Looking at all the rules, no wonder small business contractors base is shrinking

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The government looks like it’s doing everything possible to discourage companies from selling to it, especially small businesses who lack the manpower or intestinal fortitude, to slog through a growing number of rules. That’s the view of longtime federal sales and marketing consultant, Larry Allen, who joined Federal Drive with Tom Temin for more.

Interview transcript:

Tom Temin: And when you stack them all up, Larry, some of the old and new rules really do look like kind of a mountain for new businesses to climb over.

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Larry Allen: Tom, they really are a new mountain and the mountain keeps getting higher, whether we’re talking about the re-imposition of CMMC requirements or companies selling cloud services to DoD, whether we’re talking about where you get your telecommunications equipment from, for any type of prime contractor, and on the books coming forward are going to be more rules on secure supply chain and new rules on environmental assessment for the products you’re offering that you somehow get a benefit from if you are offering a certain type of green-certified product. So the rules and regulations are not going away. In fact, they’re growing, and each one creates a higher barrier to market entry for any new business. And as you pointed out, that’s really true for small businesses who don’t have the time to understand all these things. They don’t have the money to pay for the tests and certifications. And they may just decide, the federal government isn’t worth the time and aggravation, I’m going to go somewhere else.

Tom Temin: In many ways you see this creating, this is not a brand new phenomenon but maybe it’s accelerating. And that is small businesses are often started by serial Small Business starters who do know the rules, sell a company and find a partner in whose name the new company will be. But the new partner doesn’t really know anything, but the existing partners just takes what they learned from earlier ventures and just carries it over to it. So it’s an insider’s game in some ways.

Larry Allen: I think it really is an insider’s game in a lot of ways. First of all, the insiders know the process. This is kind of the point of my article, with specialized processes and new processes coming in to play if you’re experienced, and you understand what these things mean, you’ve got an edge. But also, what makes you a good insider, Tom, is the relationships. Remember that this is a very risk averse government market. And except for a small handful of a couple of really innovative acquisition areas, we’re talking about a risk averse government market where people like buying from the companies they know, they like the assurance that the companies they’re buying from will be able to meet the new requirements and the existing requirements, because very few if any of the old requirements are going away, Tom. So it favors the people who know other people who know the lay of the land, and you have the infrastructure necessary to do the compliance checks and put the processes in. So that while they’re trying to sell and make money, they’re not putting their company or their investors at risk.

Tom Temin: And there are some new rules coming as a result of the NDAA, the National Defense Authorization Act. And those rules often are not only for Defense Department acquisition, sometimes the NDAA is a way of getting governmentwide requirements into place.

Larry Allen: Right. And, Tom, there are a slew of them. I’m going to keep them general this morning. But they really kind of prove what we’ve been talking about already. And that is there’s a section of the defense bill, section 807 that says we want to really make sure that commercial item providers and commercial procurements are being used and used well. It’s fast acquisition relative to other things. And it’s the rapid adoption of commercial advances in technology. That’s what Congress says they want in that section. And then if you go down to another section, 213 talks about increasing the activities of the Defense Innovation Unit, one of DoD/s premier entry points for people that are offering unique innovative solutions that are not yet in current production, i.e. they’re not commercial. So those two provisions, Tom, say we do want a streamlining government. We do want better technologies. We want new market entries. But then you look at other parts of the bill. And you look at right after section 807 you have two sections, 808 and 809 that say, well, we really want you federal agencies to report back to us on the Buy American Act, DoD. We think that you’re giving too many waivers to the Buy American Act. We also want to remind you, DoD, that you’re responsible for buying in accordance with both of Berry Amendment and the Specialty Metals Statute. And that really just shows that there’s an inherent conflict inside government acquisition. DoD, and this is just an example, Tom, of what happens in many other government agencies. They’ve got the one hand says “We want you,” on the other hand says, “We want you but only if you can do business with us this way.” So it’s a little contradictory.

Tom Temin: We’re speaking with Larry Allen, president of Allen Federal Business Partners. And now I imagine some of the Russian situation could even strengthen this requirement, especially foreign sourcing, not that much is bought from Russia directly that comes into the United States, much less by the government to begin with. But there are certain commodities, certain elements that might be embedded in other products that have Russian origin, like, I don’t know, sunflower oil or something.

Larry Allen: Well, you don’t really know but we’re going to find out, that’s for sure. Supply chain resource management has already been an increasing area of focus in government acquisition, right down to where you get your components from, and what the ease of access to those components is, if you are selling products to the federal government. And while Russia is certainly going to be concerned, we have some on-the-books prohibitions like the prohibition on buying solutions from Kaspersky Labs, which is Russian IT company. The NDAA itself, the defense bill also particularly calls out Chinese-made or Chinese-sourced items in multiple places. And most of them, though not all, are prohibitions on using Chinese-made components, except in those cases where there are no alternatives right now, which is kind of an another irony in another topic. But overall, what Congress is telling the Department of Defense and by extension, many other federal agencies is where you get your components from matters. You make sure your contractors know where their stuff comes from, before they bring it to the loading dock, whether it’s Russia, China, or another perceived bad state actor. We don’t want that stuff coming in to our office buildings sitting on our networks, unless really, there’s no possible alternative. And by the way, we want you to develop alternatives as quickly as possible.

Tom Temin: And if you’re having a State Department reception overseas, be careful of where your vodka comes from.

        Read more: Contracting

Larry Allen: You got to be domestically sourced, Tom.

Tom Temin: Alright, Larry Allen is president of Allen Federal Business Partners. As always, thanks so much.

Larry Allen: Tom, thank you and I wish your listeners happy selling.

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