The 17-person 809 panel, created in Section 809 of the FY 2016 National Defense Authorization Act (NDAA), was tasked with finding ways to streamline and improve the defense acquisition process. The panel had two years to develop recommendations for changes in the regulation and associated statute to achieve those ends.
As part of its review, the Section 809 Panel reviewed the DoD small business program. The panel ultimately developed several specific recommendations designed to improve how the DoD small business program supports DoD initiatives. One of the major areas of interest was determining how to promote the entry of non-traditional DoD companies who offered advanced technology and innovative solutions to DoD challenges.
I met with the 809 Panel in February 2017. I found it important to note that mid-tier companies performing in the DoD market sector play a major role in generating jobs and enhancing overall economic growth for the Nation and that mid-tier companies, defined as companies earning $25M-$500M annually, are being squeezed by small businesses on one side and by large businesses on the other.
In that context, I offered seven points, which also generally apply to small businesses, innovating companies developing new technologies, and companies that are new entrants into the defense market space.
- First, mid-tier companies cannot grow effectively if they are primarily subcontractors to large businesses since subcontractors are unable to obtain significant workshare. Large businesses have little motivation to offer mid-tier companies significant work since DoD acquisition policies encourage them to award subcontracts to small businesses.
- Second, the primary pathway for growth for mid-tier companies is to win large multiple award, indefinite delivery/indefinite quantity (IDIQ) contracts as primes so they can compete for agency task orders. However, to win these IDIQs, mid-tier companies must surmount major challenges:
- Mid-tiers are often locked out of large multiple award IDIQs owing to significant past performance criteria.
- The tendency of DoD agencies to consolidate contracts to reduce administrative burdens and costs, which favors large businesses. Such IDIQ consolidation reduces opportunities for mid-tier companies to penetrate and support customer agencies, which constrains future growth. Consolidation also poses risk to growth owing to long period of performance of awarded IDIQs; mid-tier companies often have to wait a decade before they can compete again as an IDIQ prime if they miss out on the near-term opportunity.
- Third, mid-tier companies must contend with ever rising costs that increase their indirect rates and make it more difficult to compete against large businesses. These cost increases are the result of several factors, chief among them are supporting employee benefits under newly enacted national healthcare polices, responding to current and emerging cyber security requirements, maintaining sophisticated auditable financial systems, and obtaining certifications and appraisals, such as ISO-9001:2008/20015, ISO 20000, ISO 27001 and CMMI-3/4, which DoD agencies increasingly require of companies seeking to pursue and perform work.
- Fourth, while mid-tier companies are capable of providing the same or better level of service and customer relations as large businesses, their competiveness is hampered by higher overhead costs relative to large businesses because they lack the scale to absorb those indirect costs. These higher costs, combined with the lowest price technically acceptable and low price competition environment we are experiencing in the defense sector, hinder mid-tier companies in achieving success as they compete against large business on full and open competitions.
- Fifth, North American Industry Classification System (NAICS) codes used to classify DoD work and define company size standards offer little support for mid-tier companies. While some NAICS codes, such as 541712/5, Research and Development, reflect a size standard of 1000 employees, up from 500 employees in Feb 2016, DoD agency contracting officials tend to strictly interpret the type of work performed and the size standard offers little benefit to mid-tier companies. Hence, there are no contracting tools to benefit or promote mid-tier company growth.
- Sixth, graduating small businesses confront major challenges as they evolve into mid-tier companies and must compete as newly minted large businesses. While seeking a merger or acquisition may represent a potential exit strategy, in many cases, successful small businesses owe their growth to small business contract awards, which are of little value to large business acquirers. Hence, the businesses are at great risk of failing shortly after graduating from small business status: they are too big to be small and too small to be effective as large businesses. While the Congress and DoD have done an excellent job in establishing policies that promote small business growth, particularly for socio-economic challenged groups, they have failed to establish an effective strategy to promote business health and growth across the total business life cycle, from start-up/small business through mid-tier to large business.
