Small business: 'We need to play on this field'

By Alice LipowiczValerie Perlowitz, along with other prospective bidders, was in the audience for the Homeland Security Department's industry day for its $45 billion Eagle IT procurement. It was then that she learned that past performance would be weighed for prime contractors only -- not for subcontracting partners or teams -- when making awards.That single, unusual provision was like a bucket of cold water thrown on Perlowitz' hopes for her small business."You could hear gasps in the room," she said. "We'd been talking about teaming for a year."With no emphasis on subcontractors' past performance, large prime contractors have less need to partner with small businesses in advance, industry officials said.But Perlowitz, president of Reliable Integration Services Inc., a network services company in Vienna, Va., may find some comfort in Eagle's revised request for proposals expected this month. The RFP will contain a newly introduced evaluation factor that emphasizes teaming ? mostly with small businesses ? in the bidding process, according to Eagle Contracting Officer William Thoreen. The new factor has been added since the program was introduced."We will evaluate the ability to achieve results through teaming," Thoreen told Washington Technology. "Tell us your approach and how you are going to put your team together."Despite such reassurances, many owners of small and midsize businesses are preparing with great anticipation and nervousness for Eagle, the acronym for Enterprise Acquisition Gateway for Leading Edge solutions. The massive contract is a consolidated procurement vehicle for IT services for the next seven years. It also has a companion program, FirstSource, for IT commodities.Because of its enormous scope, with an anticipated volume of more than $6 billion a year for seven years, Eagle is a must-have for many IT contractors, large and small.At the same time, its unusual structure and features are ratcheting up uncertainty. The challenges are especially significant for small and midsize businesses, which worry about being sidelined by larger players.To be fair, DHS has addressed many small-business concerns in advance by establishing a hefty 40 percent small-business subcontracting goal for Eagle task orders. Prime contractors' ability to meet that goal will be weighed in future procurements, said Kevin Boshears, director of DHS' Office of Small and Disadvantaged Business Utilization.The department designated FirstSource, which is a companion program for IT products and has an estimated value of $3 billion, as a small-business only contract."FirstSource and Eagle certainly have made a special effort to incorporate small businesses," Boshears said.STORM OF ACTIVITYNonetheless, Eagle has touched off a flurry of questions and marketing activity, and has ushered in a new approach to procurement that will continue to shape small-business contracting with the federal government.DHS announced Eagle in early August in an effort to consolidate its IT procurements. Eagle is modeled similarly to other consolidated acquisition vehicles expected in 2006, including the General Services Administration's $50 billion Alliant Small Business and the Treasury Department's $3 billion Total Information Processing Support Services-3.These huge contracts will have a "significant impact on vendor market share and the insertion of technology in the federal government," wrote Darren Bezdek, an analyst with Input Inc., a market research firm in Reston, Va., in a report on the pending contracts.DHS will award Eagle contracts in five functional categories: engineering design and integration; operations and maintenance; testing and validation; software development; and management support services. Prime contractors can win Eagle contracts in any number of the functional categories.The winning bidders will be eligible to bid on IT task orders, expected to be issued over the next seven years, totaling up to $7 billion a year.At this early stage, it's not known to what extent DHS' 22 agencies will consolidate their IT buying in Eagle, but Thoreen said he hopes that the proportion will be high. He said the program has been received enthusiastically by department IT and procurement officers."This is the right way to go," Thoreen said. "This is the 90 percent solution."Thoreen acknowledged that considering past performance for prime bidders only, rather than teams, is an untraditional approach. "I cannot say I've seen anyone else doing it this way," he said.However, Thoreen said, choosing that approach was a strategic decision intended to foster "flexibility and open-endedness" in the Eagle contracts, because it frees the prime contractors from a need to lock in a specific team structure to stand throughout the seven-year period. Instead, teams will be more flexible and likely will change for each task order, he said, creating, over time, more opportunities for small