuts out the smaller vendors. He said his department is "in the final stages" of revising a guidebook on the impact of bundling.

For more news on government contracting affecting businesses of all sizes, check out Governement Inc., by The Post's Robert O'Harrow Jr.

By Sharon McLoone |  July 25, 2007; 10:18 AM ET Regulation Legislation
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A major issue here is that the Contracts the USG sets
aside as small business have very large size standards.

I manage a small firm of a dozen employees,
and we find ourselves bdding on small business set asides
that have 1000 person firms bidding.

Often these are divisions of multi-billion dollar conglomerates
and that's considered okay.

I don't mind losing to my small business peers.
I hate losing work to IBM and Loral.

Posted by: pat b | August 2, 2007 10:07 AM

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