Agencies break record for small business contracting awards

Following a dry spell that stretched for seven years, the government now has met its small business contracting goals two years in a row. And in fiscal 2014, agencies awarded more contract dollars to small firms than in any previous year on record, officials said Friday.

Out of a total pot of $367 billion in “eligible” small business dollars last year, 24.99 percent went to small firms, according to the annual scorecard compiled by the Small Business Administration. The government easily beat the 23 percent small business contracting goal that has been in place since the late 1990s, doing so for the second year in a row. The rate in 2013 was 23.39 percent.

“I believe that today’s achievements are the result of tougher accountability for agencies to meet their goals,” said Maria Contreras-Sweet, the SBA administrator. “President [Barack] Obama, Vice President [Joe] Biden, and Senior Adviser Valerie Jarrett have all convened high level meetings to emphasize the importance of small business procurement to our nation’s recovery. Also, SBA has implemented some of the most robust procurement training and education programs since our agency’s founding.”

Frank Kendall,  undersecretary of Defense for acquisition, technology and logistics
Frank Kendall, undersecretary of Defense for acquisition, technology and logistics

The Defense Department and its widespread contracting apparatus were responsible for the lion’s share of the government’s small business activity. DoD routinely issues about two out of every three of the contract dollars the broader government spends with small firms, and improvements in DoD’s own small business contracting rate were responsible for a large proportion of the improvements over the past two years.

In 2012, DoD’s small business award rate was 20.41 percent, but it rose to 23.47 percent in the latest scorecard.

Frank Kendall, the undersecretary of Defense for acquisition, technology and logistics, said it’s impossible to point to one or two factors that caused the increase — rather, he said, it’s been the result of a consistent focus on small business utilization as part of the department’s 5-year-old Better Buying Power initiative.

“Two of the elements of Better Buying Power at that time involved small businesses and increasing the use of small businesses, both for innovation and for efficiency and to control costs,” he said. “The department doesn’t encourage the use of small business just because we like small businesses, we do it for very practical reasons. One of the greatest engines for innovation in this country is people who have great ideas and want to take them out and make them into businesses. The other is the fact that small businesses, particularly in the services industry, tend to be leaner and more anxious to get work, and thus tend to be more economic in many cases for the department. But it relies on us. It depends on us to reach out and find vehicles that make it easy for them to come do business with us.”

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Kenyata Wesley, the acting director for DoD’s Office of Small Business Programs, said the approach the department took highly encouraged contracting officers to conduct intensive market research into small and nontraditional firms’ capabilities. In many cases, he said, that push has led contracting officers to do business with small businesses because they offered more dollar-for-dollar capability — not just because they needed to help their agency meet a quota.

“We wanted them to be judged on their capabilities and their merits, their past performance and their skillsets that they bring to the table,” he said. “The military services have done an outstanding job of actually performing good market research, because each of the stakeholders has a responsibility to actually ensure that their responsibility to the warfighter is taken care of. It wasn’t taken lightly that they award a contract to a small business. They put a lot of thought and effort into the criteria that the small businesses will be evaluated against, the market research that they put in place to actually become more efficient and actually drive change in this department. That’s something that they should be given credit for because it’s a lot of effort.”

Executives more accountable for small business performance

But DoD and the rest of the government did use measures beyond mere encouragement to improve its overall small business performance. For instance, senior executives’ annual performance appraisals now are based, in part, on the small business utilization within their span of authority.

“If you’re an SES member and you have a rating at the end of the year and you have a budget, you’re now going to be held accountable to a goal,” said John Shoraka, SBA’s associate administrator for government contracting and business development. “And so as that happened and the importance of small business was elevated, we see a lot of improvement in our small business numbers across the federal government.

But while the overall small business numbers show improvement, the government continues to struggle with regard to certain socioeconomic contracting goals Congress has directed.

In the aggregate, agencies easily exceeded their goals for awarding contracts to small disadvantaged businesses and service-disabled veteran-owned small businesses. But they continued to fall short in several other categories, including for women-owned small businesses and firms that operate in “historically underutilized” areas. In the case of Historically Underutilized Business Zones (HUBZones), the government was supposed to award 3 percent of its contracts, but managed just 1.82 percent.

Members of Congress also are likely to continue questioning key statistical underpinnings of SBA’s overall scorecard. The agency is criticized routinely for failing to include tens of billions of dollars in federal spending within the baseline it uses to calculate the overall share awarded to small businesses.

In a statement Friday, Rep. Steve Chabot (R-Ohio), the chairman of the Small Business Committee, renewed that complaint, saying the “eligible” pool of dollars SBA used to measure performance against the 2014 goal left out at least $77 billion in actual federal contract spending that year. The assertion is based on a staff analysis of figures from the Federal Procurement Data System, the government’s master database of contract outlays.

“The reason Congress asks for these numbers is so we can use them, not so that the administration can pat itself on the back once a year,” Chabot said. “These are supposed to provide insight to help Congress craft policies that strengthen our industrial base. This sort of misreporting doesn’t help.”

Not eligible for small business bids

Additionally, the Department of Veterans Affairs never entered anywhere between $6 billion and $10 billion in annual spending into FPDS, according to Jan Frye, VA’s deputy assistant secretary for acquisition and logistics, who has become a whistleblower alleging widespread violations of procurement laws by the department.

SBA has defended its practice of continuing to exclude certain categories of federal spending from the annual small business eligibility baseline, partially so that its approach to the statistical analysis is consistent from one year to the next, but also because it continues to feel that there are some very large categories of federal spending in which small businesses will never be able to able to bid.

One example, Shoraka said, is in the area of foreign-directed contracts.

“If Saudi Arabia wants to buy a bunch of F-16s, our opinion is that the contracting officer has very little discretion to make sure something like goes to a small business,” he told Federal News Radio.

But in the 2013 version of the National Defense Authorization Act, Congress ordered SBA to reassess its overall approach to excluding certain areas from the small business baseline. And the agency has since decided that some of its previous exclusions can’t be justified any longer.

Beginning in 2014, the SBA included leases of real property within its baseline for the first time. In the next scorecard, it plans to begin including contracts performed overseas, which could impact the scorecards of several agencies including the State Department, DoD and U.S. Agency for International Development.

USAID, for example, relies on foreign companies to perform work on fully two-thirds of its contract spending, and merely adding overseas contracts to the small business tally is expected to grow the baseline by which all agencies are measured by between 1.5 percent and 2 percent.

“We’ve been working with the Office of Federal Procurement Policy and all of those agencies to make sure that they know that those contracts are going to be included in their base for 2016,” Shoraka said.