Why does the Energy Department have trouble working with small businesses?


Secretary of Energy Ernest Moniz, who took office in May, has inherited the government’s worst small business contracting partner. (BRENDAN SMIALOWSKI/AFP/Getty Images)
August 14, 2013

The Energy Department has been the government’s weakest link in the small-business contracting arena the past two years, failures that agency officials chalk up to the unique nature of the department’s work.

Small contractors, on the other hand, say the agency has not taken enough steps to help them compete for prime contracts, nor has it held large firms accountable for offering sufficient subcontracting work.

“It feels like we’re in the back of the crowd, waving our hands, trying to let people know we’re here and that we can do the work,” Jennifer Dickerson, owner of a small subcontracting company in Florida, said in an interview.

During each of the past two years, the department has fallen short of goals that were already set lower than those of any other agency tracked by the Small Business Administration. During that time, the agency delivered less than 6 percent of its work to small firms and contributed less than 2 percent of all small-business contracting dollars awarded by the government.

Consequently, the DOE earned a failing grade from federal officials both years for its efforts to work with small firms. No other agency during that period came close to a failing mark.

“They’re required to do prime work with small businesses, and I’m just not sure DOE is capable or knows how to do that right now,” Dickerson said.

DOE officials said their challenges with small businesses are rooted in the nature of the agency’s work, which often requires large, multifaceted contracts.

“When the U.S. Small Business Administration calculates the total percentage of our prime contracts that are awarded directly to small businesses, the percentage is rather small,” Dot Harris, director of the agency’s Office of Economic Impact and Diversity, wrote in a blog post last month. “We don’t dispute that, but the full story is more complicated.”

A large share of the department’s budget, for instance, is spent at dozens of laboratories and nuclear facilities across the country, DOE spokesman Steven Thai said. The prime contracts at those facilities are generally awarded to do-it-all “management and operations” firms, which tend to be large, such as URS and Lockheed Martin.

Lockheed alone earned twice as much revenue last year from DOE contracts ($2.6 billion) as all small businesses combined ($1.3 billion).

Dickerson, owner of Orlando-based EnRep, which provides training and environmental services, acknowledged that many of the agency’s projects do not cater to small businesses. However, she said the agency has not made enough of an effort to break apart some contracts to give small firms a chance to work directly with the DOE.

“We need to come to the table and look at ways to pull some of the smaller portions out of these very large contracts and award those components as prime contracts,” said Dickerson, who is planning to meet with agency officials this month in Washington.

The Defense Department, which also handles large and complex projects, has managed to deliver about one-fifth of its contracting dollars to small businesses for several years, Dickerson said. “If DOD can do it, so can DOE,” she said.

American Small Business Chamber of Commerce Vice President Margot Dorfman said Dickerson’s firm is one of many that would gain if the DOE changes how it packages contracts.

“Some of these projects can be unbundled, and that would give them room to provide prime contracts to small businesses,” Dorfman said.

Conscious of the agency’s struggles to work directly with small businesses, officials say they have made it a priority to help those firms partner with large companies to gain access to subcontracting opportunities. Combining prime and subcontracting, the agency says it awarded about 26 percent of its contracting dollars to small firms last year.

The agency “works closely with our prime contractors to make sure that small businesses have a fair chance to compete for subcontracts,” Thai said.

However, in addition to the prime contracting failures regarding small businesses, the agency fell short of separate small business subcontracting goals the past two years as well.

In either circumstance — whether excluded on prime contracts or subcontracts — small firms can get squeezed out.

Dickerson said her firm is a good example.

In 2008, EnRep signed on as a subcontractor under Colorado-based CH2M Hill Companies, a large firm overseeing a five-year cleanup of a plutonium plant in Handford, Wash. The DOE contract expires Oct. 1, but when it was awarded in 2008, the project came with a five-year extension option.

CH2M recently informed Dickerson that it has all but secured the extension; however, it is dropping her firm and several other small businesses from its subcontracting team.

CH2M said the decision was made with taxpayers in mind, noting that it will be able to perform more work for less money by performing the work internally rather than marking it up so subcontractors earn a profit. John Fulton, CH2M’s chief executive, said the firm will be able to save between $40 million and $50 million over the next five years.

“These people have been part of our team, so it’s a difficult thing for me personally and for us as a contractor,” Fulton said. “I feel for the small businesses, but it’s what I would expect as a taxpayer.”

“This is how it goes,” Dickerson said. “The primes conduct the awards through the base year with all these subcontractors, then come time for renewal, they self-perform all the work, cutting out the small businesses.”

It shouldn’t work that way, she said.

Her company employs 38 people and earns about $6 million in revenue — nearly all of it from that one project in Washington. If she cannot convince CH2M to keep her firm onboard or the DOE to break off some of the work into separate contracts, she said her company will close.

Many of her workers are already applying for jobs; most of them trying to hang on to the same positions they have, but with CH2M.

“Our employees basically have to reapply for their jobs,” she said, noting that she has heard a number of subcontractors complain about the same practice at other DOE facilities.

Dorfman and Dickerson said there’s a lack of accountability.

DOE spokesman Thai said that while prime contractors are required to submit an updated plan as part of their applications for an extension, the agency has no penalties or incentives to encourage them to stick with their original subcontractors.

“We submit our revised subcontracting strategy, and [the agency] could disapprove it if they chose to, ask us to do something differently,” Fulton said. “At this point, they haven’t done that.”

Dickerson said she hopes to work with the DOE on ways it can bind its prime contractors to their original plans through the life of a project, which would benefit small firms and help the agency meet some of its contracting goals.

“These large firms aren’t being held accountable,” Dickerson said. “This has been going on for way too long, and there are so many small businesses out there that can do good work.”

Follow On Small Business and J.D. Harrison .

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he manages the Post's On Small Business blog.
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