CSIS Study Finds Mid-Sized Firms are Getting Squeezed Out of Government Contracts

With the mid-tier business concerns put on hold for further study, I wanted to call attention to this 2009 study by Center for Strategic and International Studies (CSIS).

As Washington technology writer Matthew Weigelt reported in March 2011, “Mid-sized firms have faced trouble in contracting through the decades. A 2009 report from Center for Strategic and International Studies said the distribution of contract dollars has squeezed out mid-tier companies. The large contractors continue to merge and acquire smaller companies and the small business have received more attention with the annual contracting goals.

CSIS wrote that middle-tier companies captured 44 percent of the total value of federal professional services contracts in 1995. By 2005, the middle-tier companies were able to capture only 35 percent of that value, and only 33 percent by 2007.”

(Matthew’s article originally appeared in Washington Technology on September 8, 2011 at http://washingtontechnology.com/Articles/2011/09/08/middle-tier-advocacy-group-medium-size-companies.aspx?Page=1.)

CSIS defined mid-sized businesses pretty broadly – those which are too large to be categorized as small in the Federal Procurement Data System (FPDS) and have less than $3 billion in total annual revenue. $3 billion seems pretty darn high to most of us, of course when compared to Lockheed Martin, it might “feel” small.

The reality is that small businesses that are the most successful and rapidly outgrow their NAICS code size standards have to transition into competition against other recently grown out peers, as well as the big companies like BAH, LMCO, SAIC, etc. It is this suddenly increased competition that can be so daunting, and makes the transition so fraught with dangers. After being sheltered in the SB (small business) program for however long, they are now swimming with the sharks.

The net result is that almost no one climbs to being BIG-sized, they mostly grow a little more, get rid of as much SB-set-aside revenue as they can (since the set-aside revenue is heavily discounted in valuation), and then become fodder for the merger and acquisition groups, private equity, or even the big businesses. Is this what the SB program is intended to become – a way to weed out the best and brightest and make them most likely to sell out to the big guys?


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