Small Business Programs

ederal acquisition reforms in the past several years have hurt small business. But it's not the reforms, per se, that are at fault. Procurement and acquisition rules are so complex and overlapping that most practitioners do not fully understand them. Many in the field are confused about the difference between procurement and the much broader field of acquisition.

Procurement, the purchasing process, was reformed under laws such as the 1994 Federal Acquisition Streamlining Act and the 1996 Federal Acquisition Reform Act. Acquisition involves key management functions, such as program planning, budgeting, and setting and achieving goals at the front end of the process and ensuring that results meet cost, schedule and performance goals at the back end. And those reforms have a ways to go under the 1993 Government Performance and Results Act and the 1996 Clinger-Cohen Act. Many people attempt to apply the complex rules to procurement when they should be applied to acquisition. Or sometimes they blame the procurement process when a problem is acquisition related. To make matters worse, the government has failed to apply the Government Performance and Results Act to small-business advocacy programs. And the downsized procurement workforce has failed to fully embrace and implement those reforms.

Bigger Presence, Smaller Share

Let's take a look at what's going on in the country vs. what's going on in government. The Census Bureau predicts that during the next 50 years the U.S. population will swell by 129 million people. Only 8 percent of that growth will comprise white Americans. By 2050 almost half of the U.S. population will be nonwhite.

In 1997, the United States had 3.25 million minority-owned businesses generating $495 billion in revenue. With minority populations facing dramatic increases in the next half-century, it is reasonable to expect an exponential growth in the number of minority firms. According to the Small Business Administration, small companies will account for about 60 percent of new jobs between 1994 and 2005. In fact, much of our economy's expansion during the past several years, including much of the technological innovation, was fueled by small business.

Now, what's going on with government procurement? According Federal Sources Inc., an IT market watching firm in McLean, Va., large companies receive a 71 percent market share of federal information technology revenues. This is up from 57 percent in 1995. During that same period, market share for small minority businesses went from 30 percent to 15 percent. And, according to a study conducted by George Mason University for the Metropolitan Washington Council of Governments, information technology contracts in the Washington area increased 37 percent over 1997 expenditures. During this same time, minority information technology contracts decreased 3 percent.

Minority population is growing, and minority-owned companies are on the rise, but they are losing out on government business. In fact, the government failed to meet last year's goal of awarding 23 percent of contracts to small businesses. Something, clearly, is wrong here-ask any small-business entrepreneur. This trend should concern not only contracting officers and small-business specialists, but chief information officers and program managers as well. Many of these small firms are more nimble, creative and cost-effective than their large-business brethren. Yet they are losing government market share.

Small Business Hurdles

For the United States to remain a leader in world commerce, the government must ensure that small businesses-with their creativity, diversity and strength-fully participate in the $200 billion federal procurement program. Yet obstacles exist. The preference programs for small businesses, especially disadvantaged businesses, were once effective in promoting small-business market share. But in 1995, the Supreme Court's Adarand decision restricted federal affirmative action practices that use racial or ethnic criteria as a basis for decision-making. In procurement, using race as a determining factor in awarding contracts is now subject to strict scrutiny and must serve a compelling government interest.

The government's implementation of the Supreme Court's ruling took years and generated more than 150 pages of policy and regulation. Yet questions are still unanswered, as evidenced by the continuation of the Adarand lawsuit, which was bounced back again in January by the Supreme Court to the 10th U.S. Circuit Court of Appeals. When there is confusion, there is little action. Small disadvantaged businesses have been hurt.

At the same time, acquisition reform legislation was enacted. The law and growing innovation at leading agencies have led to an explosion in governmentwide contracting vehicles. These include, most notably, the reengineered Federal Supply Service multiple award schedule contracts (which has been a lifeline to small business), governmentwide agency contracts, and multi-agency contracts. Even the SBA 8(a) program, once the quickest way to get to contracts, pales next to the ease of ordering through these vehicles. Yet many of these wonderfully effective and efficient acquisition reforms are seldom applied with the intent of benefiting small businesses.

Another aspect is at play. Beginning with GPRA and ending with the Clinger-Cohen Act, reforms targeted three areas: planning, contracting and contract management. Reforms in contracting procedures were put in place far faster and more effectively than reforms in planning and contract management. This uneven implementation has created a loophole allowing agencies to bypass essential up-front acquisition discipline and planning as well as post-award accountability and performance measurement. In short, users can buy the wrong thing much faster, often from large firms that hold substantial governmentwide contracts. As acquisition has been reformed, Congress has been concerned with small-business issues. The effect has been a dramatic increase in programs intended to benefit small businesses. We now have the emerging small-business set-aside program (of the Small Business Competitiveness Demonstration Program), the very-small-business set-aside program, the HUBZone small-business set-aside program, traditional small-business set-asides, the 8(a) business development program and more. And, there are more programs and rules for subcontracting. But the result is more ways to slice the pie, and the pie is getting smaller. Once again, hundreds of pages of confusing guidance have been promulgated in multiple regulatory systems: the Small Business Regulations and the Federal Acquisition Regulations to mention just two.