- Seventh, and my final point, small business officials in DoD agencies generally sympathize with the challenges mid-tier companies confront, however they state they can do little to help without congressional and/or department involvement and legislation. Their focus is on accomplishing their duties by promoting the various small business classifications.
The US lacks a strategic approach to promoting growth of US businesses supporting the DoD. The current government programs that promote the interests of small businesses fail to account for their eventual growth into being mid-tier companies. At that point, such companies must compete against small businesses, other mid-tier companies, and very large companies. This poses great challenges to rising small businesses. I believe Congress and DoD should seek avenues to promote the lifecycle growth of companies by accounting for those mid-tier company challenges.
Randy J. (“RJ”) Kolton is VP of Mid-Tier Advocacy Group, and Senior Vice President (SVP), Business Development for Data Systems Analysts (DSA), Inc., a mid-sized, employee-owned company that is a leader in delivering business driven information technology and consulting solutions and services to the Federal Government and industry. Building on experience spanning more than five decades, DSA has deep expertise and comprehensive understanding of the operational, security, collaboration, and identity management challenges our customers must address.
We’ve been discussing the Office of Management and Budget (OMB)’s six proposals for streamlining the acquisition process and improving the acquisition environment, intended to be included in the FY 2020 National Defense Authorization Act (NDAA).
Proposal 3 is about uniformity in procurement thresholds. So right now purchases starting at $2 million must adhere to cost accounting standards (CAS), but complete coverage doesn’t start until you’re at $50 million. This change will eliminate these wide differences by raising the basic threshold to $15 million.
That means you will only need to start paying attention to CAS at $15 million, and full coverage still starts at $50 million. The reason for this change is that there were already some exemptions established at various other threshold levels that caused confusion about when the basic CAS really apply.
The reason this is important for us as small businesses is that full CAS coverage is very comprehensive and has a lot of details, and it’s really hard for a small business to manage this. That’s why you don’t hit full CAS coverage until $50 million. At that point you presumably have the infrastructure in place to handle the extra requirements.
One other legalistic thing being done is that they’re decoupling the CAS thresholds from the similar thresholds in what’s called the TINA (Truth in Negotiations Act), because there’s some concern that by putting them together, issues and problems come up in both.
Gosh, it seems like yesterday that the Mid-Tier Advocacy group held their Business Focused Breakfast around the legislative update with some regulatory issues thrown in (but it’s already almost time for the next one).
Our speaker on July 30th was Pam Mazza of Piliero Mazza – true experts in this legal and regulatory thicket we all have to plow through as GovCons…
We talked about the new Small Business Runway Extension Act, passed in December 2018. It turns out that the legislation had some flaws in it, so instead of new regulations flying for the 5-year average replacing the old 3-year average, they’re working on some adjustments.
It was somewhat over my head, to be sure, but it hinges on whether SBA was actually authorized, and Administrator vs. Administration. OK, I’m not kidding. However, it did pass bi-partisanly, so these changes should get made fairly quickly. Of course some places are implementing it, and I can hear the protests rumbling. My advice is to ask the question, do not assume.
Second was the SBA’s preliminary rule on inflationary adjustments to the size standards. By the way, a 10% rise from 27.5 million is going to 30 million, not to 30.25 million, because I guess bureaucrats like round numbers. These adjustments will take effect in August, but then you’ll have to be sure SAM Reps and Certs catches up, so things might take a while for these changes to actually change your size status. FYI, this is NOT the “re-evaluation” of Sector 54 and 236 still to come, someday…
There’s a bipartisan bill circulating to extend 8a sole sourcing to SDVOSB, HubZone, and WOSB/EDWOSB, and to raise the thresholds – these have not been adjusted in decades. The thicket of rule-of-2 rules and regulations for non-8a sole sourcing has got to be made easier, so we’ll see if this gains traction.
DoD issued a class deviation letter, allowing similarly situated entities on all DoD contracts.
DoD also issued a letter limiting LPTA contract evaluation types, but beware of “fake best value” where they have fewer factors and call it best value when price is really the issue.
Finally, SBA is looking at working some early termination graduation for 8a’s – more will be revealed.
