Dawn Hamilton got the call two days before Christmas: The Coast Guard would be canceling most of her $5 million-a-year contract in six months to bring the work in-house.
“I was just shocked,’’ Hamilton, chief executive and founder of Security Assistance Corp., said in an interview at her company’s offices in Arlington. “We always had outstanding and excellent reviews from the Coast Guard.’’
SAC is one of dozens of small businesses that have lost employees and revenue as federal agencies cancel contracts and hire civil servants to do the work, a practice known as insourcing.
By the end of June, the Coast Guard had made job offers to 54 of Hamilton’s 63 employees. A few others accepted jobs with other companies, she said. The Coast Guard extended one part of the contract until Sept. 30 to allow for a “more orderly transition,’’ Lt. Paul Rhynard, an agency spokesman, said in an e-mail.
The Coast Guard identified SAC’s contract as a candidate for insourcing after an assessment and cost comparison, Rhynard said. Based on the comparison, the agency determined it could achieve “substantial annual savings’’ of about $2.8 million by insourcing most of the work, he said.
‘Out of business’
“The government is aggressively removing work from some small businesses,’’ said Robert Burton, a partner at the law firm Venable in Washington, who represented SAC and other small vendors in insourcing cases. Insourcing “impacts small businesses much more than midsize and large businesses. If small businesses lose their employees, they can go out of business.’’
Federal procurement officials said the impact on small business from insourcing has been minimal, though they had little data on the number of businesses affected.
“The impact is smaller than some people expected,’’ Daniel I. Gordon, the administrator of the Office of Federal Procurement Policy, said in a June 28 interview. “We are keenly sensitive to the impact of insourcing on small businesses.’’
In a February memo, Gordon’s office instructed agencies to conduct impact analyses of the dollar value of contracts that have been insourced and how much of the work was performed by small businesses, he said in a July 11 e-mail. Those analyses are still being completed.
The memo also instructed agencies to place “lower priority’’ on reviewing work by small businesses if it was not “inherently governmental,’’ or work that only federal employees may perform, he said.
Agencies don’t have to notify the Small Business Administration before insourcing a contract held by a small vendor unless it’s within the 8(a) program, said Michele Chang, a senior adviser in the agency’s office of government contracting and business development.
The 8(a) program reserves some contracts for small companies owned by socially and economically disadvantaged individuals. If an agency wants to insource an 8(a) contract, it must first ask the SBA to release it from the program, Chang said in a July 12 e-mail.
That didn’t happen in SAC’s case, Hamilton said. After the Coast Guard notified her, Hamilton filed a Freedom of Information Act request seeking the cost analysis the agency used to make the decision to insource. Hamilton said the agency used inflated numbers to determine the cost of using the company, and she is now working with the SBA to decide whether to appeal the decision.
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