businesses."A lot of big programs that set up teams from Day One ? well, good luck getting on that team in Year Three. It's like talking to a wall," Thoreen said. This structure "will leave the teams open to subcontractors throughout the life of the contract including years five, six and seven."Thoreen also foresees that small businesses can compete ? and win ? as prime bidders on Eagle in one or more functional categories. "We're looking for the best large and small businesses in each category," he said.NO NEED FOR TEAMMATES?But Eagle's structure has raised many concerns among owners of small and midsize businesses.With DHS reviewing only prime bidders' past performance, there likely will be less drive to form teams upfront, Perlowitz said. That will make it more difficult for small businesses such as her company, which has 70 employees, to compete."The problem is that then the small businesses will be constantly having to see what is coming down the pike. ... They will be scrambling for every task order," Perlowitz said."The competition will be very difficult," said Ron Seward, vice president of corporate development for Artel Inc., a $120 million IT engineering support services company in Reston, Va., which graduated from the Small Business Administration's 8(a) program in April. The company ranks at No. 31 on the 2005 Washington Technology Fast 50. (See chart, page 20.)"Partnering doesn't mean anything on this. That's a very different approach," Seward said of Eagle's past performance provision.Executives of other companies also are worried about their positions if team past performance is not considered."There is no midtier [set aside] for Eagle. We have to go up against the big guys, and it will be tough," said Michael Nicolia, director of business development at ASM Research Inc., a $70 million IT solutions company in Fairfax, Va. "I'm baffled as to why they are doing it this way."Several large IT systems integrators said they are still reviewing the requirements for Eagle to determine how and when to incorporate teams into their bids."We are looking at putting a team together, but it depends on the final RFP," said Ludmilla Parnell, marketing director of small-business partnerships for Anteon International Corp. of Fairfax, Va., a major systems integrator."My impression is that DHS wants to make sure to keep it open to new and coming companies. ... Actually, I think the fact that it will be open will be to [small businesses'] benefit," she said.But Parnell said competition is keen for small businesses that want to be subcontractors to large companies."There are thousands of companies that want to be on teams," she said. "We are besieged with calls."Anteon has protocols in place to evaluate the small businesses to identify which ones might make the best teaming partners, she said.Even if large prime contractors don't set up official teams upfront, they are certainly putting together lists of potential partners."It's good to have relationships so that, after the primes are awarded, we can bring the right companies together," said Tom Conaway, managing partner for homeland security for Unisys Corp.Some small-business owners are weighing whether they can afford to put together a bid for Eagle."If this comes out within a few days of Alliant, I'd hate to be in a position where I would have to choose one or the other. I don't think I can do both," said a small-business owner who asked not to be named.Despite the challenges, Eagle is undeniably capturing a great deal of attention."From our perspective, it will be one of the largest departmentwide enterprise vehicles that large and small companies will be attracted to," said Bruce Walker, director of homeland security for Northrop Grumman Corp. "Everyone will say, 'We need to find a way to play on this field.' "Staff Writer Alice Lipowicz can be reached at alipowicz@postnewsweektech.comXXXSPLITXXX-By Alice LipowiczThe Homeland Security Department's new $3 billion, five-year IT commodities procurement vehicle FirstSource is creating a large berth for small businesses.Not only is the entire program a set-aside for small business, but the definition of small businesses as "value-added IT resellers" in FirstSource lets companies with as many as 150 employees qualify. That could accommodate companies that have revenues in the hundred-million dollar range, said Kevin Boshears, director of DHS' Office of Small and Disadvantaged Business Utilization."Our research shows there are a significant number of vendors with revenues in the $200 million to $300 million range that can handle the throughput," said Mike Smith, contract officer for FirstSource.FirstSource will offer indefinite-delivery, indefinite-quantity contracts to small businesses for IT hardware, software, data reporting services and product maintenance and support. Following those awards, which are expected in March 2006, FirstSource contractors will compete for individual task orders.DHS last