And that’s the news report… These breakfasts are often a good place to hear and discuss the real issues, so if you can, attend them in your area wherever that may be. The next Mid-Tier Advocacy Business Focused Breakfast is on Tuesday, August 27th at the Tower Club in Vienna, VA, featuring SBA Associate Administrator Mr. Robb Wong. Learn more and get your tickets now.
This is a guest post by Staci L. Redmon, President and CEO of Strategy and Management Services, Inc. (SAMS).
Sometimes it’s said that Amazon is the only truly modern organization. Because it was founded on the Internet and never had the traditional limitations of a brick-and-mortar business, it could afford to develop and fully embrace technological innovation when it came.
Most of us aren’t Amazon. There are limitations on how much contractors can adapt to technology or use it effectively – and that’s okay. But as federal IT spend increases, businesses in the public sector are called upon to take stock of their organizational structure, highlighting areas where innovation and better planning can make a difference.
Here are five of the most common struggles we have identified in our clients:
1. Too much data, not enough insight
Today, organizations are swamped in data from multiple sources, including IoT, CRM, web analytics, social media and more. 73% polled say they struggle to use it effectively.
Why it hurts
In the first place, contractors are paying for everything they collect, and they’re paying even more to store it. Second – even if they forego collection altogether – they miss out on the many insights that data can provide.
How to fix it
Using data effectively requires two steps:Efficient collection and storage, such as cloud, hybrid cloud
- Efficient collection and storage, such as cloud, hybrid cloud or data lakes
- An analytics strategy to extract useful information
An analytics strategy to extract useful information
The best data strategy will vary from business to business, requiring human expertise for optimization and refinement.
2. Deprecated systems
We know that technology changes at the speed of light. When organizations get used to a certain workflow, they often stop moving forward and systems become outdated. As a result, some U.S agencies are still depending on Windows 3.1 and floppy disks.
Why it hurts
80% of IT professionals say that outdated tech holds them back. Customers and clients will move forward even when a business does not, thereby slowing down operations, creating customer experience (CX) issues, and lowering productivity in the workplace.
How to fix it
Systems must be updated on a periodic basis to prevent disruption, ensure continuity of operations, and lower expense. Having an enterprise IT strategy and C-level tech officers ahead of time will significantly reduce blind spots.
3. Technical debt
When contractors fail to adopt new technologies, they accumulate “technical debt,” an abstract measure of the expenses they will inevitably have to pay as a result.
Why it hurts
While a business lags behind, it exponentially loses ground in terms of potential profit; it also loses market share to competitors who modernize in the same time frame. Technical debt is thus more costly than an initial investment in new technology.
How to fix it
Organizations must stay ahead of technical trends to avoid debt and minimize future expenses. However, that does not mean they should invest in every new trend – research, strategy and careful observation should inform all business transformation efforts.
4. Underutilized assets
Contractors are often unaware how much they can accomplish with a single solution; both software and hardware are underutilized, and features go ignored.
Why it hurts
Underutilization leads to redundant costs, as businesses invest in multiple solutions which they could consolidate into one. Given power, training and licensing fees, the costs add up quickly.
How to fix it
Ideally, organizations will choose optimized solutions during the Enterprise Architectural Planning (EAP) phase which won’t call for redundant investments. Afterwards, they should consult with their vendors carefully to assess the extensible functionality of every asset they acquire.
5. Lack of expertise
According to a recent Gartner press release, talent shortage is emerging as the top risk for organizations in several categories – among them, cloud computing, data protection and cybersec.
Why it hurts
The majority of technological pain points result from a lack of technical executives or experts, leaving organizations vulnerable to their own mistakes, questionable investment decisions and attacks from the outside.
This issue is especially serious for government contractors who are often responsible for managing confidential data: regulations and auditing add an extra layer of risk for any careless decisions.
How to fix it
An organization should make sure that experts are involved in all the decisions it makes by:
- Hiring and retaining elite talent in every major area of their infrastructure
- Positioning one or more C-Level executives (CIO, CTO, CISO, etc.) to oversee continual development
- When all else fails, consulting with external experts for guidance and an outsider’s perspective
For peace of mind in an organization’s continual stability, nothing can rival regular assessments from those who know what they’re doing.
