Squeeze is on for mid-tier contractors

Midtier federal contractors face a number of constraints, such as the lack of a unanimous definition of what constitutes a midtier company, according to a Dec. 2 gathering of government contractors, procurement officials and congressional staff members.

They also agreed that midtier businesses are being squeezed by both small businesses that have government contract set-asides and giant defense contractors that have the money and manpower to win the lion's share of awards.

Those were among the issues discussed during a series of panels convened by the Professional Services Council and the U.S. Chamber of Commerce to assess the midtier squeeze.

Stan Soloway, PSC president and chief executive officer, noted that a 2005 survey by the Center for Strategic and International Studies revealed that during the past 10 years, midtier companies' market share of federal IT services declined 40 percent. "We've also seen significant new competitive pressures grow as larger companies began to create and compete for more small work packages than ever before," he said while defining the squeeze.

Soloway said the government's recent emphasis on task orders played a major role in the decline of midtier market share in the IT services sector. "As of the 2005-2006 versions of the study, about 50 percent of the addressable market in services was being procured at the task order level, up over 250, close to 300 percent from where it had been several years before," he said.

The House has a Small Business Committee, but there is no midtier committee in either the House or Senate, said Alan Chvotkin, PCS executive vice president and counsel. "We have no centralized congressional policy," he said.

Al Matera, director of the Office of Acquisition Policy at the General Services Administration, said GSA has no specific definition or acquisition policy for midtier companies. As a result, he added, the agency cannot track the value of the contracts it awards to midtier companies.

As an example, Matera cited GSA's multiple-award schedules program, which accounts for about $36 billion in annual revenue for 17,000 contractors, about 80 percent of which are small businesses. The other 20 percent, about 3,400 contractors, are characterized as other than small businesses, he said. They receive approximately 65 percent of that $36 billion, or $23 billion in MAS annual sales. "Now we know some of that must be going to midmarket companies," he said. "We think the dollars are significant, but again, we don't know how much of that $23 billion, $24 billion is going to midmarket companies."

Matera said there is a need to define midtier companies, gather and analyze data on them, and explore governmentwide policy considerations.

Thomas Essig, chief procurement officer at the Homeland Security Department, said DHS does not compile data on what happens to its small-business contractors when they graduate into midtier status. "There really is a significant absence of data," he said. "I don't think it makes sense for any individual department to collect the data for itself. I think this has to be a federal-wide issue to figure out where we're at. And my recommendation is I would have the Small Business Administration gather the data."

However, not all panelists agreed that small-business status was advantageous. Edward Bersoff, chairman, president and CEO of ATS Corp., said that "having been small and midtier, let me say in spite of the issues facing midtier, it's better to be midtier than it is to be small because you have a lot more resources at your disposal, and you can do more things."

Bersoff said the midtier squeeze is a byproduct of a flawed procurement system. He cited the failure to award the Alliant contract for more than two years.