Big firms edge small for billions of dollars in awards


General Dynamics employees work on an Abrams battle tank during a tour of the Joint Systems Manufacturing Center, Lima Army Tank Plant, in Lima, Ohio, in this April 23, 2012 file photo. (Matt Sullivan/Reuters)
November 18, 2012

Major U.S. companies including General Dynamics and Medtronic have received billions of dollars in federal government contracts that were supposed to go to small businesses.

About $4.74 billion, or 45 percent, of more than $10.6 billion targeted for small businesses under government acquisition rules were won by bigger competitors in the year ended Sept. 30, 2011, according to government data.

Companies that need the revenue the most are losing opportunities, said Margot Dorfman, chief executive of the Washington-based U.S. Women’s Chamber of Commerce.

“I think this particular issue should be one of the top concerns of the Small Business Administration and the president,’’ Dorfman said in an interview. “Fix it now. Let’s not wait.’’

The awards to bigger companies stem in part from an undertrained and understaffed acquisition workforce as well as an excessive use of exemptions, according to former procurement officials and contract attorneys.

Federal rules direct agencies to use small businesses, generally defined as those with fewer than 500 employees or less than $7 million in annual revenue, for purchases of $3,000 to $150,000. Since fiscal 2006, the share of these contracts awarded to large businesses has risen to 45 percent from about 38 percent.

The analysis excluded contracts for indefinite quantities of goods or services.

Competitive bids

U.S. agencies may turn to a larger company if it provides a product or service that isn’t offered by another business. Bloomberg LP, the parent company of Bloomberg News, has received such contracts. Other recipients have included the New York Times Co. and The Washington Post Co.

Procurement officials can also make awards to bigger companies using the federal supply schedule — the government’s program for quickly buying commercial products and services — or if they can’t find competitive bids from two or more small businesses.

How much effort goes into finding those small-business bidders is up to each agency. Sometimes contracting officers are “spread so thin’’ that it’s easier for them to buy from larger companies that they know, said Holly Roth, a partner at Manatt, Phelps & Phillips, a Los Angeles-based law firm that specializes in government contracting.

Small businesses may also suffer from agencies’ overuse of exemptions, said Charles Tiefer, a law professor at the University of Baltimore who served on the U.S. Commission on Wartime Contracting. Companies may claim, for instance, that the design of something as simple as a spare bolt is proprietary, and agencies allow that reasoning to stand, he said.

Larger companies “take any opportunity to make what are intended to be very limited exceptions to small businesses’ rights into a big-business feast,’’ Tiefer said.

The dollar range targeted for small businesses is known in government parlance as the simplified acquisition threshold. Big companies that tapped this funding got awards for items such as computer parts, clothing and screws, according to the data.

Some of the contracts may have been misdirected in part because of lax enforcement and a lack of knowledge about the law, said Angela Styles, former head of the Office of Federal Procurement Policy. The awards’ small sizes may mean they’re less likely to be questioned by agency inspectors general, the SBA or Congress, she said.

‘A little jaded’

“I think we’re a little jaded in how we look at money,’’ said Styles, now a Washington-based partner at the law firm Crowell & Moring. “I think there are a lot of small businesses out there that would think these contracts are substantial.’’

The SBA’s head, Karen Mills, and Joe Jordan, administrator of the Office of Federal Procurement Policy, said in a June 2012 memo that “a significant amount’’ of work under the threshold wasn’t going to small firms, even in “industries where small businesses are typically well represented.’’

The SBA didn’t provide a comment.

Top recipients of awards within the threshold included Minneapolis-based Medtronic and Falls Church-based General Dynamics, the third-biggest federal contractor in the year ended Sept. 30. Neither company responded to e-mails seeking comment.

Sandy Baruah, former administrator of the SBA from 2008 to 2009, said it may be difficult to balance a societal goal, such as contracts for small firms, with smart spending in an austere budget environment.

“Federal dollars are just like household dollars,’’ Baruah, now chief executive of the Detroit Regional Chamber, said in an interview. “They are scarce and need to be spent efficiently.’’

— Bloomberg Government

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