Small businesses are often seen as the backbone of the economy. Contained within the category of small businesses are what are known as Small Disadvantaged Businesses or SDBs. Currently, the federal government has a goal to award 5% of its contracting dollars to SDBs. The White House is seeking to triple this number by 2025. The White House recently released a Fact Sheet as to how it intends to meet this goal. So, let’s dive into some of the specifics.
On June 1, 2021, the White House announced its plan to increase the share of contracts going to SDBs by 50 percent by 2025. This translates to the ambitious goal of awarding an additional $100 billion to SDBs over the next five years. While the goal is lofty, as they say “the devil is in the details.” Just how will agencies meet this new goal, and how will these dollars be tracked? We will hopefully see concrete terms soon in the form of regulations implementing these goals.
Federal agencies have actually been overshooting the existing statutory requirement of 5% of contracts to SDBs by nearly double over the last five years. On average, 9.8% of federal contracting dollars currently go to SDBs. A planned 50% increase would mean a new goal of nearly 15% of federal contracting dollars going to SDBs by 2025. The White House took pains to note that while nearly 20% of small businesses are owned by women, less than 5% of federal contracting dollars go to women-owned small businesses. This is a trend the White House wants to reverse.
Here are some of the ways the White House intends to make these changes.
Disaggregated Data. The first reform is to disaggregate the top-level data. What this means is the data will no longer simply rely on just meeting the overall percentage goal, but will instead be broken down into sub-categories. This includes Black-owned, women-owned, Asian-owned, Hispanic-owned, etc. small businesses. The hope is this data will shed light into areas where entities are either over or under-served. Beginning with the 2020 fiscal year, this data will provided across agencies in order to target specific groups.
Category Management Reform. The next reform is to increase credit given to agencies for making awards to SDBs. The White House noted that an unintended consequence of having agencies seek contracts under category management (meaning buying as an organized entity instead of many smaller buyers), is that “socioeconomic firms, a group that includes SDBs, women-owned, service disabled veteran-owned, and HUBZones, have received a proportionally lower share of contracts.” The purpose of this reform is to incentivize SDB buying by the federal government; agencies will receive automatic “credit” under category management for all awards made to socioeconomic small businesses, beginning FY 2022. Encourage agencies to use “decentralized contracts and other strategies that are necessary to increase diversity within agency supplier bases.” And SBA will now be a voting member of the Category Management Leadership Council, the interagency governing body for category management activities.
Organizational Changes. As far as the back-end, the White House is also seeking to give these goals some teeth. Those in the Senior Executive Service will have compliance with these new goals inserted into their evaluation criteria. This means that those in leadership roles will have a direct incentive toward ensuring each agency meets these new goals. Plus, Federal Offices of Small and Disadvantaged Business Utilization (OSBDUs) will have direct access to senior leadership.
The end-goal is to increase the number of new entrants into the federal marketplace. The recent trend has seen a 60% decline in new entrants, which these goals seek to reverse. Time will tell whether these goals will meet their overarching goals.
One key from our prospective is to remove barriers to new firms wishing to gain entrance into the federal marketplace. All too often, much like the job market, agencies want established entities with long track records, over options for startups. Additionally, larger firms have the ability to squeeze out small businesses, by offering targeted solutions at rates smaller firms have a hard time competing with. For some firms, it can be difficult to meet all of the highly-specific requirements agencies seek, while having little to no experience. We at SmallGovCon think the goals are admirable. Simultaneously, our hope is the powers that be are looking at how to get more people interested in the marketplace by reevaluating what it takes to get there and be successful.
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