Follow the Leader?

Conflicting small business directives toss contracting into a state of confusion.

If there's one thing we learned about small business contracting in fiscal 2009, it's that we don't know much at all. Uncertainty gripped the small business marketplace after the Government Accountability Office and U.S. Court of Federal Claims decided Historically Underutilized Business Zone firms are at the top of the procurement pecking order, above companies owned by service-disabled veterans or those in the 8(a) business development program. The Office of Management and Budget and Justice Department disagree with the decisions-which they say are based on semantics in the HUBZone statute-and have directed agencies to disregard them while the Obama administration appeals the court's ruling.

The dispute has caused major confusion among procurement officials who don't know how to proceed, according to Joseph G. Jordan, associate administrator of the Small Business Administration's Office of Government Contracting and Business Development. Jordan fears risk-averse contracting officers could seek refuge by avoiding small business contractors altogether.

Despite the confusion, federal spending with small business increased from just under $100 billion in fiscal 2008 to nearly $105 billion in fiscal 2009, according to data compiled by Eagle Eye Publishers Inc. Recovery Act contracts awarded to smaller firms likely boosted that figure. And as in previous years, a high percentage of the small business contracts also went to Alaska native corporations, which benefit from rules that allow them to receive unlimited sole-source contracts of any size.

The administration hopes to boost small business contracting in the coming years. In April, President Obama established an interagency task force focused on breaking down barriers for small businesses and increasing transparency. The task force held a public meeting in late June where industry officials expressed anger, frustration and distrust. A second interagency task force will focus exclusively on improving contracting prospects for small businesses owned by veterans and service-disabled veterans.

For veteran-owned firms, it was an up-and-down year. After three years of planning, the Veterans Affairs Department established a set-aside program for small businesses owned by military vets. Contracting officers can reserve procurements and issue sole-source awards up to $5 million to these firms. The news, however, was not all good. GAO reported the governmentwide service-disabled veteran-owned small business program had been misused, with roughly $100 million in contracts fraudulently awarded between October 2008 and November 2009. Similar problems also were discovered in the 8(a) and HUBZone programs. In October, the Small Business Administration proposed significant changes to 8(a) eligibility and income requirements that would affect how large firms benefit from small business contracts.

While the existing set-aside programs remain in a state of flux, the government finally made progress implementing the women's procurement program. The program, which has been mired in rule-making and lawsuits in recent years, would focus on 83 industries in which women-owned small businesses are underrepresented, according to a proposed rule. A 2008 Bush administration proposal identified only four such industries, setting off a firestorm of complaints from lawmakers and women's advocates, who accused SBA of choosing the narrowest methodology for determining underrepresentation.

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