Recently, a member of the Senate Committee on Small Business & Entrepreneurship called for increased small business participation in federal contracts during a hearing on the SBA’s contracting programs. Senator Ben Cardin based his concern on a recent report showing that the number of small businesses with federal contracts was at a 10-year low.
The report found that federal agencies had awarded contracts to 32 percent fewer small businesses in 2018 versus 2009. In contrast, the number of large contractors receiving awards fell only 4% during the same time frame.
The Senator’s take on this report was that, “while contracts are getting bigger and bigger, we are creating an insular club where fewer and fewer businesses successfully compete for government contracts.” He added, “[t]hat’s contrary to what these set-asides and programs are all about, which is encouraging new small businesses that can bring innovation and job growth to our economy and help our nation.”
Sen. Cardin also noted that, while federal agencies are meeting their goal of spending 23 percent of contracts on small businesses, “the data shows that we have a shrinking base of contractors rather than an expanding base of contractors.”
In other words, fewer small businesses are receiving the benefit of those set asides.
A few agencies stood out. “Since Fiscal Year ‘09, the number of companies working on contracts with the Department of Defense has declined by 24,000. Similarly, the General Services Administration has seen an 8,000-company decline while the Departments of Veterans Affairs and Interior have both contracted with 13,600 fewer companies.”
In the hearing, the Senate asked SBA what can be done to address this issue. SBA responded with one possible solution–small businesses could be exempted from category management. The term category management, according to an executive branch memo, “refers to the business practice of buying common goods and services as an enterprise to eliminate redundancies, increase efficiency, and deliver more value and savings from the Government’s acquisition programs.” In effect, this means buying more things from fewer businesses in a coordinated manner. But increasing efficiency and centralization of purchases can shut out small businesses.
The report raises an interesting question. How to measure whether the small business programs are working. While the 23% goal for total overall dollars is one way to measure progress, the number of small businesses in federal contracting also has to be examined. Using that second metric, small business participation has been going down over the last 10 years. Other government goals, such as category management, may be at odds with increasing the role of small businesses in federal contracting.
Now that Congress has recognized this issue, the question becomes: What policies might change to increase the participation of small businesses in federal contracting? And can that be squared with the goal of category management? We’ll be watching and will keep you posted.