GSA loophole costs small businesses billions

Time to apply set-aside requirements to the GSA schedules

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.

About the Author

Robert A. Burton is a partner in the Government Contracts Group at Crowell & Moring LLP in Washington, DC. He is the former Acting and Deputy Administrator of the Office of Federal Procurement Policy in the Executive Office of the President.

Reader Comments

Wed, Jan 18, 2012 Raul Espinosa

The views of former OFPP Deputy Administrator, Robert Burton, 17 months ago on this blog, is very timely and appropriate. On the one hand, it inspired me to file a a GAO protest (B-406075)against the FAR loophole' which elicited many amicus briefs, including one from SBA. Additionally, I decided to spearhead a campaign against the Regulators most recent interpretation of he statutes on their 'Interim Rule on the GSA Schedules.' In summary, I am rallying small businesses with the quote made famous by the movie, Network,, to drive home a powerful message: “I am as mad as hell at the regulations and I am not going to take their abuse anymore” Get acquainted with the loophole referred to as the Exemption, and the SBA views, articulated on my OP-ED on this link, And, if you agree – get mad and file your opinion by February 13th.. All you have to do is visit the government regulations website on this link,; click on the “Submit a Comment’ link (to the right) and post a message to the Regulators. Consider something like this: “I am as mad as hell at the regulations and I am not going to take their abuse anymore. The law says that Simplified acquisitions are exclusive for small businesses and there are no statutes authorizing exemptions. I agree and support the recommendations offered by FPA and its Umbrella Initiative Think Tank in their filing. Their recommendations will bring transparency to public procurement and would effectively make set-asides work, as intended, to help level the playing field.” Yes, get mad and make a difference! Raul Espinosa Founder, Fairness in Procurement Alliance (FPA) Managing Partner, The Umbrella Initiative Board Member, NaFCA Procurement Advisor, MBRT smd MBELDEF

Thu, Aug 5, 2010 Stank Jenkins Morgantown, WV

The language in the article was not specific enough to point out that orders under Federal Supply Schedule contracts are not applicable to small business programs (FAR 8.404(a)); however, Part 38 of the FAR does require that the award of the basic Federal Supply Schedule contracts themselves be subject to Small Business Programs (FAR 38.101 (e)). The writer of the article should have made this distinction for those that aren't familiar with the FAR and the distinction between the award of the basic contracts and the issuance of the orders under the contract.

Sun, Aug 1, 2010 Raul Espinosa

As the individual who originally challenged GSA at GAO in 2007 and caused SBA to declared it 'illegal,' I welcomed Mr. Burton's position on the matter.

The GSA loophole can be removed not only by legislation, but also by the FAR Council. The OFPP Administrator can also nuke it by ruling that the GSA Exemption "is not consistent with applicable law." The reason this has not been done before is lobbying and influence by large firms!

The GSA Exemption, together with the 'foreign exemption, which the Office of Advocacy targeted for removal on their r3 initiative - also at my urging - have been responsible for diverting $640 Billion away from small businesses over the last decade. You can view the 2007 story on the link below,

The White House Task Force on Small Businesses has received a total of twelve recommendation, on eliminating 'barriers' like this. You can view them all on the following link,

We encourage small businesses and readers to support the elimination of the GSA loophole and all the other identified barriers. You can make a difference,

Raul Espinosa, Director
FPA Think Tank at UNF

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