6 small-business issues too important to ignore

Small businesses face a tough market, but there are a few bright spot

It's rough out there for contractors. Everyone is holding on to pennies when they would have willingly spent dollars a few years ago.

For federal contractors, agencies are also adjusting to the tough times, double-checking costs against necessity before spending the slightest bit of money. And small businesses might be getting the worst of it. On top of the recession, government officials are cutting out contractors whenever possible.

And more problems exist for small businesses that already must scale a mountain of issues when trying to win government contracts. But don’t get depressed. There are at least a few bright spots. Some changes might make life at least more bearable for small businesses.

The Efficiency Squeeze

Agency officials face tighter budgets. Their goal is to spend less money while squeezing as much out of contractors as they previously received. Some agencies are considering chopping programs that don’t advance core priorities.

Defense Secretary Robert Gates recently announced a plan to make the Defense Department more efficient. Although insourcing hasn’t produced the savings that the Obama administration imagined, Gates said he’s taking another approach. He plans to hit contractors in the pocketbook.

“The problem with contractors is — and what we’ve learned over the past year — you really don’t get at contractors by cutting people,” Gates said in August. “So the only way, we’ve decided, that you get at the contractor base is to cut the dollars.”

Gates’ overall goal is to cut DOD’s spending by $100 billion in the next five years, while cutting contractor support by 10 percent per year for the next three years.

Some programs will dodge the bullet; others won’t. Programs that avoid elimination will support critical needs, although DOD officials have not identified those programs, according to Deltek, a research and consulting company.

In the same way, some contractors will emerge unscathed, Deltek said in a white paper released in September. Larger firms invest heavily in advocacy in an attempt to influence decisions such as budget and program cuts, the white paper states.

“To the extent those efforts are successful in deflecting funding cuts, smaller firms will be left to absorb the impact,” Deltek writes.

Insourcing Threats

Administration officials also are taking a stand against the private sector’s influence in agencies.

Officials say contractors are getting too close to agencies’ inherently governmental work and influencing decisions toward their advantage. The result is a push for insourcing. Procurement officials have proposed guidelines on inherently governmental work and closely associated tasks. They also created a new category of work, called critical functions, which applies to jobs that aren't inherently governmental but are sensitive enough that agency officials want federal employees to do the work. In short, agencies don't want to rely on the private sector.

Small businesses fear that initiative because they feel they are in the cross hairs. In September, the Interagency Task Force on Federal Contracting Opportunities for Small Businesses, a group of senior government officials, heard small businesses’ outcry against the insourcing initiative.

The “rebalancing efforts will not only limit new opportunities for small businesses but also take existing contracts away from them,” the task force wrote in its report to the president.

Some companies already have had their contracts brought in-house. Robert Burton, former deputy administrator of the Office of Federal Procurement Policy, said the government has insourced some work that isn't inherently governmental or considered to be a critical function.

Burton and other industry groups say the government is secretive about its process for deciding which jobs to insource, and without transparency, no one can be sure about the validity of decisions.

In addition, some federal agencies, such as DOD, must be aggressively pushed before they hand over their calculations and comparisons on pricing, experts say. Small businesses have done that, but it took time and a lot of persistence.

Poached Employees

Related to insourcing, businesses have complained that government agencies are also taking their employees when they move jobs in-house. One official said in September that DOD, for instance, went to the open marketplace to find employees.

Ashton Carter, undersecretary of Defense for acquisition, technology and logistics, denied that characterization. However, he said DOD is seeking employees in places where they can be found. He added that people are interested in joining DOD because it offers the opportunity to play a role in protecting the United States, which is a unique job with a unique mission.

But let’s not get bogged down in the difficulties. There are a few positive trends.

Unwrapped Bundles

Agencies can combine several smaller procurements into one large contract, a process called bundling. The technique puts less pressure on an agency’s employees because there are fewer contracts to manage. However, those bundled contracts are often out of small businesses’ reach.

The interagency task force said officials should tighten regulations to prevent unjustified bundling. And when there’s no way around a bundled contract, agencies need to find other ways to incorporate small businesses into the mix.

In addition, the Small Business Jobs and Credit Act, which became law in September, lowers the governmentwide bundling limit for contracts to $2 million, down from the $10 million limit. It also creates a five-year small-business teaming pilot program to assist small businesses in forming teams and joint ventures to help them compete for larger or bundled contracts.

HUBZone Equality

With President Barack Obama's signature, that new law simply changed a “shall” to a “may” regarding small-business set-asides. In effect, it ended the battle over one small-business program having an advantage over other small-business programs for set-aside contracts.

The new law puts all the Small Business Administration’s small-business programs on equal footing. SBA programs let agencies set aside contracts and compete them among certain types of small businesses, such as those owned by service-disabled veterans or minorities.

Until Sept. 27, companies in economically depressed regions, or Historically Underutilized Business Zones, had priority over other types of businesses because the law that created HUBZones said the government shall use businesses in HUBZones, while other small-business laws used the word "may." The Government Accountability Office and several federal judges ruled numerous times that HUBZones should get the priority because "shall" meant agencies had to use them, while "may" in the other laws meant the use of those small businesses was optional. Now the new law replaces the "shall" with "may." A contracting officer who wants to set aside a contract may choose which category of small companies to use.

Subcontracting Scrutiny

That same law also puts pressure on prime contractors to pay attention to their subcontracting plans or risk a bad mark on their public record.

The statute requires prime contractors to provide a written explanation when they fail to use subcontractors as they describe in their subcontracting plans. The reason had better be good, too. If the explanation doesn’t satisfy a contracting officer, a low grade could hurt the prime contractor’s performance evaluation, which agencies use when awarding new work.

A contractor with a history of failing to meet its subcontracting plan would be identified as such in the Federal Awardee Performance Integrity Information System.

So although business is bad, there are bright spots — at least a few.

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