Infotech and the Law: Small business challenged in government procurement

Jonathan Cain

This issue of Washington Technology focuses on the small-business segment of government IT procurement, so it is useful to see how fairly federal agency customers are treating small business. Unfortunately, the report is not encouraging.

Over the past 18 months, columns in this space have noted administration small-business initiatives to broaden their participation in federal information technology procurements, open more contracts by reducing bundling, and set aggressive goals for participation of small, small disadvantaged and small women-owned businesses in government contracts.

A recent report card on these efforts, published by the House Small Business Committee, confirms earlier reports published by the Office of Management and Budget and others that federal agency initiatives have fallen far short of their objectives.

Between 1991 and 2000, despite a 7 percent increase in federal contract dollars, small business gave up 14 percent of their share of those dollars. The number of small-business federal contractors shrunk by more than 50 percent during that period.

In 2000, the administration set goals for small-business participation in contracts awarded by federal agencies. Despite these goals, their participation in fiscal 2002 procurements continued to decline. The administration wanted 5 percent of contract dollars to go to small, disadvantaged business; only 4.4 percent of such contracts went to these businesses.

Section 8(a) companies did even worse, receiving just 2.4 percent of federal contract dollars, down by one-third from 1994's high. Women-owned small business received just 2.9 percent of federal contract dollars, also falling short of the administration's modest goal of 5 percent. The results for nondisadvantaged small businesses, while not so dismal, also have continued to decline.

Reports by Congress, OMB and the Small Business Administration generally acknowledge that this difficult environment for small business in federal procurement has two principal sources: continued emphasis on contract bundling by agency procurement officials; and the exclusion of certain federal agencies from fair and open competition requirements in order to achieve faster, cheaper or less transparent procurements.

For example, nearly a year ago OMB proposed nine steps to reduce contract bundling and open more procurement opportunities to small business. There is significant disagreement over whether the regulations would decrease or actually increase bundling. The proposal would, for example, provide a dollar threshold below which bundling would not require an agency to justify the bundle.

Nor is it clear whether the proposed rules would address one of the most common techniques used to reduce opportunities for small business: repeatedly adding new but related tasks to contracts rather than issuing new procurements. In any event, none of the rules required to implement OMB's recommendations have been put in place.

Another obstacle for small business is the elimination of competitive requirements in authorizing statutes of certain federal agencies, including large buyers such as the Federal Aviation Administration and the Department of Defense.

It has been well established that providing full and open competition, including competition by small business, can result in longer procurements and more administrative expense. No government study to date, however, has demonstrated that reducing competition gives agencies overall cost savings or superior products and services.

Nevertheless, Congress continues to experiment with agency exemptions from competitive requirements, including those that provide opportunities to small business.

On the whole, the prospects for small business in government procurement in the coming fiscal year look no more promising than they have over the last three. *

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at jcain@mintz.com.

About the Author

Jonathan Cain is a member of law firm Mintz Levin.

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