Small Business Participation Declines, But SBA Still Gives Government High Marks

It’s that time of year again. School’s ending for the summer and kids are coming home (some sheepishly) with their report cards. And with the close of Fiscal Year 2017, the federal government has also been given its report card.

Like last year, the FY 2017 report card reveals a mixed bag. Though the SBA gave the federal government another “A,” the bottom-line numbers reveal a troubling trend for small business government contractors.

As a quick background, the SBA is obligated under federal law to set small business participation goals for the federal government. In addition to the overall 23% goal for small business prime contract awards, the government should also award at least 5% of its prime contract awards to WOSBs and small disadvantaged businesses and 3% to SDVOSBs and HUBZone companies.

Last year, the SBA gave the federal government an “A” grade for achieving its small business prime contracting effort in Fiscal Year 2016. This grade came even despite missing its HUBZone and WOSB participation goals “by a country mile.”

On the face of it, the federal government enjoyed more success in 2017: the federal government awarded more contracts, by dollar value, to small businesses last year than it did the prior year ($105.7 billion in 2017 versus slightly less than $100 billion in 2016). 23.88% of these contracts were issued as prime contracts to small businesses, 9.10% to SDBs, and another 4.05% to SDVOSBs—all in excess of the stated goals. And on an agency-level basis, the 2017 grades are fairly similar to those last year: 20 agencies earned an “A+” or an “A,” 3 agencies received a “B,” and 1 was given a “C.”

Just like last year, however, the federal government missed its HUBZone and WOSB prime contracting goals: it awarded only 1.65% of its prime contracts to HUBZones and only another 4.71% of contracts to WOSBs.

Digging into the report deeper gives pause for concern. In almost every category, the federal government’s prime contracting achievement numbers declined from just last year. For example:

  • In 2016, the government awarded 24.34% of prime contracts to small businesses, but that number fell to 23.88% in 2017; and
  • 9.10% of prime contracts went to SDBs in 2017, compared to 9.53% in 2016.

These declines might seem trivial. But when the government procures hundreds of billions of dollars of goods and services annually, even the smallest decrease represents a significant hit.

Perhaps more troubling, however, is the government’s continuing (and worsening) failure to prioritize HUBZone and WOSB awards. Though the 2016 report highlighted deficiencies in the government’s efforts, it backslid even more in 2017: it awarded 4.71% of prime contracts to WOSBs in 2017 (down from 4.79% in 2016) and only 1.65% to HUBZones (versus 1.67% in 2016).

The SBA’s small business participation goals should represent the minimum aspirations for the federal government. But so long as the SBA is willing to provide positive affirmation in the face of some significant failures, what incentive do agencies (or the federal government as a whole) have to actually increase their small business participation levels?

Just as any parent would be concerned if their child came home with a report card showing worsening performance across almost every metric, the SBA should be concerned with the government’s small business participation performance. If you ask us, ignoring the troubling trend in small business participation won’t lead to any substantive improvement; instead, the SBA should demand better from the federal government.