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In small-business IT contracting, the challenge is distinguishing which agencies have the dollars and a willingness to assist

The 2006 Small Business Report

Small-business programs offer hope, but companies still struggle to find the best contracts, navigate procurement rules and break down barriers.


In this Special Report

  • In small-business IT contracting, the challenge is distinguishing which agencies have the dollars and a willingness to assist

  • Fast 50 execs share how they've risen to the top.

  • Making the team: What you need

  • Buy Lines: Narrow policy matters trip up small-business program
  • 2006 Top 25 8(a) Contractors

  • 2006 Fast 50 Government Contractors

  • Online forum featuring small business expert Guy Timberlake
  • Alfred Edwards, president and CEO of Exceed Corp., Lanham, Md.

    Rick Steele

    The federal IT market appears robust and lucrative for small businesses ? government spends billions each year.

    But the environment is rife with conflicting reports as to the amount of small-business contracting, making any assessment of the true nature of the business landscape nearly impossible.

    Many industry and government officials and small-business advocates said the market is strong and producing plenty of opportunities. But others don't see it that way. They said the number of small-business deals is eroding steadily.

    Federal procurement rules let companies self-certify as small or large in a central contracting database. Many companies are miscoded on contracts, resulting in large businesses being counted as small ones. A congressional report in July claimed $12 billion in fiscal 2005 federal contracts were coded as going to small businesses but actually went to large companies.

    Federal agencies, however, continued to count those contracts against their small-business contracting goals, skewing the government's annual report for fiscal 2005, which claimed that more than 25 percent of all federal contracts went to small companies, exceeding government's mandated goal to award 23 percent of all contracts to small companies.

    The Small Business Administration has worked since 2002 to create rules to force more frequent recertifications of business size, and agency officials said recently that new regulations will be in place by Thanksgiving.

    Even with those regulations tightened, the mechanics of the market would remain tricky. Often, contracting officials in agency Offices of Small and Disadvantaged Business Utilization offer no help, company executives said. Additionally, some said, there is a prejudice in favor of large companies.

    Despite the system's flaws, managers of some small companies are optimistic about the market.

    "It's very robust, it's dynamic and it's ever growing," said Tom McDonald, senior vice president of corporate development for Access Systems Inc., Reston, Va. Access Systems ranks No. 17 on Washington Technology's 2006 Top 25 8(a)s list, compiled by FedSources Inc.

    "As a small business, you have to stay focused on your niche," he said.

    Find friends

    Assessing which federal agency is the best to work with and where a small company ought to focus its limited resources can be a challenge, industry officials said.

    Determining which agency does the most work with small IT businesses is easy: it's the Defense Department, which, according to data from Eagle Eye Publishers Inc., Fairfax, Va., spent $2.8 billion with small IT companies in fiscal 2005.

    But judging how well a federal agency works with small companies based solely on the number of contract dollars is misleading, said Rep. Nydia Velazquez (D-N.Y.), ranking Democrat on the House Small Business Committee.

    "Spending does not provide an accurate assessment of an agency's commitment," Velazquez told Washington Technology. "Showing what an agency's goal is and how close it comes to meeting it provides an assessment of its commitment to working with those small businesses."

    The Defense Department may spend the most dollars, but it hasn't met its 23 percent goal, according to annual scorecards the Democrats on the House Small Business Committee have released since 1999. SBA's numbers conflict with those reports. The agency said the Defense Department awarded 24.5 percent of its fiscal 2005 contracts to small companies.

    But $8.3 billion of the Defense Department's small-business contracts actually went to large companies, according to Democrats on the small-business committee, so the agency awarded only 20.8 percent of its contracts to small companies.

    The muddy picture for small-business contracting seems inherent in the system, even for SBA officials who try to explain it.

    "Some of the regulations are confusing, because what we're trying to implement is confusing," said Karen Hontz, SBA associate administrator for government contracting.

    Competing priorities and budget constraints are partly to blame, she said.

    "A lot of times, if you can have larger contracts, you get some economies of scale," Hontz said. The [small-business] goals were established without analysis about whether they are realistic, or if there are businesses out there that can fulfill those goals."

    Who gets it

    Yet some agencies seem to get it right, according to executives from several companies on Washington Technology's 2006 Top 25 8(a)s list.

