Replicating the WeWork model for sensitive compartmented information facilities, known as SCIFs, could increase small businesses participation in defense contracting, Moshe Schwartz, senior fellow of acquisition policy at the National Defense Industrial Association, told members of the House Oversight Committee’s national security subcommittee last week.

Small businesses often lack the resources needed to build and maintain secure facilities certified to store and process sensitive information, creating a significant barrier to entry for businesses that want to work with the Defense Department. 

Schwartz said allowing small businesses to access underutilized SCIF space or even setting up new SCIFs in facilities managed by the General Services Administration (GSA) that are currently not in full use would not only increase competition but also provide new capabilities to the Defense Department. 

“Small businesses don’t necessarily have the resources to create their own SCIFs. Outside of the Washington, D.C., area, to the extent that there could be a WeWork’s model for SCIFs that could be very helpful to allow companies to view, bid on, and then actually execute work that might be classified,” Schwartz said.

In 2021, the Government Accountability Office found that the Defense Department’s contract obligations to small businesses increased by about 15% from fiscal years 2011 to 2020, while the number of small businesses contracting with DoD dropped by 43%. 

“Even though DoD consistently meets its small business targets, the number of small businesses working with DoD is declining. The targets and set-asides are often an end in themselves rather than a catalyst for expanding small business participation or identifying critical capabilities,” Schwartz said.

But the challenges related to working with the DoD are not limited to small businesses—they’re a government-wide trend. The same GAO report found that the number of large companies receiving DoD contract awards decreased by 7.3% in the same time period.

Challenges for small businesses working with DoD

The 2024 Vital Signs survey conducted by the National Defense Industrial Association asked small businesses about the most significant difficulties they face when working with the government. The survey showed that 63% of respondents highlighted complex and protracted procurement processes as the most challenging area, ranking it higher than supply chain challenges, lack of awareness about business opportunities, lack of institutional support and competition with larger firms.

Overregulation in government contracting is time-consuming and requires companies to “spend money on compliance instead of on what really matters,” Schwartz said.

“We found regulations that required vending machines to accept dollar coins. We found regulations that required printers to print on two sides. We found contract clauses that required seat belts to be put in the contract, to wear seatbelts while driving on base, even though every state had that law already. It is that volume of work and that turn of regulation that small businesses cannot keep up with and know what the rules are,” Schwartz said.

“Simplify the regulations so small businesses can simply understand what is required of them and not have to spend a lot of money on lawyers, or other people to explain to them what is required, what is not, and not have to change their IT systems all the time.”

For instance, existing cybersecurity regulations are causing companies to spend money on compliance requirements rather than strengthening their overall cybersecurity.

“I’m not saying we don’t need cybersecurity regulations. But when the Office of National Cyber Director says that our regulations are causing companies to shift money to compliance from actual cyber defense — that is a problem. And I think that is a lot of the driving force.”

“Until the federal government—including Congress—looks inward and matches policies to best leverage free markets, DoD will often get what it pays for: goods and services that are more focused on meeting compliance requirements and driving to the lowest cost than they are on innovation, capability, and speed.”

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