WT Business Beat

By Nick Wakeman

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Is it time to reform small-business programs?

A pair of Government Accountability Office decisions have me wondering if the proliferation of small business programs is catching up with the government market, and in a bad way.

Over the last 10 years a number of small business programs have been created, such as the historically underutilized business zone (HUBzone) and the service-disabled, veteran-owned businesses. Contracting goals have been set for these and other progams.

The HUBzone and service-disabled programs recently squared off against each other when protests were filed over the Marine Corps' decision to give contracting priority to service-disabled businesses. GAO ruled that HUBzones should be given priority over all other small-business programs, according to the HUBZone Contractors National Council.

Good for HUBZone businesses, but aren't we headed down a slippery slope?

Smarter minds should comment on this, but I'm left wondering if we are headed toward internecine warfare among small businesses. If each group is jealously fighting for its own slice of the small business pie, I think the overarching goal of creating viable, healthy and productive small businesses is at risk.

I know some will say we should get rid of all the small business set-aside programs all together. That's not a solution. But I'm starting to think serious reform is needed.

Posted by Nick Wakeman on Nov 21, 2008 at 9:54 AM

Reader Comments

Tue, Dec 2, 2008 Sam McNully AL

I see small business reform taking an interesting twist in the service sector of the Defense Industry. In many upcoming contracting venues, the contracting officers are placing increased emphasis on organizational conflicts of interest (OCI).After the fall of the Berlin wall, the government rather overtly encouraged consolidation within the defense industry. As a result, many of the "hardware" providers?and some of our bigger projects are largely software these days?found themselves with service companies or divisions. Market pressures also caused these giants to enter into markets for training devices and lesser included subsystems as a way of maintaining revenue streams. Combine the industry consolidation with the government trend towards omnibus contracting and the clear potential for large and small producers of hardware and software to find themselves in "impaired objectivity" situations rises.Impaired objectivity arises when a service prime or subcontract is used to assess the products of a hardware or software prime, subcontractor, or competitor?yep, you don't even need to be evaluating your own products to create a potential OCI. As contracting officers more rigorously enforce the federal acquisition regulation's OCI provisions, fewer and fewer large businesses will be viable bidders in the service contract marketplace and small businesses will naturally fill this void.Small hardware and software companies have and will continue to operate inside the decision cycles of large business, but a careful examination of the DoD market will tell you that most of the small businesses are service companies.In my mind, this dynamic will have much more positive impact than any of the affirmative action provisions created by the special categories of small business. My company currently holds two prime contracts for services along with several subcontracts, and we've taken the stance that we can and will compete in the full and open market. We have and we've won.

Tue, Nov 25, 2008 Terry Verigan LA

Small business set-asides create the potential for these firms to compete as primes as well as subcontractors that would not otherwise be possible in the world of federal contracting. The fact that small businesses are the engines of job creation in the United States is broadly understood. The issue of allowing one category to be favored over another is a question of social as well as business policy. A true HUBZone enterprise, by definition, resides in and draws employees from communities that have been abandoned by more affluent citizens and businesses. Supporting areas that have been designated as HUBZone contributes to the general good of the population. In my mind, that is sufficient to give preference to the category.

Mon, Nov 24, 2008 Nick Wakeman VA

From Richard White of FedMarket.com:AMEN. We now have the Alaskan Native Corporation creator in the tank, women owned regulation debacle in the news, 8(a) constitutionality being questioned, HUB Zone eligibility fraud in the news, Veteran owned eligibility requirements questioned, now a "shall" versus a "will" in FAR causing a Vets and HUB Zone conflict. Only our beloved federal government could create such a quagmire.

Mon, Nov 24, 2008 Guy Timberlake MD

Nick,Ever since the announcement of the GAO "Rule of Two" decision was made followed by the Rothe Development "SDB" court ruling, the snipers have upped the level of rhetoric bashing the usefulness of the Small Business Program in Government Contracting. I am always quick to urge companies not to lead with the fact that they are "8(a), Woman-owned, SDVOSB" or otherwise, but to go into situations based on the value they bring to the table which may be complemented by attributes such as their small business designation(s). This however, does not eliminate the fact that inequities exist for groups of Americans who contribute by way of actions and taxes and are not provided the same access to opportunities. I am further discouraged by those who want to eliminate not only the race-based programs, but attack the programs benefitting the Greatest Americans, our Veterans and Service-Disabled Veterans and those that benefit Americans regardless of their race, such as the HUBZone Program.One of the many tragedies impacting the participation and utilization of the small business programs is the "opportunistic faction" also known as beltway bandits, who are not concerned with the negative impact on the government mission and are in it for nothing more than "wanting something for nothing" aka greed. For the majority of the small businesses involved in government contracting who are honorable, hard working and talented, the frustration I share with them is tremendous. Reform is definitely needed by way of a major leveling of the field so that one group representing what is likely the smallest segment of government contractors, does not receive an unparalleled advantage over others who deserve assistance in providing quality goods and services in support of our Government. Eliminate the small business programs entirely and our current socioeconomic situation seem like a cakewalk compared to what happens when the community that is home to our Nation's largest collective employer is turned upside down.Keep up the good work!Regards,Guy TimberlakeThe American Small Business Coalition

Mon, Nov 24, 2008 Paul Donovan CO

Nick,Thanks for the editorial on the wake of the HUBzone ruling.I don't think there is any question that the small business programs need reform. I beleive this is why the Bush administration has not supported growth funding at the SBA. Supply-side economics works when spent on well-chosen small business "investment" from the Feds (see historical numbers on the SBIR/STTR programs).It's time to rethink or remove incentives for race, HUBzone, Vet, etc. price and value preference. It is time to reward small business ideas and entities based on concepts consistent with our market-leading small business authors and entrepreneurs. These include ideas such such as the late Peter Drucker and his well-written book "Innovation...", ie increase funding and access for the SBIR/STTR programs. For growing companies, see Michael Gerber's "E-myth..." (create loan and SBIC-like programs for rewarding small-business "Gazelles" and don't fund a "Turtle") ie SBA loan programs for working and term cash, similar to the Inc. 500 list criteria.Let's begin making some improvements in small business "public goods" through the SBA and others incentives and I can bet they will pay for themselves - unlike most bailout offers Congress has seen lately.Best Regards,Paul Donovanpdonovan@fedequity.com

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