    The agencies named as best to work with are not necessarily those that created the most opportunities, executives said. The most opportunities came from the Defense Department, the General Services Administration through its schedule contracts, and the Health and Human Services Department, they said.

    The Homeland Security and State departments also were named by several company executives as producing opportunities and were the best federal agencies to work with.

    "[The State Department] listens to us," said Sunil Kolhekar, CEO for Arlington, Va.-based Creative Information Technology Inc., which ranks No. 18 on the 2006 Top 25 8(a) list. "They have opportunities, and they don't differentiate by saying, 'You cannot do this.' "

    The State Department also drew praise from Guy Timberlake, chief visionary officer of the American Small Business Coalition, a Columbia, Md., advocacy group that helps small companies partner with large government contractors. The agency fosters a culture that is more receptive than many other agencies to working with small companies, Timberlake said.

    "It seems to be, if you have all your ducks in a row and tell a good story, you can get a shot at the State Department as a small business," he said. "What it comes down to is having your act together."

    Homeland Security Department, although still forging its identity from the 22 agencies that were combined to create it, is climbing steadily to the top of the list of best agencies to work with, said Alfred Edwards, president and CEO of Exceed Corp., Lanham, Md.

    Access Systems' McDonald worked with DHS while the company bid for and won a spot on the five-year, $45 billion Enterprise Acquisition Gateway for Leading Edge solutions contract. While the contract award and, as a consequence of protests, the official announcement of winners were delayed several times, Homeland Security contracting officials were in constant communication with the contractors.

    "They went above and beyond," McDonald said. "They kept us in the loop, telling us via e-mail what was going on. We never had to second-guess what was happening."

    Leadership needed

    Several industry officials credited Kevin Boshears, director of DHS' Office of Small and Disadvantaged Business Utilization, for much of the department's improvement in working with small businesses. Eagle Eye Publishers' President Paul Murphy called Boshears "a reliable advocate in a very influential position."

    An agency's small-business advocacy office can be key to how much work the agency steers toward them, industry officials said. A strong advocate can give small companies information on the agency, such as which programs are likely to get funding and where to focus their resources, company executives said. A weak advocate can cost small businesses in missed opportunities and wasted time and resources, they said.

    The Housing and Urban Development Department often reaps praise from SBA for its use of small companies. In fiscal 2005, HUD spent 63.5 percent of its contracting dollars with small companies, SBA said.

    Those statistics encourage many small companies to seek work with HUD, but they are likely to be disappointed with how the agency operates, said several industry sources who spoke about the department on condition of anonymity.

    "They can absolutely kill a small business," one industry source said of HUD officials. "They never get back to you. We found out months after the fact that an award had been made, and that has happened multiple times. They never informed us. It's a broken agency."

    Valerie Hayes, director of HUD's small and disadvantaged business utilization office, said communicating with companies about awards is not her responsibility. Hayes said she has heard complaints from small businesses about the department's contracting office, and has had several conversations with procurement officers about improving communications.

    Hayes said the small companies seem satisfied after hearing back from the contracting officers, and she dismissed the severity of small businesses claims, though acknowledged having heard from them on the issue.

    "It's not enough to warrant adverse actions taken against any specific contracting official," she said.
    HUD wasn't alone in drawing criticism. The Education, Energy and Labor departments, as well as the Environmental Protection Agency all raise small businesses' ire for their lack of communication, powerless small-business advocates, weak outreach programs and obstructionist cultural issues.

    EPA spokesman Dale Kemery said via e-mail that in fiscal 2005 the agency met four of its six small business goals, including awarding 27 percent of all its contracts to small companies. The agency awarded just 0.85 percent of its business to HUBZone Small Businesses and just 0.24 percent to service-disabled veteran owned small companies. The mandated goal for each group is 3 percent.
    Kemery said EPA promotes small businesses by offering forecasted procurement information on an Internet database, holding forums for contractors and identifying small business set-aside opportunities.

    An Education Department spokeswoman declined to comment for this story.

    "EPA is one of the worst I've ever dealt with, ditto the Department of Education," said one industry source. "You've got to make sure the Office of Small and Disadvantaged Business Utilization has a direct voice at the table with the senior executives in that agency. If you go into the Education Department, the EPA, they have no voice."

    Without a voice, small businesses are left on the outside looking in.

    Staff Writer Ethan Butterfield can be reached at ebutterfield@postnewsweektech.com.

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