month put out a draft request for proposals for FirstSource and a related procurement vehicle, the $45 billion, seven-year Enterprise Acquisition Gateway for Leading Edge solutions (Eagle) program for IT services. A final RFP for both programs is expected this month.Eagle and FirstSource are gaining a great deal of attention for their size, scope and small-business incentives."We've heard a lot of positive things about both programs," Smith said. "We worked a lot on strategy and development with input from industry."XXXSPLITXXX- General Services Administration $15 billion over 10 years to multiple contractors An industry day is planned for October; the request for proposals is expected in January. Provide a broad range of IT services under two categories: systems operations and maintenance and information systems engineering. Defense Department $1.5 billion over 10 years to multiple contractors RFP expected Sept. 30 Governmentwide contract to offer services, hardware and software to support command and control systems as well as the Global Information Grid. Homeland Security $3 billion over five years to multiple contractors RFP's release is imminent. Agencywide vehicle for buying commodity IT products and services. Army $3.5 billion over five years to multiple contractors RFP expected in October Perform logistics support services for managing joint military operations. GSA $5 billion over 10 years to multiple contractors, all of which must be small businesses owned by service-disabled veterans. Proposals were submitted July 15; awards are expected in June 2006. Offer a broad range of IT services and will be open to all government agencies.XXXSPLITXXX-When Abbas Yazdani left Isfahan, Iran, in 1974 looking for a college education in America, he didn't know whether he would ever see his native country again. He joined a steady stream of Iranians who went to the West for an education, but Yazdani's hope was to return home to help build the country's industrial base.By the time he graduated from college in 1979, Iran had changed dramatically. The Shah had been ousted by an Islamic revolution, and the following fall, Iranian militants seized the U.S. Embassy in Tehran, taking 52 American hostages. Iran had become a place to which Yazdani no longer wanted to return. So he stayed in the West and took graduate courses in electronic engineering. In 1986, he opened the doors to Artel Inc.Almost 20 years later, Yazdani, now Artel's president and chief executive officer, is a hands-on boss, bent on cultivating a close-knit atmosphere at the Reston, Va., headquarters of his IT security and telecommunications company."We've created a family-oriented environment, but also a process and discipline-oriented environment," he said.Artel checks in on the 2005 Washington Technology Fast 50 list at No. 31, with revenue soaring from $10.9 million in 2000 to $110.4 million in 2004 -- a compound annual growth rate of 78.4 percent. Artel also was No. 85 on the 2005 Washington Technology Top 100 list, which ranks prime government contractors.The Fast 50 list ranks companies based on their government contracting business growth over the last five years. To be considered, companies must qualify as a small business according to criteria set by the federal government.Topping this year's list is Merlin Technical Solutions Inc. of Greenwood Village, Colo. The company specializes in adapting commercial technology for the federal market. Merlin handles enterprise architecture, information lifecycle management, information assurance and infrastructure, and systems modernization for clients such as the Air Force, Defense Information Systems Agency and Homeland Security Department.Merlin has had a remarkable 361.88 percent compound annual growth rate since 2000, climbing from $193,900 in government revenue to $88.25 million in 2004.David Phelps, Merlin president and CEO, started the company in 1997 with just $500 from his own pocket. He is projecting $125 million in government contracts for 2005. "There's hope for the small guys," he said.START SMALL, THINK BIGMany founders of companies on the Fast 50 list tell stories of starting small and achieving rapid growth. Common threads among their stories are a commitment to strong management, finding the right market niche and recognizing obstacles before they overwhelm their businesses.Abe Abraham, president and CEO of Alexandria, Va.