Panel: Small businesses to feel crunch as spending declines

A panel of lawmakers has recommended increasing the 23 percent contracting goal because of the foreseen decline in government spending.

“There is a fear that the decrease will be disproportionately borne by small businesses,” according a report from the House Armed Services Committee’s Panel on Business Challenges Within the Defense Industry.

The panel wrote that less spending will affect the health of the defense industrial base and pose challenge to the economy as a whole.

Each year, the government, as whole, aims to award 23 percent of its spending from prime contracts to small businesses. The government continuously comes up short of the goal.

As the panel recommends the increase, it's already being considered.

The House Small Business Committee approved a contracting bill that would raise the goal to 25 percent. The Government Efficiency through Small Business Contracting Act (H.R. 3850) would also hold agency executives accountable for meeting the goal. Senior officials would not get their bonuses if their agency misses small business goals. The House has not passed the bill yet.

In its report, the Armed Services Committee’s panel recommended that Congress and defense officials review DOD’s contracting procedures and assess its performance. Their intent should be making it easier for small businesses to win contracts.

The panel suggested developing a preferred-supplier program at DOD. It would reward small firms that have “a history of superior contract performance.”

“Such a program could incentivize small companies to compete for and perform on government contracts by holding out the opportunity for locking in long-term contracts based on performance,” the panel wrote. This could mean small businesses might commit more of their limited resources to DOD’s projects for a long-term payoff.

The panel also suggested beefing up DOD’s small business office.

The director of the office should join senior-level decision forums, such as the Defense Acquisition Board and the Information Technology Advisory Board. The director should also get invitations to the Deputy Secretary’s Management Action Group when it’s dealing with procurement issues, the panel said.

The small business officials need better coordination with senior procurement officials when planning acquisitions, according to the report. Finally, DOD needs more training for its workforce regarding small business contracting, it said.

The panel also recognized the complexities of defense contracting rules and procedures. The process is often bureaucratic and rigid, with little flexibility for managing and monitoring small businesses.

“Across the country, we heard the same thing from businesses, academics and researchers: navigating the defense acquisitions process is difficult for all businesses, but is particularly difficult for small businesses,” Rep. Bill Shuster (R-Penn.), the panel’s chairman, said March 20.

The panel released the report after six months of researching and discussing acquisition issues with more than 150 experts.

Despite its emphasis on supporting small businesses, the group also made recognized mid-size companies. These companies are caught between a growing percent of dollars going to large firms and to small firms. Citing the Center for Strategic and International Studies’ figures, the share of DOD contracts awarded to firms categorized as small businesses increased from 17 percent to 17.4 percent from 1999 to 2009. Meanwhile, the share of contracts going to large companies increased from 47 percent to 53.7 percent over the same period.