Businesses Feud Over Federal Dollars

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Businesses Feud Over Federal Dollars

By Neil Munro
Staff Writer

Administration officials are debating whether to raise the share of federal contracts going to small businesses, perhaps by boosting their share of subcontracts.

However, the issue has sparked a fight pitting the Office of Federal Procurement Policy against the Small Business Administration and its allies in the small-business sector.

The dispute may not be resolved until after the departure of Steven Kelman, administrator of the Office of Federal Procurement Policy, said one SBA official. Kelman has scheduled his retirement for Sept. 12

Kelman's departure will be a blow for larger businesses, because he has pushed procurement reforms that have reduced paperwork and increased efficiency - but also have curbed the small-business share of federal contract dollars.

By his pursuit of procurement reforms, "Steven has demonstrated ... an incredible degree of wisdom and balance," said Bert Concklin, president of the Professional Services Council, a Vienna, Va.-based industry group that includes large systems integrators such as BDM International Inc. and Litton-PRC Inc., both based in McLean, Va.


SBA photo

SBA Administrator Aida Alvarez

The SBA's push to increase small business' share of federal dollars from its current level of almost 21 percent to 25 percent is led by SBA Administrator Aida Alvarez. The push is needed because procurement reforms and a new set-aside program for women-owned businesses are diverting contracts away from small-business contractors, said an SBA official.

But Kelman's response, laid out in a June 25 letter to Erskine Bowles, the White House chief of staff, argues that any effort to raise small business' share of funding might fail and would be costly. Although the government tries to help smaller companies, large companies are benefiting from technological trends that favor large businesses, the bundling of several small contracts into larger contracts and the adoption of simple procurement rules, said Kelman.

Small businesses get roughly 25 percent of federal contract dollars, after discounting the share of government dollars that go to nonprofits and universities, as well as local, state and foreign governments, estimated Kelman. If those contract dollars are included, small business' share of federal dollars is just under 21 percent, he said.

"We are already pushing the envelope. ... The increased goal suggested by the SBA is unlikely to be met, [and] the attempt to meet it significantly risks damage to taxpayers," and could embarrass the White House, Kelman wrote.

The government could aid small businesses by helping them win subcontracts, suggested Kelman.

"OFPP is currently completing a series of aggressive subcontracting proposals: although we had planned to implement these ... changes through an OFPP letter, we could announce such changes through a [White House] executive order for greater visibility," said Kelman.

But dollars awarded to small businesses are being corralled into a few set-aside programs, said one SBA official. For example, the government is required to divert 5 percent of total prime contract dollars to small, disadvantaged businesses, and another 5 percent to women-owned businesses, he said.

Also, federal spending is being held down, he said, further cutting dollars awarded to small businesses, he said. In 1995, small businesses won $42.9 billion in awards, he said. But in 1996, their awards fell to $41.1 billion, he said.

The compromise solution between the SBA and OFPP positions might be to increase small business' share of federal prime-contract dollars to 23 percent by 2000, said one SBA official. Senior officials are discussing the details of a compromise solution, but might not be able to complete the negotiations by early September, he said.

"We think the best approach is creating market incentives for the various parties to make the [contracting] systems as accessible as possible to all businesses, including small businesses," said Concklin.


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