DoD to Utilize Category Management for Procurements, But this time to Increase Small Business Contracts

Last month, the Department of Defense (DoD), released a memorandum to its contracting specialists asking them to utilize the popular but controversial category management tactics to attempt to increase small business participation in DoD procurements. Some have said that category management tends to decrease small business spend by, for instance, pushing procurement to larger contracting vehicles, so this memo attempts to turn conventional wisdom on its head. The DoD’s intentions with this memorandum will likely increase use of category management at the largest governmental buyers, despite this contracting trend being criticized as ineffective or counter productive to increasing small business participation. Below we dig into what the memo says.

As you may know, category management basically boils down to agencies buying items or services as an organized entity and through government-wide contracts instead of utilizing many smaller buyers. Category management is often handled through the GSA but other agencies can be involved too, and the overarching goal of using that system is for organizations to find items more efficiently, and also give contractors a better idea of demand for items through use of categories for procurement. But, as we have noted in previous posts, category management has not been a consistent benefit for small business federal contracting, and a goal of President Biden’s administration is to increase small business participation in contracting.

As noted by the White House: “an analysis of category management spending since 2017 reveals that ‘socioeconomic firms, a group that includes SDBs, women-owned, service disabled veteran-owned, and HUBZones, have received a proportionally lower share of contracts.'” Consequently, one of the ways the President has tried to increase small business participation in federal contracting, is category management reform and the Office of Management and Budget issued Memorandum M-22-03, which further implemented reforms to Category Management, such as implementing a Tier 2-Socioeconomic Small Business (SB) SUM measure, which the DoD appears to reference in its recent memo.

In its memo, the DoD states that it will utilize the “DoD component Category Management Leads and Small Business Directors, category management best practices and the application of the Tier 2 Spend Under Management (SUM) credit” with the aim to increase participation by small disadvantaged businesses and other small businesses within DoD procurements. The DoD, through this memo, predicts that using category management will increase contracting opportunities for small disadvantaged business and socio-economic set-asides. DoD also dictates that this goal should be prioritized over “Best in Class” contract goals if both goals are not attainable and the DoD will count Tier 2 SUM credit toward category management goals for awards made to socioeconomic small businesses. This could be a big change for DoD, as it makes clear that small business spending has priority over conflicting Best in Class contract goals. Under an Office of Management and Budget Memorandum from March 2019, Best in Class contracts can count towards Tier 3 spending contracting goals, and some notable Best in Class contracts are CIO-SP3, and all NITAAC GWACs.

The DoD’s guidance requesting utilization of category management explicitly states that it is in line with the OMB M-22-03 memo, and asks that DoD entities “analyze realized savings and cost avoidance on current contracts in addition to calculating anticipated savings and cost avoidance on future contract actions.” The DoD also asks that opportunities should be identified to transition away from bundled opportunities that do not use small business set-aside to ones that utilize small business or small business set-asides. The DoD towards the end of their memo states that “success stories of category management should be shared in industry engagement to educate and demonstrate the benefits of this requirements-driven business improvement practice.” So, it appears that the DoD is fully committed to seeing the use of category management be implemented within the DoD, and then throughout federal contracting.

The DoD’s intentions are in the right place, by wanting to help increase small business participation in DoD contracts, but continuing to utilize the category management system which has a checkered history among small business federal contracting, may do little to increase small business contractors’ confidence. However, the DoD seems to want to embrace the changes in category management implemented by President Biden, which may take time to show a change in small business participation through category management. Regardless of how this shakes out, contractors should expect a change to DoD oriented contracts going forward, as there will be an emphasis on utilizing this contracting method while also emphasizing small business awards.

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