Rand: Raise small-business threshold at DOD

The government should consider raising the thresholds that define a small business in certain areas to help the Defense Department meet its small-business contracting goals, according to a new study by Rand Corp.

The think tank's researchers said DOD is struggling to meet small-business goals because the types of goods and services it buys are often better suited to large contractors. DOD spends much of its money in industries that have few small businesses.

In the report "Enhancing Small-Business Opportunities in the DOD," the researchers suggest that one remedy would be for the Small Business Administration to raise the threshold in industries in which large-scale production or investments are needed.

Another solution would be to set small-business goals by industry rather than as a constant percentage of spending, said Nancy Young Moore, the study's lead author and a senior management scientist at Rand.

The changes would reflect the practical realities of certain industries, she added.

Since 1991, DOD and other agencies have been required to spend 23 percent of their contract money with small businesses. DOD exceeded the goal in 2004 and 2005 but missed it in 2002, 2003 and 2006, Rand said. DOD also has a goal that 35 percent of work under large-business contracts be subcontracted to small companies. DOD exceeded that target in recent years.

Meeting those goals is complicated because the equipment and services DOD buys ? such as aircraft, engineering services and shipbuilding ? are provided by industries dominated by large companies. Consolidation through mergers and acquisitions has further reduced the number of competitors.

Rand said more research is needed to ensure that the products and services meet DOD's requirements in areas in which small-business use exceeds the goal.

Spending on small-business contracts also fluctuates with changing priorities at DOD, Moore said.

In 1985, when weapons system procurement was at a peak, the department spent only 19 percent of its prime-contracting money with small businesses, its lowest level in decades. In 1996, when such procurement was at an ebb and operations and maintenance spending accounted for a larger portion of DOD's total spending, 23 percent of its prime-contracting dollars went to small businesses.

About the Author

Nick Wakeman is the editor-in-chief of Washington Technology. Follow him on Twitter: @nick_wakeman.

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