• Michael W. Derrios

Why Is Federal Small Business Spending Flat?



Have you ever had one of those moments where your eyes are scrolling the screen carefree on an article and then, for some reason, you feel the need to scroll back up - several times - and re-read the content because you saw something that, at first glance, would have ordinarily gone unnoticed but your subconscious forces you to focus on it because something doesn't seem quite right? While doing research recently for another upcoming blog post, I stumbled across some statistics that were really a head-scratcher for me and caused that very reaction. While Fiscal Year 2019 is still fresh out of the oven, and federal procurement stats are still being calculated, I found this article from earlier in the year that offered some trend data from the last five fiscal years (2014-2018) and two very important pieces of information stood out to me. Small business spending has remained relatively flat while the amount of money the Federal government spends on contracts has increased every year.


The Federal government, including both DoD and Civilian agencies, increased spending on contracts at an average rate of 5.8% annually between fiscal years 2014-2018, with almost $560 billion spent in 2018, which nearly matches a high of $562 billion in 2010. But as federal contract spending rose, between those same fiscal years the share that was won by small businesses hovered around 22% each year. So, from 2014 to 2018 there was a $112 billion uptick in overall federal spending but the amount that went to the small business community didn't see any commensurate hikes. Am I the only one that finds that counterintuitive? At the U.S. Coast Guard, I'm responsible for an annual average spend of $3 billion and, as the senior executive responsible for the procurement line of business, I pay very close attention to our small business contracting program and have made efforts to elevate it as a strategic asset. After seeing these federal-wide stats, I decided to put my thinking cap on and offer some thoughts of my own about some of the barriers to entry and traditional stumbling blocks that small businesses face when trying to compete in the federal market. These are not all-inclusive and represent several topics rolled up into a few overarching areas.



Predisposed Opinions


Throughout my career, both as a Contracting Officer and a Program Manager, I've found that one of the biggest challenges the small business community typically has to overcome is the perception that some federal customers have of them. When it comes to opportunities above the Simplified Acquisition Threshold (SAT), some federal customers still believe that small businesses don't have enough bench strength, experience or stability within their operations to successfully perform on a government contract. When the "Rule of Two" is being exercised through market research for opportunities above the SAT, Contracting Officers have to work with their program counterparts to determine whether small businesses have the right capabilities to support a requirement. And they actually have fairly broad latitude when making that determination. Even if a capability statement or Request for Information (RFI) response from a small business concern indicates that they have and can do the work, the government team is going to carefully scrutinize the firm's level and type of experience and the magnitude of their existing capabilities to assess the level of risk that might be associated with a small business performing their unique requirement. Each requirement from a federal agency really does stand on its own because there are always unique factors at play (e.g., budgetary constraints, schedule accelerators, technical challenges, organizational culture barriers etc.) that add layers of complexity to a requirement. Unfortunately, some on the program side still slant toward large businesses because they think the bigger companies will be able to better handle the ups and downs that are inevitably going to come along with executing against their requirement. That predisposed opinion is hard to change, especially if a program manager has had a bad experience with small businesses in the past. Program Managers are focused on their requirement being met so they advocate for the contracting approach they they think will yield the best result. Yes, large businesses can, and do, struggle on government contracts as well but it can be like trying to move heaven and earth for small businesses to change negative perceptions about their community.


Lack of Access to Requirements Owners


This isn't as much of a problem for mature small business federal contractors, but those just starting out are usually surprised by how hard it can be to gain inroads to the right people in the federal government. There is sometimes an erroneous assumption from small businesses just starting out that getting their capability statement in front of the Contracting Officer is all that it takes to break into a new federal agency. Sure, that can help to get some brand awareness going, but the most impactful thing that small businesses can do is to get a meeting with the requirements owner. And that's hard to do in general. Some program managers are better than others at fostering a dialogue with Industry and there are still a lot of myths out there about how and when communication with Industry can occur so, unfortunately, that can also lead to no communication at all. And, if you fold in the potential for predisposed opinions from requirements owners about small business prowess, it is ten times harder to get a program manager to answer calls and emails. Also, in order to plant a seed about a viable product or service that the government may not even be envisioning a requirement for yet, it takes knowing the agency's mission, the offices within that agency that have all of the respective subset missions and functional responsibilities, and the key players in each of those offices in order to effectively create future opportunities. Without access to requirements owners, it's almost impossible for small businesses to help inform the government's thinking or change opinions. Reading the annual budgets for the agencies where small businesses want to do work and then figuring out who, by name, the program managers or office directors are is a great start.


Ineffective Teaming


Small businesses may not always be forming the right teaming arrangements when considering a federal procurement opportunity, or may not be cognizant of how receptive federal customers are going to be to certain arrangements (e.g., how much of the work is proposed to be outsourced to a subcontractor etc.) If the wrong team is formed, based on key elements of the government's requirement where specific subject matter expertise is considered to be a must-have, or a questionable ratio of the work is being proposed, the decision-makers may believe that a firm didn't grasp the requirements well enough. And if a team isn't successful on the bid, or for some reason shared contract execution is a challenge if they do win, it can create sour grapes, preventing the team from working together again when the next opportunity comes along (where that same team might be a perfect fit). Choosing the wrong teaming partner when considering how to fulfill a government contract can have significant ramifications both at the time of source selection and during contract execution.


Not Planning for Life After 8(a)


Small-disadvantaged businesses in the Small Business Administration's 8(a) program enjoy a great opportunity to win set-aside business, and in some cases sole-source contracts, which can help them grow quickly in the Federal market. However, 8(a) certification can only last for up to nine years so if companies in the program rely solely on set-aside work during that timeframe they do themselves a disservice because they are not planning effectively to graduate from limited competitions into the more competitive mid-tier landscape. It behooves 8(a) companies to start punching above their weight class shortly after getting in the ring so that they can move up when the time is right. 8(a) contractors have to be judicious when it comes to carving out capture and bid and proposal budgets but going after more competitive work that is being set aside for overall small business concerns or even competing with mid-tier and large companies on full and open competitions can be a great way to prepare for life after the 8(a) program.



Small businesses need to keep fighting for their fair share of the Federal spending pie every year because we need them to continue doing good work in support of government missions. Besides being the biggest job creators in the United States, small businesses have a lot to offer federal customers. They usually have a lot of tenacity and are nimble in ways that allow them to make necessary changes and course corrections quicker than their larger counterparts. And I haven't met a small business yet that didn't aim to provide big company service at little company prices. I know my friends who are small business federal contracting advocates will certainly have some thoughts on this post and I welcome their feedback.

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© 2018 by Michael W. Derrios