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Small Businesses Disappointed With Contracting Share
U.S. Government Failing to Meet Legal Requirement, Group Says

By V. Dion Haynes
Washington Post Staff Writer
Monday, August 31, 2009

Officials of small businesses, asserting that the government has repeatedly failed to meet its obligation to set aside work for them, are demanding that the Obama administration dramatically increase federal contracts awarded to their firms.

Federal law requires that the government set aside 23 percent of its contracts to small businesses. But small businesses in fiscal 2008 received 21.5 percent of those contracts, the shortfall representing a loss of $30 billion in work to the firms, according to the National Association of Small Business Contractors.

Obama administration officials, while pointing out that awards to small-business contractors set a record in 2008, say they are increasing their outreach efforts to them -- requiring agency heads to participate in many more meet-and-greet events during the remainder of the year in an attempt to reach their goal.

But small-business advocates argue that is not enough. The association, comprising 300,000 small-business contractors, is pressing the administration for several changes, including imposing penalties on agencies that fail to meet the requirement and enforcing fines on large companies that misrepresent themselves as small or minority-owned businesses or misstate their connection with small-business subcontractors. They also are asking President Obama to make the top spot at the Small Business Administration a Cabinet position.

Though the government has failed to meet the contracting requirement for five years, officials said, the economy is prompting the association to push harder for reforms now. Small businesses, while employing the majority of U.S. workers, have been stung harder than big companies by tight credit and many other recession-related problems, the association said.

"As president, Mr. Obama has focused on economic recovery. But he has not worked hard enough on small business," said Margot Dorfman, vice president of policy at the association and chief executive of the U.S. Women's Chamber of Commerce.

"The president said he is relying on small businesses to grow so the economy can grow," Dorfman said. But with small businesses "we're seeing a contraction rather than an expansion."

Timothy J. Crawley, principal of Gemini Tech Services in Potomac, estimates the defense and professional services contracting firm, which has a staff of 25 full- and part-time employees, lost about $30 million in work over three years to larger companies.

"There are contracts that the government places a small-business requirement on, but not all agencies enforce it," Crawley said. This is "limiting small businesses' ability to gain access to government work and limiting government's ability to gain innovative and cost-effective ways to get the work done."

The government has not taken into account how smaller firms often are at a financial disadvantage in merely preparing a proposal. Many, he said, simply can't afford to invest the $50,000 to $500,000 to put together an extensive proposal for the government, staff costs that are difficult to absorb if they don't get the contract. As a result, many small firms opt not to compete.

Moreover, the small-business set-aside doesn't apply to some of the more lucrative contracts awarded for work done outside the country, Crawley said. "On overseas work, there is no requirement for large businesses to include small businesses," he said, adding that a small business can't get in on that type of deal "unless you know somebody."

The federal government has guidelines on maximum revenue and staffing levels for nearly 1,000 industries for what constitutes a small business in terms of federal contracting. For instance, annual revenue can be no more than $750,000 for soybean farmers and $33.5 million for construction firms. Staffing levels can be no more than 500 for food and apparel manufacturing companies and 1,000 for computer manufacturing firms.

The federal government awarded $93.3 billion in contracts to small businesses in fiscal 2008, an increase of nearly $10 billion from the previous year, SBA officials said. The SBA also boosted its awards to businesses operated by women, disadvantaged minorities and service-disabled veterans to $3 billion from $2 billion for that year, officials said.

"We do want to acknowledge that a record $93 billion in spending went to small business. But I'm not going to be happy until the 23 percent goal is met and exceeded," said Joseph G. Jordan, the SBA's associate administrator for government contracting and business development.

One reason for the disparity, Jordan said, is that the Defense Department represents 75 percent of federal contracts and small businesses have been unable to provide the costly materials and services needed to support the wars in Iraq and Afghanistan.

Jordan said the SBA is ramping up outreach to small-business owners about opportunities to work with the federal government and revamping its Web site to provide more information to them on the contracting process. At the same time, Jordan said, the SBA is beefing up training at the agencies. "We need to increase training and outreach to contracting officers so they'll know how to find small businesses," he said.

The SBA's "scorecard" shows that numerous agencies partially met award goals for five categories of businesses targeted by the program -- small firms, and those owned by women, disadvantaged minorities and service-disabled veterans and ones operating in economically depressed areas. For instance, five agencies -- the departments of Defense, Justice and State, the Social Security Administration and the National Science Foundation -- met one of five goals.

But two agencies -- the Office of Personnel Management and U.S. Agency for International Development -- met none of the five goals.

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