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When Greg Maryn, president and CEO of Maryn Consulting, an IT security firm based in Washington D.C., lost an $8.1 million government contract to another firm in 2005, he didn't take it lying down. The contract had been set aside for a small business with revenues under $21 million. Maryn couldn't understand why it hadn't gone to his small firm, so he researched the winner and found it had revenues that exceeded the Small Business Administration (SBA) industry size standards for that particular contract by at least $20 million.
Maryn, whose company then had about 12 employees and revenues of less than $3 million, decided to appeal to the SBA. But he had to act fast, since companies that appeal a contract award only have five days to do so, per SBA regulations. Maryn eventually won the contract.
In recognizing that federal contracts set aside for small businesses aren't always awarded to small businesses, Maryn is far from alone. Despite glowing reports from the SBA about the number of contracts awarded to small businesses, competition from savvy big companies, confusing size standards, lack of enforcement of those standards, and contract bundling—the consolidation of multiple small contracts into one large one—make government contracting tough for small businesses.
According to an SBA press release from June 21, small businesses received a record-breaking $79.6 billion in federal prime contracts—25.4% of the $314 billion total federal prime contracting dollars spent in the 2005 fiscal year. This surpassed the Office of Government Contracting goal of buying 23% of goods and services from small businesses.
But some politicians and independent researchers are calling those SBA numbers into question. "The reporting is fake reporting. The administration is exaggerating," says Senator John Kerry (D-Mass.), the ranking member on the Senate Committee on Small Business and Entrepreneurship (see BusinessWeek.com, 7/27/06, "John Kerry: Crusading for Small Business"). As support for his claim, he cites an independent report conducted by Eagle Eye, a Fairfax, Va.-based company that tracks federal contracting, which shows that the small-business share was overstated by the SBA.
Using General Services Administration and Dept. of Defense data, Eagle Eye's figure for small-business contracts is $64.5 billion, not $79.6 billion. The report also shows $377 billion total contracting dollars and a small-business share of only 17% after adding back in what are known as SBA exclusions. Paul Murphy, president of Eagle Eye, calls the exclusions process "arbitrary and designed to pump up the appearance of small-business success in the marketplace."
The SBA all but denies small businesses are being shortchanged. "FPDS-NG [Federal Procurement Data System-Next Generation, the database housed by the General Services Administration where all procuring agencies report their contracting data] is the only official source of federal procurement data," said Karen Hontz, associate administrator for government contracting with the SBA, in an e-mail. "Eagle Eye, or any other organization, is the only one who can explain its methodologies and results."
Big business winning some contracts set aside for small business isn't new, but the current magnitude is unprecedented. In December, 2004, the SBA Office of Advocacy released a report stating that 39 large corporations in 2002 received over $2 billion in contracts that the administration had mistakenly counted as small-business contracts. The New York Times reported recently that last year at least $4.9 billion worth of contracts, coded as small business, went to 13 of the largest government contractors.
Getting into the Game
If you're contemplating getting into government contracting, what follows is a breakdown of how to navigate the complicated process, with tips on researching your competition, learning how the SBA defines size, registering with the federal procurement database, as well as getting experience contracting and subcontracting—even finding a mentor in an established company.
To start, small companies entering a contracting bid should educate themselves about who they're up against. "In some ways, doing business with the government is no different than selling to anyone else. You just gotta do your homework," says Hontz.
HELP IS AVAILABLE.
Be aware that size qualification for small business set-asides varies by industry. For example, a manufacturing company can have 500 employees, while a wholesale trading company can only have 100. General and heavy construction can have revenues of up to $31 million whereas agriculture companies can only have revenues of $750,000 (see www.sba.gov/size). Since the SBA acknowledges that it can't possibly police every bid, it pays to know who is eligible for what.
The next step to becoming a federal contractor is to register your company in the Central Contractor Registration (CCR) database. For help on the process, Procurement and Technical Assistance Centers (PTACs), local procurement resources funded by the Dept. of Defense, are available to help small businesses with their registration (www.ccr.gov). The SBA also offers an online-procurement training course.
The sooner you get some experience, the better, say those who have been successful in bidding on government contracts. When weighing competing bids, agencies are looking for a demonstrated track record of experience working with the government, says Gloria Peña, president and CEO of Innovations Group, a 77-employee consulting firm based in Peoria, Ariz.
Peña says her first contract was a purchase order she got from walking into a government office and offering employment counseling services. Once she had a background working with the government, she was able to sell her past performance. "There's a lot of power in being experienced contracting with the government. You know their paperwork, procedures—you know about cost estimates and about audits," says Peña.
Many businesses have used subcontracting as a way to break in. Since more and more contracts are bundled together, bigger companies often win the bid and subcontract to smaller providers. Prime contractors have small-business liaison officers listed in the SBA's Subcontracting Opportunities Directory for companies wishing to sell to them. And small businesses can search the SBA's SUB-Net Program for subcontracting opportunities.
Another way to get experience is to get paired with the big guys through a mentorship relationship. "If I'm a really small business, I'm going to look for a friend—someone willing to help through a mentorship program, to help me develop some expertise and past performance," says Pam Mazza, a contracting attorney with Piliero, Mazza & Pargament in Washington D.C. The SBA and big government agencies such as the Dept. of Labor and the Dept. of Defense offer such programs.
MAKE A MATCH.
Once you've got a track record, you can move into established ways of getting business. Procurement Center Representatives (PCRs) help small businesses find contracting opportunities. And be sure to look into special set-aside programs like the minority 8(a) program and the Historically Underprivileged Business (HUB) Zone, which are geared toward helping minorities gain a certain amount of federal contracting work.
To match small companies with the contracting agencies that are looking for their services, the SBA, along with the Service Corps of Retired Executives (SCORE) and Hewlett-Packard (HPQ) started a public-private partnership called Business Matchmaking in 2002. It pairs small businesses with senior-level government and corporate procurement officials to discuss potential contracting opportunities. Small-business owners can sit down with 10 to 12 representatives in a day, from companies that are actively seeking their specific services. There are four face-to-face matchmaking events per year, as well as an online network.
Don't be discouraged by the contracting game—it's a challenge for every small business. In a given year, even a successful company may only win 1 out of 10 contracting bids. And you have to spend money to make money. Peña says her most expensive bid so far cost her $15,000. It also scored her her largest contract—$17 million.
Most small businesses that get into government contracting enjoy some success, and diligence brings rewards. "The process works, as long as you pursue it," says Maryn. Any way you slice it's, a multibillion-dollar pie.