-based CMI Management Inc., is an Ethiopian immigrant who started his electronic records management and support business in 1989 from his Springfield, Va., home. The company ranks No. 11 on this year's Fast 50 list, with a 130.2 percent compound annual growth rate since 2000. CMI's government revenue has grown from $1.6 million to $45.4 million in 2004.To get from his Springfield home to a corporate office park in Alexandria took good planning and building the right management team, Abraham said.A key part of that team is the people who monitor and track down business opportunities. It's his federal sales force, even more than the innovative IT work his company does, Phelps said, that helped drive Merlin to the top of the Fast 50 list."They not only have to have a Rolodex and relationships inside the Beltway -- because it's all relationship driven -- they also have to understand how to sell to the federal government, how to handle contracts and acquisitions issues," Phelps said. "If you don't have that, I don't care how good your technology is, the government won't buy it."Equally important is being prepared when opportunity knocks on your door, said Angela Drummond, president and CEO of SiloSmashers Inc., Fairfax, Va. SiloSmashers, which offers IT program and project management, moved up four spots from No. 43 on the 2004 Fast 50 list to No. 39 this year.Typically, a small business will earn its stripes as a subcontractor while it builds its internal infrastructure to handle prime contracting work. The process can take time, but is essential, Drummond said."Building the internal infrastructure to manage prime contracts, having the financial support, the contract support, somebody to manage that -- it took a couple of years to build that up," she said.TAKE THE REINSBut to grow, a company eventually needs to be the prime contractor and manage contracts, said Rodney Thomas, president and CEO of Thomas & Herbert Consulting LLC of Silver Spring, Md., No. 41 on the Fast 50 list, down from 14 in 2004. The company has a compound annual growth rate of 62.5 percent over the last five years."You don't learn what you need to know unless you prime," he said. "If you're subbing, you don't know what customer relationship management is. You don't know what earned value management is. You don't know why it's important to have [Defense Contract Audit Agency] approved rates. ... You don't have those challenges."As soon as you get noticed, start leading teams on larger contracts and build a strong portfolio of past performance, in come other companies -- usually large systems integrators -- to pick apart your business, Artel's Yazdani said."You've got to partner with them. At the same time, you've got to protect your resources from them. They steal your people, they steal your ideas," he said, "as if what they do in multibillions of dollars a year wasn't enough for them."Larger companies also pose as competitors for prime contracts. At times the government will bundle several smaller contracts into one larger deal, putting the contract out of reach for a smaller company hoping to serve as the prime. The government thinks they are gaining efficiencies, but often they do not realize the savings they sought, Yazdani said."I would say a good 80 percent to 90 percent of the time, these large companies design the project in such a way that they get rid of the small-business subcontractors," Yazdani said. "Within a year or two, just about every contract you look at, they end up doing it themselves."Big business squeezing out smaller business stifles creativity and the diverse industrial base on which the government relies, particularly for defense contracts, he said.Though federal government contract work gives companies the opportunity to get multiyear deals and stabilize their revenues, waiting out the up to five-year lag between contract award cycles can be draining financially, said Frederick Geyer, CEO of VBrick Systems Inc. of Wallingford, Conn. The company, which delivers real-time and stored video over networks, ranks No. 17 on the Fast 50 list with a compound annual growth rate of 114.7 percent."A challenge to small business is to manage its business well enough to give it the staying power to get the business at the other end of the transaction," Geyer said.Another major challenge facing small businesses is gaining access to capital. Phelps said Merlin was just approved for a $10 million line of credit, but it could have used that money several years ago."When you're young, they want more performance," he said. "When you're growing rapidly, [banks are] concerned you're growing too fast. And about the time you don't need the money, they're willing to give you a big line of credit. It's a terrible thing, but it's just the way it is."Staff Writer Ethan Butterfield can be reached at ebutterfield@postnewsweektech.com.XXXSPLITXXX-How big can a small business be before it is no longer small? That is one of the most perplexing questions facing government policy-makers and small-business executives.But it is just one issue among many. Other hot topics include how to mitigate contract bundling and whether to create a set-aside vehicle for women-owned businesses.Though these issues have lingered for years, industry officials see some forward momentum toward solving the problem of defining small-business size standards."That one has a lot of potential implications across the board for small businesses, not just the fact that some would be pushed out and some would come in," said