GSA loophole costs small businesses billions
Small businesses and the government would benefit from applying small-business set-aside requirements to the GSA schedules, former OMB official says.
President Barack Obama and other Washington politicians have recently promoted small businesses as the engine of the U.S. economy. Therefore, it is no surprise that when faced with a stagnant economy and high unemployment, Congress is exploring ways of getting more dollars to small businesses. One such measure is the Small Business Contracting Revitalization Act of 2010, which came out of committee on a unanimous vote and has garnered the support of the full Senate.
While this act aims at getting more federal contracting dollars to small businesses by improving on the existing Small Business Act, the proposed legislation lacks a simple solution that could easily drive more federal dollars to small businesses. This solution is to apply the small-business set-aside requirements to General Services Administration Federal Supply Schedule contracts, thereby closing a loophole that exists for schedule contracts. Indeed, as a result of the GSA loophole, agencies direct billions of dollars away from small businesses each year.
Enacted in 1953, the Small Business Act was intended to encourage the growth of small businesses. One of the more effective programs under the act is the small-business set-aside program, which requires contracts valued between $3,000 and $100,000 to be automatically set aside for small businesses. However, Section 8.4 of the Federal Acquisition Regulation (FAR) makes a notable exception by prohibiting the applicability of this requirement to schedule contracts.
During fiscal 2009, the schedules provided agencies with an attractive contracting vehicle to the tune of nearly $40 billion worth of goods and services. Quite simply, the schedules offer significant advantages for buyers looking for a quick and easy procurement process, including reduced competition requirements. Unfortunately, the special treatment for schedule contracts leaves small businesses out in the cold.
According to GSA, 80 percent of schedule-holders are small businesses. But the other related and more important statistic is that, according to the most recently published data in the Federal Procurement Data System, those small businesses only receive 34 percent of the dollars awarded under the schedules program. That means 20 percent of the schedule contract-holders – other than small businesses – receive 66 percent of the dollars awarded through the program.
In 2007, when its exemption from the small-business set-aside requirements was challenged, GSA argued that because the average schedule contract purchase is less than $100,000, medium and large businesses would be virtually excluded from the schedules program. But this argument, as evidenced by the FPDS data, is flawed. In fact, of the nearly $40 billion in sales in fiscal 2009, the average order size was less than $50,000, yet there was just over $7 billion worth of purchases in amounts between $3,000 and $100,000, of which only 46 percent (or just over $3 billion) went to small businesses.
If the small-business set-aside requirements had been applied to all purchases between $3,000 and $100,000 in fiscal 2009, small businesses would have received nearly $4 billion more in prime contracting awards, leaving medium and large businesses the opportunity to compete with small businesses for more than $32 billion in procurements that fall outside the $3,000 to $100,000 set-aside range. Thus, by closing this loophole, medium and large businesses would still have ample opportunity to compete for schedule procurements and thrive under the program.
As Congress prepares to amend the Small Business Act, members should seriously consider applying the Small Business Act set-aside requirements to the schedules program, thereby helping to truly revitalize small-business contracting.