Mid-sized firms feeling squeezed in federal market

Most evidence anecdotal as there is no way to define these firms

By Jason Miller
Executive Editor

The Center for Strategic and International Studies will release a report by Dec. 31 that details the condition of mid-tier companies providing services to the federal government.

This will be the first study in nearly three years looking at whether there is real data to support the anecdotal plight of mid-tier firms in the federal marketplace.

“Since we rely on Federal Procurement Data System-Next Generation data, there are some data gaps and data shortfalls out there,” says David Berteau, a senior adviser and director of the defense Industrial initiatives group for CSIS.

The real question that most federal and industry experts say needs to be addressed first is the definition of mid-tier firms.

Berteau says, “They are bigger than small firms, but smaller than big firms.”

Once someone defines mid-tier firms then industry sectors across government can be analyzed to see if there is indeed a squeeze on these companies.

“We still are short on real answers,” says Stan Soloway, president and CEO of the Professional Services Council, which co-sponsored an event with the U.S. Chamber of Commerce in Washington Dec. 2 on the challenges mid-tiered contractors face in federal contracting. “There are more competitive pressures on mid-tier firms. They have to spend more on bid and proposal costs and there is pressure for them to merge or be acquired.”

Soloway adds that some of the best evidence that mid-sized firms are having trouble is that when you look at the top 20 federal contractors, the thresholds to get onto that list has increased significantly in the past decade.

But federal and congressional procurement experts say without hard data there is only so much that can be done.

“It is difficult to talk about this topic because there is a dearth of information,” says Al Matera, director of the General Services Administration’s Acquisition Policy Division. “There are various ways to define mid-tier, by number of employees or by revenue. Once we do that, then we can study the data and see what’s going on.”

Matera says agencies spent $23 billion with large businesses on the GSA schedules in fiscal 2008, but it is unclear the breakdown by size.

“There is room for a number of policy changes,” he says. “But we need another level of granularity for how to define the size of firms. If we don’t have the data, we can’t figure out the direction of those changes.”

Tom Essig, the Homeland Security Department’s chief procurement officer, says there needs to be a governmentwide effort to define mid-tier firms.

“The Small Business Administration should lead the effort because the focus is on the success rates of small businesses,” he says. “Then once we know what the success rates are by industry, we can decide if the government needs to take action.”

But Brad Nelson, who works in the Defense Department’s Industrial Policy Office, says certain areas such as facilities management and transportation services are not feeling the mid-tier squeeze as much as other areas such as technology services.

Nelson says this discussion is as much about mid-tier firms as the health of the federal industrial base.

In the meantime, there are some things mid-tiered companies can do to survive.

Richard Beutel, the former minority chief counsel for the Senate Homeland Security and Governmental Affairs Committee, says if these vendors must take their plight to Congress they must not only explain who they are, but why they matter.

“I don’t have a clue about you people,” he says. “I worked on the Small Business Committee. I understand small businesses create jobs and innovation, but what do mid-tiered firms do?”

Beutel recommends explaining in specific terms to lawmakers how mid-tiered companies promote competition in federal contracting, provides jobs and play significant roles in making the government meets it mission.

He also says lawmakers want to limit large bundled contracts so there is an opportunity for mid-tiered firms to step in to show their value.


On the Web:

FederalNewsRadio – More changes to come for contractors

FederalNewsRadio – GAO ruling gives small businesses a boost

FederalNewsRadio – SDBs allowed to self-certify status

Center for Strategic and International Studies – Structure and Dynamics of the U.S. Federal Professional Services Industrial Base

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