Infotech and the law: Sad state of affairs for small business in federal contracting

Jonathan Cain

Congress gave government agencies a goal of contracting 23 percent of their business with small entities. In 2002, only 19.3 percent of government work went to small businesses, 3.5 percent less than in 2001. The Small Business Administration recently reported that the picture improved in 2003, with 23.6 percent of federal contract dollars going to small businesses.

However, the gain may or may not hold up. Audits by the Government Accountability Office of the Federal Procurement Data System have uncovered widespread errors in the FPDS data, and GAO warns that the data is not reliable for procurement policy decisions. Moreover, GAO audits of Defense Department procurements over the past 10 years show a steady decline in the percentage of contract dollars going to small business.

Since 2000, the total amount of federal procurement dollars going to small businesses is essentially unchanged -- though at some agencies, the funds have decreased -- despite big growth in overall government procurement. The Defense Department hands out the greatest number of small-business contracts, but there has been a marked decline in both the number of contracts awarded to small firms and the total contract dollars awarded.

The Energy Department is the second largest federal contractor in dollars awarded, but it gave only 4 percent of its contracts to small businesses in 2003.

Tools are available to federal agencies to improve small-business opportunities to compete for government work and to award suitable prime contracts to responsible small businesses. If agencies are committed to continuing gains in small business participation, these tools must be exploited.

In July, a decision in a case that had been making its way through the federal courts since 1998 upheld the constitutionality of the 2003 reauthorization by Congress of the so-called Section 1207 price evaluation preference for small, disadvantaged businesses. The Section 1207 preference, enacted in 1987, states that at least 5 percent of defense contracts are to go to small, disadvantaged businesses and that competing bids by large businesses or those not disadvantaged should be adjusted up by 10 percent.

The preference had been deemed insufficiently race-neutral under Supreme Court precedents from the early 1990s. The recent federal court decision held that Congress had enough statistical evidence that socially and economically disadvantaged contractors were not getting a fair share of federal contracts when it reauthorized the program and crafted the program narrowly to help federal agencies meet their small, disadvantaged contracting goals.

GSA took a positive step earlier this year when it addressed the fact that many of its Federal Supply Schedule contractors that offer products as small businesses grew into large businesses long ago. Because the schedule contracts are awarded with multiple, five-year, evergreen renewal options, and size is only determined at the beginning of the contract, a business that was small when it received its schedule would continue to be considered small 15 or more years later, even if it had outgrown the criteria.

Now Congress and the Office of Management and Budget need to address contract bundling. There is no dispute that bundling equals fewer, larger contracts that are unsuitable for small businesses, and that these contracts usually do not offer opportunities to small businesses , even as first-tier subcontractors. Congress and OMB need to match their rhetoric with support for proven tactics to enhance small-business opportunities in federal procurement.

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at jcain@mintz.com.

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