In 2011, small federal contractors took it on the chin twice as hard

SBA released data today that showed the amount of total dollars going to small firms is down as are the overall percentage of contracts small businesses won ...

For the sixth year in a row, agencies in fiscal 2011 failed to award at least 23 percent of their contracts to small businesses.

The Small Business Administration today released its annual small business scorecards showing agencies missed four of their five statutory goals. Departments only met the goal of awarding at least 5 percent of their contracts to small disadvantaged businesses. Last year, SDBs received 7.67 percent, or $32.4 billion.

In addition to missing the 23 percent goal as well as the goals for women-owned, service disabled-owned and Historically Underutilized Business Zone (HUBZone) programs, SBA reported the amount of overall contracting dollars going to small firms dropped by more than $6 billion in 2011 as compared to 2010. Agencies awarded $91.5 billion to small businesses last year, down from $97.95 billion the year before.

“The FY2011 Small Business Procurement Scorecard reflects the need for improvement in small business procurement across the federal government,” wrote John Shoraka, SBA’s associate administrator for government contracting and business development, in a blog post. “Over the last year, SBA has increased its efforts and collaboration with our federal agency partners to provide more opportunities for small business to compete for and win federal contracts, but we know more must be done to ensure that more contracts get into the hands of small businesses.”

Despite SBA’s efforts, and President Barack Obama’s April 2010 executive order calling on agencies to increase their efforts around small business contracting, agencies saw the percentage of all contracts fall in 2011. SBA said 21.65 percent of all contracts went to small firms, down from 22.7 percent last year.

“It is extremely disappointing that the federal government has again failed to meet its small business contracting goals,” said Rep. Sam Graves (R-Mo.), chairman of the Small Business Committee, in an emailed statement. “If the administration takes this priority seriously, these goals are very achievable. We are working hard to improve accountability from federal agencies and get moving in the right direction, by pursuing legislation that demands it. Contracting to small businesses creates jobs and saves money.”

Graves is sponsoring the Government Efficiency Through Small Business Contracting Act of 2012 (H.R. 3850), which among the things it would do is raise the governmentwide small business contracting goal to 25 percent from 23 percent.

Graves said he attached the bill to the 2013 Defense Authorization bill.

“This demonstrates that President Obama is simply paying lip service to small businesses rather than delivering results. That’s why I’m so disappointed that this administration is opposing our legislation included in the House version of NDAA,” he said.

SBA said both dollars and percentages are down in four of five categories in 2011 as well.

2010 2011
% $ (in billions) % $ (in billions)
SDB 7.95% $34.4 7.67% $32.4
Women-owned 4.04% $17.5 3.98% $16.8
Service-disabled veteran-owned 2.5% $10.8 2.65% $11.2
HUBZone 2.77% $12 2.35% $9.9

Source: SBA

SBA also handed out letter grades to agencies.

In 2011:

  • 15 agencies received an “A” grade
  • 5 agencies received a “B” grade
  • 3 agencies received a “C” grade
  • No agencies received a “D” grade
  • 1 agency received a “F” grade

“We know that there are steps we need to implement,” Shoraka said during a press conference Tuesday. “We are working closely with the White House and our sister agencies to make sure we encourage and we have small businesses participate in the federal government’s procurement process more significantly and more efficiently and making it easier for small businesses to participate.”

“Small businesses are the primary job creators in this country, responsible for more than two-thirds of all new jobs created,” said Olympia J. Snowe (R-Maine), ranking member of the Senate Committee on Small Business and Entrepreneurship. “At a time when a seemingly intractable unemployment rate has remained over 8 percent for 40 straight months and our economy continues to stall with an anemic 1.9 percent growth rate in the first quarter of 2012, I remain dismayed that yet again the federal government has failed to meet its statutory government-wide goal, not just for small business overall, but for women, HUBZones, and service-disabled veteran-owned small businesses.

Part of the reason for the government as a whole falling short in meeting its goals could be three of the largest agencies received a B, the departments of Defense and Veterans Affairs and NASA, which accounted for more than $65 billion of the $91.5 billion spent with small businesses in 2011.

Energy received the only failing grade missing its goals in every category, falling under 1 percent of all contracts to women, service disabled-owned and HUBZone small businesses.

Shoraka said there are a couple of reasons for the drop in total dollars, including less overall money available.

“We had the recovery act funds of which over 30 percent went to small businesses,” he said. “I think that was 2009 and 2010 and in 2011 we saw those funds sort of disappearing or going away, and so that also had an impact on the types of contracts that were available for small businesses.”

But Steven Koprince, an attorney with Petefish, Immel, Heeb and Hird in Washington, focuses on small business contracting and attributes the drop in both percentage and total dollars to a second set of reasons.

“I think there is more going on here than the government is spending less,” he said. “I think that if we just think the times are playing a role in what is going on here, one place I might look would be what I understand is quite a bit of pressure for procuring agencies to reign in their budgets and to spend less. One way, perhaps, to do that is to open competitions to larger companies if the option is available. The more folks you have out there competing, the more likely you are to have a low price. That may be one reason why we are seeing a reduction in numbers.”

Koprince said he’s also seeing more instances or examples of contract bundling, even as small business set asides. This is when agencies take unrelated services or functions and put them under a contract to create a very large contract. Koprince said even if the resulting contract is a small business set aside, only large smaller firms or joint ventures can compete, instead of smaller small firms going after the individual contracts.

He added more small businesses are looking to enter the federal market because the commercial market has picked back up enough which makes competition tighter.

Shoraka said SBA and the administration are taking steps to improve agency small business numbers.

“We know we work with the small business specialists at the various agencies. We know we work with the Office of Small Disadvantaged Business Utilization at the various agencies. And sometimes we have champions in the procurement offices. How do we make sure that the end user, the program user, is held accountable to the 23 percent goal?” he said. “Obviously agencies have a mission and that mission comes first. How do we make sure we engage that senior leadership either through metrics or either through how they are evaluated on an annual basis? We know when they are held accountable that that can affect the goals for an agency and we know that can show significant improvement.”

Graves said that is why his bill is important because it holds senior leaders more accountable.

Koprince said SBA should do more to hold agencies accountable. He said the scorecards they hand out give agencies confidence that they are doing well, but it’s a false impression because the government fell way short of their goals for a sixth year in a row.

He said SBA should use comparisons over multiple years as part of the grading methodology.

Shoraka also said SBA is making sure certain initiatives such as strategic sourcing and insourcing doesn’t hurt small businesses.

Shoraka said his office is working with the General Services Administration, the Office of Federal Procurement Policy and the Defense Department to create on-ramps or even regional strategic sourcing contracts to help reduce the impact on small firms.

Shoraka said he hopes by releasing the scorecards now it reminds agencies of their goals and shortcomings.

“We know that a significant amount of purchasing happens in the fourth quarter of the year. So releasing the numbers at this point really highlights where there are opportunities for improvements and really puts the attention on the agencies and the focus on the agency’s scores,” he said. “This highlights the fact that we need to improve and highlights the agencies that need to focus on that improvement, and bring the attention of procurement officials at various agencies on the scorecard.”


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