Planning for Longevity
In 2019, technology is the lifeblood of a business: it shapes client interactions, management, teamwork and productivity across the board. But while it may come with upfront costs, it pays in longevity and success for the long term.
As technology changes, a business must be prepared to change with it, and that means – among other things – enterprise-level planning, good investment strategy, and a dynamic organizational structure. Staying modern is hard, but not impossible for a contractor who always aims at improvement.
Staci L. Redmon is President and CEO of Strategy and Management Services, Inc. (SAMS), an award-winning and leading provider of innovative operations, management and technology solutions in a variety of public and private sector industries and markets. SAMS is based in Springfield, VA.
We’re continuing our look at SBA’s changes to its small business regulations, as summarized by Sam Finnerty in this PilieroMazza post.
As he wrote:
SBA is also proposing language to clarify that recertification is required on full-and-open contracts when such contracts are awarded to SBCs. In addition, the Rule adds language to SBA’s 8(a) regulations to require recertification under 8(a) contracts. Similar language can be found in SBA’s SDVO, HUBZone, and WOSB/EDWOSB regulations, but had been missing from its 8(a) regulations.
As we know, there are sizing requirements associated with small business set-aside contracts. If a contract is issued as a full and open contract, but there are also small business set-asides that apply within that contract, recertification rules require that every time an option is granted, the small business winners have to recertify in order to establish that they are still that particular type of entity.
As Sam points out, this was really a kind of technical action in one sense, in that this rule already existed almost all of the other specially certified small businesses, except for 8(a) businesses. Now the language is there across the board.
One additional thing that arose at this time was that under the new rules, a prime contractor can now use a “similarly situated entity” (a company who meets the same size standards and set-aside qualifications) to meet the performance requirements.
For example, let’s suppose that I’m bidding on a contract as a service-disabled, veteran-owned small business. Under the rules and regulations as the prime I have to do 51% of the labor costing, however I could engage a fellow service-disabled, veteran-owned small business – one who meets the same size standards and set-aside qualifications as my own company – as a subcontractor, to perform a part of my 51% of the job’s labor.
This new rule states that the similarly situated entity – the subcontractor – must also recertify whenever the prime recertifies. From the perspective of the activity and action, this is no different from what we’ve come to expect, but now the rules are applied across the board.
One effect this will have is that having that similarly situated entity as a subcontractor will not be an open-ended commitment. That business can not, for example, graduate from the small business size standard, or change ownership to a non-member of the service-disabled or veteran-owned class.
The Small Business Runway Extension Act of 2018 (H.R. 6330), authored by U.S. Senator Ben Cardin (D-Md.), Ranking Member of the U.S. Senate Committee on Small Business & Entrepreneurship, passed on December 6th and has now been signed by the President.
As explained in this press release, this legislation (also know as the “5-year look back”) ensures that small business size standards are calculated using average annual receipts from the previous five years, instead of the previous three. This change will significantly reduce the impact of years wherein businesses experience unexpectedly rapid growth, often causing them to prematurely lose their small business status.
While Tonya pointed out that this bill doesn’t help most mid-tiers, it is an incremental start at addressing some of the problems that a growing firm faces as they begin to grow beyond small.
She also passed along a note of thanks from Barbara Ashe, Executive Vice President of the Montgomery County Chamber of Commerce, who thanked MTA for our support as a Coalition Partner in the Midsize Initiative. Ms. Ashe wrote: “Not only does this legislative change open the door to other initiatives for companies bumping up against small business standards, we also successfully changed the term from ‘mid-tier’ to ‘midsize businesses’ in an effort to clarify the businesses we are seeking to assist.”
Welcome back to TAPE’s Alexia Groszer, GPHR, senior human resources generalist. In a previous post, she answered some common questions about HR for small business. Today, we’re looking at size issues from an HR perspective.
Let’s look first at things from an employee’s view. What are the pros and cons of being employed by a small business versus a large business?