"Set-Aside Soup"

This unintended confluence of events left small business out in the cold. There is a better way. Small-business goal setting or quota processes could be strengthened by aligning them with agency strategic plans-including those of Commerce's Minority Business Development Agency and the Small Business Administration. But this Results Act vision is not being met. Instead, officials continue to layer on additional regulations designed to ensure that government meets its goals.

Until my retirement from federal service late last year, I co-chaired the socioeconomic committee of the Office of Federal Procurement Policy's Procurement Executives Council. As a true believer in procurement reform, I feared that unless procurement executives accepted responsibility for small-business programs and reversed the decline in federal market share, we could lose the hard-won benefits of such reform. I advocated applying the Results Act to socioeconomic programs in an effort to measure success as a function of strategic plans, not of arbitrary and ineffective quotas.

By last year, the committee had compiled a list of small-business programs and the criteria for using such programs. It had completed a benchmarking and analysis of the current processes for goal setting, data collection, tracking and reporting. Through the DoD Change Management Center, the committee had initiated a formal business process improvement for the Federal Procurement Data System, the governmentwide system used to collect and report procurement data.

If anyone doubts that a dramatic change is needed, look at the committee's chart of small-business programs, each with its own advocacy inside and outside government. At my company, Acquisition Solutions Inc. of Chantilly, Va., the complex set of programs, rules and procedures is known as "Set-Aside Soup." More disturbing is that government contracting officers and small-business specialists do not understand when and how to apply this plethora of programs.

These practitioners need broader small-business policies they can understand and implement. Once they have that, they must convince CIOs and program managers that it is in government's best interests to use such policies. Also, the policy architects must link goals, means and performance.

The government needs to look at what happens to small disadvantaged businesses after they graduate from the sheltered marketplace of the 8(a) program. How effective is the incubator in preparing 8(a) firms for the competitive aftermarket? The best thing government can do for small business is to change the rules and quotas to help these firms win contracts in open competition. Unfortunately, regulations are designed to meet arbitrary rules or goals, rather than to provide clear guidance or to develop meaningful performance metrics. The Small Business Administration's recent bundling regulation is a good case in point. This controversial regulation limits when managers can consolidate two or more procurement requirements for goods or services previously provided under separate smaller contracts into a single contract that is likely to be unsuitable for a small business.

If our goal is to foster growth and vitality of small minority- and women-owned business, then our measures should reach beyond quotas based only on percentages of federal spending. Establishing a sensible strategic plan for small business, linking that plan to agency performance goals, and unleashing the flexibility of acquisition reform, will benefit not only small business but also the country.

Congress has done its part by passing the Results Act. Now it is up to the administration to implement the law for its small business program

Government Small Business programs and criteria, in order of priority:

1. Government supply sources required by law: Purchase from people who are disabled, Federal Prison Industries, etc.

2. Emerging small-business set-aside: For requirements under $25,000 ($50,000 for A&E) in four designated industry groups.

3. 8(a) business development for economically disadvantaged firms: Noncompetitive up to $3 million.

4. Very-small-business set-aside: For requirements up to $50,000, with different rules for supplies and for services.

5. HUBZone small-business set-aside: For requirements over $100,000. Use when two or more firms are located in underutilized business zone.

6. HUBZone small-business set-aside (non-competitive): For requirements over $100,000 but under $5 million. Cannot use if non-HUBZone small business is currently performing the work.

7. Small-business set-aside: For use when two or more small firms are expected to compete.

8. Small-business partial set-aside: For use when total set-aside is not appropriate or when requirement is severable.

9. Price evaluation adjustment: For requirements in certain SIC categories; evaluate small-business bid price with up to 10 percent preference over lower bid from large business.

10. Price evaluation adjustment (HUBZone): For use in open competition when price is an award factor.

11. Subcontracting programs: Programs to encourage large businesses to subcontract with small businesses.

12. Small disadvantaged business: Bidders provide targets for SDB participation in SIC major source-selection factor groups, which are included in proposal evaluations over $500,000.

13. Incentive SDB subcontracting: In conjunction with SDB source-
selection factor, provides incentives for SDB subcontracting.

14. Veterans Entrepreneurship and Small Business Development Act: Requires at least 3 percent of total dollars contracted to go to firms owned by service-disabled veterans.

15. Contract bundling: Prohibits consolidation of two or more contracts into one procurement if it's unsuitable for small businesses.

Source:OFFP Procurement Executives Council

Bob Welch, formerly a senior procurement executive with the Commerce Department, is now vice president for government operations at Acquisition Solutions Inc.