News Column

FEDERAL MARKETS: Why Small Firms Can’t Do Their Part

November 2001

By Patricia Guadalupe, HISPANIC BUSINESS® magazine

As the government begins a buildup, a new report questions how much small contractors will benefit.

The federal government's response to terrorism looks certain to include increased security, increased military spending, and an economic stimulus package. But a new report asks whether small businesses – the main engine of the U.S. economy – will benefit from this buildup.

For the first time in seven years, federal government agencies failed to meet any of their own goals for doing business with small businesses last year, according to a report sponsored by Congresswoman Nydia Velázquez of New York, the ranking Democrat on the House Small Business Committee. The "report card" of 21 federal agencies gave the government an overall grade of "C". The "Scorecard II" report also noted that several agencies – the departments of Defense, Energy, Education, and Health & Human Services, and the Agency for International Development – received "D" grades for failing to meet their mandated goals.

For agencies overall, the federally mandated small/disadvantaged contracting goal is 5 percent. The study found an overall achievement of less than 4 percent, with larger agencies performing worse than their smaller counterparts. The report details, for instance, that mandated contract funding goals at the Energy Department were less than 0.5 percent, yet the department did not meet that objective. At Health & Human Services, 8(a) contracts to minority businesses dropped by 33 percent from last year.

At the Defense Department – which accounts for 65 percent of all federal contracts and is poised to get large increases from Congress in response to the terrorist threat – the number of contracts to small businesses declined almost 25 percent between 2000 and 2001.

"The congresswoman reported the facts, and you can't argue with the facts," says Darryl K. Hairston of the SBA's Office of Government Contracting & Business Development. "The only area in the report where the SBA numbers would differ, and we would report a different outcome, would be small disadvantaged businesses." The SBA number-crunchers include contracts under the 8(a) minority business development program in the SDB totals. Under that methodology, "overall government achievement was in excess of 6 percent," according to Mr. Hairston. But he notes a decline in dollars going to 8(a) companies last year.

The Velazquez report puts the estimated cost of lost revenue for minority-owned firms at $3 billion. In fiscal year 2000, small businesses were left out, although federal contracting increased 8 percent from the previous year. "Small firms occupy more and more of our economic landscape, creating jobs and revenue," says Ms. Velázquez. "To deny any of them a fair chance to compete for federal contracts stifles opportunity and growth in a new and uncertain economy. … Since the government was unable to meet its goal, small businesses lost billions in revenue."

Ms. Velázquez puts the blame on one key issue. "Nothing has created more barriers to small business than contract bundling. We are here to declare it 'public enemy number 1' in preventing small-business access to federal contracts."

In conjunction with the report, Ms. Velázquez introduced the Small Business Opportunity Enhancement Act, which would increase the authority of the SBA to break up contracts that could be handled by small businesses. Under current policy, bundling is allowed if agencies can show it saves a significant amount of money. But "bundling is out of control," says Ms. Velázquez. "It is virtually impossible to challenge contracts that are too large or to separate the parts that can be handled by small business."

The report recommends that the government extend the deadline for compilation of competitive bids from 30 days to 60 or 90 days, so small companies can take advantage of opportunities. It also recommends that the SBA provide greater agency oversight. Ms. Velázquez asserts that the Bush administration is currently not doing its part to help small businesses contest bundling practices.

"During the presidential debates, then-candidate Bush said simply, 'contracts need to be smaller.' After six months in office, we see no proof of his promise. The president must lead by telling his cabinet that these goals are important [and] meeting them is good for small businesses, for their agencies, [and] for the American taxpayer."

Source: HISPANIC BUSINESS magazine

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