Don't rock the boat on small businesses

Recent Small Business Administration actions aimed atsubstantial increases in contract awards to small businessesare colliding with market realities and, in manyinstances, are counterproductive to the governmentgetting its work done efficiently and cost effectively. Identifying andengaging a sufficient number of qualified small companies to meetthe current goals have been challenges for government officials andprime contractors alike. Particularly in the services sector, small-businessprocurement practices are fundamental to business strategyand tactics for large and small companies.The government and contractors haveexpended substantial time and energy to pursueexisting small-business targets, whileensuring that the government's needs are met.Thus, federal actions that further increase thesmall-business targets are likely to be counterproductive,forcing the likelihood of contractingwith businesses not yet able to perform.Before establishing higher small-businessgoals, Congress and the administrationshould revisit the purposes and objectives ofthe small-business program. Fostering small-businessdevelopment requires amore comprehensive assessment ofthose aspects that will make thecontracting environment productiveand healthy for buyers and sellers.For example, the cap on revenuesused to qualify businesses as small should beincreased significantly. This action wouldprovide an opportunity for proven small businessesto continue to serve their governmentcustomers and give them time to mature,expand their infrastructure, win competitiveawards and pursue an exit strategy. Arguably,that environment would be better for governmentbuyers and services providers.Recent discussion at a Deltek industryroundtable highlighted some current governmentinitiatives that might do more harmthan good. Apparently, SBA is increasing itsfocus on achievement of the 23 percentsmall-business spending target, havingdetermined that the actual small-businessproportion of 2006 federal spending wasabout 18 percent. Much of the shortfall wascreated by removing contracts held by largecompanies through acquisitions.An SBA reauthorization bill, likely toemerge in the next Congress, contains a provisionraising the small-business target componentto 30 percent. Assuming that annualfederal services procurement is about $220billion, then to increase the small-businessshare from 18 percent to 23 percent requiresan additional $11 billion in awards to smallcompanies. This is equivalent to addingabout 5,500 qualified small companies, quitea burden for an acquisition workforcealready challenged. Raising the target to 30percent would triple the challenge and createa mismatch between the preference goals ofthe government and the qualified universe ofsmall businesses on the supply side.It seems clear that small-business preferenceprograms need some modifications.Changes should be formulated toensure that three things happen: First,small companies will continue to havegood opportunities to participate in federalwork. Second, the government will beable to access the inventiveness, capabilitiesand commitment of small companiesto get work done cost effectively. Third,successful small businesses that grow willhave avenues to continue to serve governmentwhile providing career opportunitiesfor employees and liquidity to investors.Both the definition of small business andthe target small-business share of federalspending must be considered with a viewtoward fostering a healthy federal servicesindustry, one that matches well with governmentneeds.