The number of new suppliers to the U.S. government fell 14 percent last year even as the Obama administration sought to increase competition in contracting.
Contract awards in the year that ended Sept. 30 went to about 29,800 companies that hadn’t done business with the government in seven years, compared with 34,800 in fiscal 2010, according to procurement data.
The decline may be partly due to businesses avoiding the federal market because agencies are cutting budgets. Without new competition, taxpayers might end up with higher costs, said Dan Gordon, who stepped down in December as President Obama’s top procurement official.
“The result is that the government gets less competition than it wants, it may get higher prices than it wants, and you risk having government procurement be completely an insider’s game,” said Gordon, associate dean for government procurement law at George Washington University Law School.
New contractors won $10.9 billion in orders in fiscal 2011, a 17 percent drop from $13.1 billion the prior year. First-time small businesses experienced a steeper decline, tumbling 34 percent to $3.64 billion from $5.5 billion in the same period.
Smaller firms, defined as having fewer than 500 employees or less than $7 million in average annual sales, may be more likely to bypass the government market because of diminishing opportunities, said Michael Golden, who formerly led the Government Accountability Office’s procurement law unit.
“When you see bigger companies closing plants in anticipation of a shrinking budget, what is a new company supposed to do?” said Golden, a Washington-based partner for the law firm Pepper Hamilton.
Working with the government presents challenges for small businesses not accustomed to the process, said Jake Ross, a retired Navy captain and partner at Maritime Security Strategies in Tampa, Fla. His company, a service-disabled veteran-owned firm, last year won its first federal contract, a $29 million deal to build a patrol boat for the Navy.
“I kick myself every day,” Ross said in an interview. “You think you’ve crossed one challenge and, by golly, you’ve got a new one the next day. The rules and regulations for government contractors do create significant barriers.”
The Office of Management and Budget looks at federal procurement data to gauge how it’s doing on competition and new entrants, said Moira Mack, a spokeswoman for the agency.
“We are committed to getting the highest quality products, for the lowest possible prices for America’s taxpayers, from an innovative and diverse set of contractors,” she said in an e-mail.
Bloomberg’s estimates on first-time vendors are based on an analysis of federal procurement data that looked at companies with new Dun & Bradstreet identification numbers that also hadn’t received awards in the previous seven years. The totals include contracts won by company and by joint ventures.
—Paul Murphy in Washington contributed to this report.