Biggest Gaps in Small Business Report Cards

After I posted this article about Bill H.R. 3850, the Government Efficiency Through Small Business Contracting Act of 2012, someone from a LinkedIn group asked, “Do you have any idea as to which departments have the biggest gaps to fill in relation to meeting small business goals?”

For the answer I went to Nick Pontius and his colleagues at GovWin (Deltek), who pointed me towards their free report SBA 2011 Small Business Goaling Report Analysis.

We already knew that Energy got an F on their scorecard of meeting the requirement to award 23% of contracts to small businesses. According to the GovWin report, the top 5 lagging agencies were:

  • Dept. of Homeland Security (awarded 3.8% less to small business contractors in 2011)
  • Dept. of Veterans Affairs (4.25% less)
  • Dept. of Defense (4.5% less)
  • Dept. of Justice (5.67% less)
  • Dept. of Energy (awarded a whopping 35% less to small businesses in 2010 than they did in 2011)

Let’s look more closely at why it’s been a problem for Defense and Energy, in particular, to meet their set-aside requirements. With the Dept. of Defense’s weapons program, the issue is that small businesses don’t typically manufacture weapons (although they do manufacture parts and sometimes specialty items).

Small businesses usually don’t run national energy labs either, those are left to big companies such as Sandia. When those labs are competed, that takes a big chunk of the Energy contracting budget, and thereby skews the percentage awarded to small businesses as the prime contractor.

So when departments have big program like this, they’re competed amongst big companies. Even if smaller companies are involved as sub-contractors, those do not count against their set-aside requirements.

And the converse is true – big businesses don’t even report their small business sub-contracting performance, and in fact many simply ignore the requirement, except when bidding. EVERY small business I’ve EVER met has a story about a contract they pinned their hopes on, which the big business won, but the small business got zero revenue from. (See my blog post, “Large Businesses Want Appliances, Not Sub-Contractors.”)

In a sense, the whole government has failed to meet the 23% goal. Why is this relevant? Well, in the 2013 National Defense Authorization Act, meeting these goals was tied more closely to senior executives in the agencies getting their performance and merit increases. This is a striking change, as small business goals have never been a critical issue, even though it was included in the old National Performance Review from back in the days of Al Gore’s Vice Presidency.

The current administration has made some legislative changes that hold the promise that SB goals and execution will be important and actually measured. But it’s just that, a promise, and we’ll need to see actions backing the promise.


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