Pros: Employees at a small company typically wear more hats, thereby getting exposure to more business areas and skills. The owners and management know employees by name. Good ideas can be implemented quickly. The employee often sees a direct impact of the work they perform and may feel an essential part of a team.
Cons: Job growth is often dependent on the company’s growth. If the company grows rapidly, this could be a pro for the employee who rides the wave of prosperity with the company. Employees who were with Microsoft and AOL in the early days benefited greatly from the rapid growth. However, few small companies have exponential growth. If the company does not grow, the employee may be feel their only option for growth is to leave the company.
Pros: A large company may offer more avenues for career development (types of jobs, levels of management, and more internal job opportunities). Employees may be able to move up or laterally while gaining years of service and benefits within the same organization. Large companies often have more structure. They have tried and true processes which provide excellent on the job training for those new in their careers.
Cons: Since large companies often do work on a large scale, employees at a large company often perform a high volume of work of more limited scope. This could mean limited learning/ growth within the job depending on the position they are in. Large companies can also be very bureaucratic. New ideas may take a long time to get implemented. Employees may not feel any direct impact of their work. They may even feel that they a just a number or not essential to the organization.
One person may prefer a smaller more personable environment where they know everyone by name and can make an immediate impact. Another may thrive working amongst many people at a large corporation with brand recognition and the security of a larger and more established pipeline of continued work. Choosing an employer, small or large, depends on many factors. Researching potential employers and comparing it to your own list of preferences is a good place to begin.
As a small business grows, their HR needs grow and change with them. When should a small business have an in-house HR department versus outsourcing to an HR vendor?
Each company has different business needs, so there is no absolute answer. However, as companies grow they will likely have a bigger need for human resources support. Often they will move from outsourcing to in-house support due to cost.
For start-ups or small companies (5-25) employees, outsourcing HR may be a more cost-effective option, especially if their needs are mainly payroll/benefit administration with only an occasional compliance issue. Advantages of outsourcing include: the employer pays the vendor for support only when it is needed instead of paying for a fulltime employee, they have access to different HR disciplines/experts but only pay for a few hours of advice at time, and they can easily increase or reduce hours of support to match their business needs.
When a company gets bigger and begins using their vendor 40 hours per week or more, they may discover it is more cost-effective to hire their own HR staff. There are advantages to an in-house HR department, too. An internal staff will be more vested in the company’s culture and mission. They can customize policies and processes to fit the needs of that business. The HR staff can build a rapport with employees, providing better customer service and continuity.
This can be especially helpful when there is an employee relations issue or when a manager is seeking general guidance. All of these can create a more cohesive company culture and greater employee engagement.
As I wrote earlier on this blog, “Business growth is something that should be celebrated, yet if you’re a small business whose customer is the federal government, your growth can have a noticeable downside.” Namely, being too big to qualify for small business set-asides.
If your business falls into the mid-tier category of being too big to be eligible for set-asides but too small to compete with industry giants, here are the most important changes from the 2017 NDAA (click the links to learn more about each item):
- Gives certain small subcontractors a new tool to request past performance ratings from the government. If the pilot program works as intended, it may ultimately improve those subcontractors’ competitiveness for prime contract bids, for which a documented history of past performance is often critical (learn more).
- Will require the GAO to issue a report about the number and types of contracts the Department of Defense awarded to minority-owned and women-owned businesses during fiscal years 2010 to 2015. The GAO will be required to submit its report within one year of the statute’s enactment (learn more).
- Designed to help ensure that large prime contractors comply with the Small Business Act’s “good faith” requirement to meet their small business subcontracting goals (learn more).
- Establishes a new prototyping pilot program for small businesses and nontraditional defense contractors to develop new and innovative technologies (learn more).
- Will extend the life of the Small Business Innovation Research and Small Business Technology Transfer programs (learn more).
We’ll keep digging into these topics and what they mean for your federal contracting success. Stay tuned!
This is a guest post by Jon Williams, Partner, PilieroMazza PLLC.