Valerie Perlowitz, president and chief executive officer of Reliable Integration Services Inc., a woman-owned business in Vienna, Va., which specializes in network management services for government and commercial markets.The Small Business Administration held hearings nationwide this year to discuss changes to size standards. The current standards have drawn criticism for their complexity and loopholes, which let seemingly large companies qualify as small businesses in some industry categories.The agency published a proposed rule in March 2004 to redo its small-business size standards based primarily on the number of employees a business has and by reducing to 10 the number of size-standard levels. The agency uses several criteria, including the number of employees, annual receipts, affiliates or other applicable factors in determining small-business size regulations.Helping to push the reworked size standards is the proposed Small Business Lending Improvement Act, which creates a loan program and also requires size standards that consider a business' net worth and income.Restructuring the size standards could push some companies out of their small-business status and include others that currently don't qualify as small businesses, some advocates said.Ed Silva, chairman of the Industry Advisory Council's shared interest group on small business, said that midtier companies are in limbo regarding size standards. He is also senior vice president of IDL Solutions Inc., a woman-owned IT company in Germantown, Wis."When you're a $50 million or $100 million company, you're too small to compete with the large boys, and too large to compete in the small-business arena," he said.IAC is looking closely at the Commerce Department's Commerce IT Solutions Net Generation contract, called Commits NexGen, to examine the effectiveness of a tiered structure of companies, Silva said. Commits NexGen is an $8 billion, small-business set aside that was awarded to more than 50 companies in September 2004."If tiered programs like NexGen prove to be effective tools, we would like to see more of those types of structures" in other programs, such as the General Services Administration's Alliant governmentwide acquisition contract and the Homeland Security Department's Eagle contract for IT services, he said.The Alliant procurement for IT services is a 10-year, $50 billion, full-and-open contract and a separate 10-year, $15 billion small business set aside. The seven-year, $45 billion Eagle contract is expected to be awarded in March.Contract bundling is another policy hot button. Bundling is the government's practice of consolidating contracts performed by small businesses into a single, larger one.In 2002, President Bush, as part of his small-business agenda, ordered that contract bundling be minimized. As a result of the president's directive, SBA, in conjunction with federal procurement officials, published regulations addressing the mitigation of contract bundling.But contract bundling still occurs. Some in government, including Rep. Nydia Velazquez (D-N.Y.) believe bundled contracts hurt small businesses. Velazquez is ranking minority member of the House Small Business Committee, which has jurisdiction over SBA.SBA issued a report in August suggesting that federal contract awards for small business exceeded the government's goal of 23 percent of all contract awards. Velazquez said the figure was misleading. She charged that contract bundling, plus SBA's miscoding of large businesses as small businesses cost small businesses almost $1.8 billion in 2004.At the time, Allegra McCullough, SBA associate deputy administrator for government contracting and business development, said Velazquez's allegation that SBA had miscoded large businesses as small, thereby inflating contract award figures, was false. She also noted that many people misunderstand the definition of contract bundling, which she defined as a contract action awarded to a small business to which other requirements are later added.The lack of set-aside vehicles for women-owned small businesses is another perennial policy issue, some members of the small business community said. It is the only category of small business that does not have a set-aside contract vehicle.A law passed in 1996 specifies that the federal government award 5 percent of its contracts to woman-owned small businesses, but the government barely reaches 3 percent, Perlowitz said."Until some kind of push-through of a woman-owned business set-aside vehicle gets out there, they're never going to make their goal," Perlowitz said. "Does it really take nine years to get to 3 percent?"Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.XXXSPLITXXX-, www.sba.gov, offers news and events, laws and regulations, an online library and business opportunities, plus tips on getting started, financing and managing small businesses. offers a table of small-business size standards matched to the North American Industry Classification System at http://www.sba.gov/size/sizetable2002.html. To get descriptions of the codes, click on the links. The links also give illustrative examples and cross-references to related industries., www.sba.gov/GC/, administers several programs that help small businesses meet requirements for government contracts, including the certificate of competency, non-manufacturer rule waiver and size determination programs. It oversees special initiatives such as veterans' procurement as well as the annual Joint Industry/SBA Procurement Conference. is at www.osdbu.gov/Listofmembers.htm. The offices work with small businesses to identify contracting opportunities in the agencies. The Web site is a great resource on current issues, best practices and events related to small business in the federal government. administers the Procurement Technical Assistance Centers, www.dla.mil/db/procurem.htm. These centers are a local resource available for free or for a nominal cost, and can assist small businesses in marketing products and services to federal, state and local governments., www.score.org, is a non-profit, volunteer organization that provides free, 24-hour, confidential counseling and advice to minority and small-business owners. www.vetbiz.gov, has online resources for veterans doing business with the federal government. The site includes information on getting started, vendors, assistance programs, federal procurement, prospective partners and management., www.vets100.com, offers forms and information about the employment of veterans for contracts totaling $25,000 or more, which federal contractors and subcontractors need to file annually.XXXSPLITXXX-SBA is considering revamping size standards. Proposed changes may push some companies out of the small business designation.Larger contracts that combine expiring vehicles have some small businesses fearful it will become too hard for them to compete.Service-disabled veterans are getting a vehicle; minority and HUBZone businesses already have vehicles. But nothing so far is designated for women-owned businesses, which are supposed to get 5 percent of all prime contracting dollars. XXXSPLITXXX-Small Business Administration officials last month faced charges by the ranking Democrat on the House Small Business Committee that the agency's report on federal contracting in 2004 was misleading.Rep. Nydia Velazquez (D-N.Y.) said SBA had improperly reported data.SBA reported Aug. 25 that small businesses in 2004 had won a record $69.2 billion on 4.4 million federal prime contracts. The contracts represented 23.1 percent of all federal contracting dollars, and 43.7 percent of all federal contracting jobs in 2004.The awards exceeded government's goal to award at least 23 percent of all federal contracting revenue to small businesses, the report said.SBA also miscoded large businesses as small businesses, and did not properly monitor contract bundling practices, Velazquez said. In a statement, she charged that these mistakes cost small businesses at least $1.75 billion."Each federal agency is responsible for entering its own contract actions, and SBA reports the numbers as collected by the General Services Administration," said Allegra McCullough, SBA associate deputy administrator for government contracting and business development.Velazquez's claims that the agency miscodes are "totally inaccurate, because we don't enter any other data than our own," McCullough said. Whether other agencies entered miscoded contract award data or they needed better reporting, McCullough couldn't answer, she said.As for the congresswoman's charges that SBA mishandled contract bundling, McCullough suggested that the congresswoman, like many others, did not understand what contract bundling is."A lot of people, including the congresswoman, look at any large contract as being bundled, but that's not the true definition," McCullough said. It's a contract action awarded to a small business to which other requirements were later added, she said."We take contract bundling very, very seriously, and we are very vigilant in terms of looking at what we consider to be bundling," McCullough said.Velazquez also said in her statement that she is troubled that the report excludes contracts with the Federal Aviation Administration and the Transportation Security Administration.SBA's small-business goal program and prime contracting report apply only to agencies that are subject to the Federal Acquisition Regulations; both FAA and TSA are exempt, McCullough said, as are the U.S. Mint and U.S. Postal Service.Velazquez also said that women-owned businesses and veteran-owned businesses did not meet their 5 percent and 3 percent goals, respectively, for contract value awarded.SBA reported that women-owned businesses received 3 percent of contracts, and veteran-owned businesses just 0.3 percent.Staff Writer Ethan Butterfield can be reached at ebutterfield@postnewsweektech.com.