Small Businesses Short-Changed on Contracts for 10 Years

The U.S. government has missed its small-business contracting goal every year in the past decade, a sign of the continuing barriers facing companies competing with larger rivals for federal work.

The government has a target of awarding 23 percent of eligible prime, or direct, contracts to small businesses. It awarded 21.8 percent of $423 billion in such awards in the fiscal year that ended Sept. 30. The Pentagon, which represents more than two-thirds of all prime contract revenue, has also missed its goal for 10 years, according to federal procurement data.

The shortfalls have spanned both Republican and Democratic administrations, which have prodded officials to boost small- business awards. President Barack Obama’s Office of Management and Budget told agencies in a February 2011 memo that their underachievement deprives taxpayers and “takes away opportunities for small businesses to create jobs and drive the economy forward.”

The government’s track record is “a real eye-opener,” said Robert Burton, former acting administrator of the Office of Federal Procurement Policy and now a partner at the law firm Venable LLP in Washington. “As goes the Department of Defense, goes the rest of the agencies. If DoD doesn’t make it, probably the rest of the government isn’t going to make it.”

Source: Steve Westerlund

“They have all these lofty goals, but nothing ever happens,” said Steve Westerlund, president of Aquasis Services Inc. Close

“They have all these lofty goals, but nothing ever happens,” said Steve Westerlund,... Read More

Close
Open
Source: Steve Westerlund

“They have all these lofty goals, but nothing ever happens,” said Steve Westerlund, president of Aquasis Services Inc.

‘Known Quantities’

Agencies may be reluctant to take chances on small businesses, defined by the government as having fewer than 500 employees or less than $7 million in average annual sales. They generally don’t have the performance records of large corporations that are “known quantities,” Burton said.

“I’m convinced that if the government wanted to meet the goal, they could do it, but I don’t know that the government really wants to do it,” he said.

The Small Business Administration is working with agencies to help them meet their goals, John Shoraka, a SBA acting associate administrator, said in an e-mail.

“The goal is to make the goal,” Shoraka said. “Twenty- three percent is within reach, and the SBA thinks it should be the government’s objective to meet that goal.”

The federal government has “lofty goals,” said Steve Westerlund, president of Aquasis Services Inc., a small business in Pensacola, Florida, that collapsed after doing work for the Department of Defense for 27 years. “But nothing ever happens.”

Closed Business

Westerlund said his company did “the non-sexy stuff,” which included delivering mail, maintaining laundry equipment in military dormitories, and providing administrative support for Naval flight training at Whiting Field near Pensacola.

His military contracting officer told him in September 2009 that 30 of his 100 employees were being converted from contractors to federal workers, as part of a government effort to outsource less of the work, he said. Westerlund’s company had about $4.5 million in annual revenue at the time.

“I couldn’t believe it,” he said. “I knew that was the beginning of the end.”

Westerlund lost his remaining employees the following year and had to close his business. He said he’s now living off savings and still looking for federal contracting work.

It’s getting harder to win federal awards, said Annette Wright, president of Toledo, Ohio-based Unity Cable Technologies Inc., which has done work for the Pentagon and the Department of Homeland Security.

Business Winner

Wright started her company in 1994 as a wireless cable and electrical product supplier. She said she once had three employees, and that she now can’t afford to support anyone besides herself.

“I can’t pay anybody if I’m not winning contracts,” Wright said. “I will bid on supplying blankets these days if I can find them and be competitive on it.”

Small business contract winners such as Jeanne Peck, president of Nash Locke LLC, a McLean, Virginia-based technology company, said they’re not surprised by the government’s poor showing.

“I don’t want to sound like sour grapes, but I think people are comfortable doing business with people and companies they know,” Peck said. “Most little companies don’t have three or four years to mess around building brand new relationships. It is very hard to stay alive.”

Peck’s company won its first direct contract in September, when the Army Corps of Engineers awarded Nash Locke a $52,800 order to manage a technology project, according to the government’s federal procurement database.

Persuading the Government

The company had been a subcontractor for the Pentagon and Department of Education for four years, which she said helped keep her business afloat as she tried to persuade the government to give her that first direct contract.

Some members of Congress want to boost the government’s goal and penalize agencies.

Representative Sam Graves, a Missouri Republican, in January introduced a bill, HR 3850, that would lift the target to 25 percent and withhold the bonuses of senior agency executives if their agencies miss goals.

“The fact that the federal government hasn’t met the 23 percent small business contracting goal is very disappointing, not only for me but for thousands of small businesses who are losing out on opportunities,” Graves said in an e-mail. “It is particularly frustrating that the Department of Defense, which accounts for approximately 70 percent of all federal contracting, has steadily decreased its small business share over the past several years.”

Defense Department

The Pentagon’s direct awards to small businesses have been decreasing since 2009. The Defense Department had a goal of awarding 22.3 percent of eligible prime awards to small businesses in fiscal 2011. It awarded 19.9 percent of $290 billion in such contracts that year.

Total military contracts, including subcontracts, to small businesses have increased from fiscal years 2010 to 2011, Andre Gudger, director of the Pentagon’s office of small business programs, said in an e-mailed statement. The total figures for subcontracts aren’t publicly available.

“DoD has several ongoing initiatives that will continue to increase opportunities for small business participation in DoD acquisitions,” Gudger said.

The Department of Energy, the second-largest buyer across the government, missed its goal of 6 percent last year, awarding $1.3 billion, or 5.3 percent, to small businesses. The Department of Health and Human Services, the third-largest buyer, exceeded its goal of 19.5 percent, awarding $4.5 billion, or 24 percent, to small firms.

To contact the reporter on this story: Danielle Ivory in Washington at divory@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.