The SBA released proposed increases to the small business standards for many industries that use employee-based size standards. According to the pre-publication of the final rule published on January 26, 2016, the SBA will adopt most of the proposed changes with two key exceptions:
The SBA is not increasing the Environmental Remediation Services (“ERS”) exception under NAICS 562910 from 500 employees to 1,250 employees and it is not eliminating the Information Technology Value Added Resellers (“ITVAR”) exception under NAICS 541519 (Other Computer Related Services).
Regarding NAICS code 562910, the SBA explained that following its evaluation of public comments to the proposed substantial size increase, as well as its evaluation of more recent data, the SBA decided to increase the size standard for the ERS exception under NAICS 562910 from 500 employees to 750 employees, which is considerably lower than the initially proposed size standard increase to 1,250 employees.
The SBA estimates that, as a result of the size standard increase, approximately 10-15 additional firms will likely gain small business status which the SBA believes will not significantly impact the small businesses that currently have fewer than 500 employees.
The SBA has also determined it will not eliminate the ITVAR exception to NAICS 541519 and that it will maintain the 150 employee size standard for this code. However, the SBA will modify Footnote 18 of the size standard table to require supply components of small business set-aside ITVAR contracts to comply with manufacturing performance requirements or to comply with the non-manufacturer rule by supplying the products of small business concerns, unless SBA has issued a class or contract specific waiver.
With regard to the Research and Development exceptions under NAICS 541712, the SBA is adopting modified exceptions and the size standards will either remain the same, or be increased from 1,000 employees to 1,250 employees.
According to the pre-published report, the final size standard increases in these industries will be effective on February 26, 2016. To view a complete copy of the pre-published final rule and/or to view a summary of the SBA’s revised adopted size standards, click here.
Note from Bill:
If you have any questions about the size standard increases, Jon welcomes your questions at http://www.pilieromazza.com/contact.
In 2007, TAPE won an Army support contract that catapulted our growth. It came out of work that our founders had done as employees of a large business, and built on that customer relationship when the Army decided to try a small business solution. After much travail and many late, sleepless nights, we found ourselves the proud winner.
During the transition, many of the same folks that we’d known since the 1980s proved to still be working the job, much expanded. This core group of folks has supported this contract for nearly 30 years, many of them first in uniform as officers, and then as contractors for the various primes and subs. Joel Fleck is one of the key people, who’s been Task Leader, Deputy PM, and now PM/VP of the Training/Optempo Sector. This is a little bit of his story.
How do you keep the perspective and enthusiasm fresh?
First off, the work is important; it has the potential to affect soldiers and units everywhere in all three components – active Army, Reserves, and National Guard. So at the end of most days you go home feeling good about what you did. Second, the people both within the project team and within the Army are so dedicated and appreciative. It is hard not to want to give your best all of the time.
Third, you have to read professional publications to stay abreast of what is going on in the Army and what is the senior leadership trying to do. You need to keep your language up to date, and your empathy fully turned on.
You cannot be a curmudgeon. You can not sound like you came from a different century. You can not become complacent. The longer you are providing them support the more careful you need to be that what you say and do is accurate. You cannot get lazy about fact checking. Credibility is your greatest asset but it is easily lost if you get complacent.
What have you found is the best way to adjust to changes?
Be part of it. Keep an open mind. Try to provide advice and assistance in implementing the change. Being part of it always allows you to lay out the potential challenges and mitigating solutions which helps maintain your relevancy and your credibility.
The focus has to be getting things done right for the Army and always making the client look good. Don’t worry about getting credit.
How do you maintain continuity in your work when new leaders come in at the client, with different leadership styles?
Adjust where you can. Continue providing the best support to those people under the new leader. Continue to build credibility and value. Most of the new leaders got to where they are because they are smart. Once they figure you are an asset, and that you can support and advance their goals, things get better.
Supporting the same client for almost 30 years – inside and outside of uniform – requires several different things: patience, flexibility, honesty, un-abrasiveness, high degrees of accuracy, great co-workers, responsiveness (sometimes 24/7), and assistance to not only the client but those around him.