Share of federal contract dollars awarded to small businesses falls slightly

The percentage of prime federal contract dollars captured by small companies fell slightly between fiscal 2003 and fiscal 2004, figures released Thursday by the Small Business Administration show.

Agencies awarded 23.1 percent of about $300 billion in fiscal 2004 prime contract dollars, or $69 billion, to small companies, according to an SBA report. This exceeds the statutory goal of 23 percent, but is below the 23.6 percent reported in fiscal 2003.

"It's a slight decrease," said Raul Cisneros, an SBA spokesman. "We can do better. We're certainly going to keep working with our partner agencies."

SBA has not pinpointed a specific cause for the decline, Cisneros said. "The economy is a very dynamic thing," he said.

The small drop isn't too worrisome, said Steven Kelman, a professor at Harvard University's John F. Kennedy School of Government and former head of the Office of Federal Procurement Policy. "What's more important is the long-term trend," he said. The percentage of contract dollars awarded to small companies has remained relatively stable over the past 15 years, he said.

When looked at in dollar terms, federal agencies are doing more business with small companies, Cisneros said. Prime contract dollars garnered by small firms rose by $3.7 billion, or 5.6 percent, from fiscal 2003 to fiscal 2004.

"The report shows that the government not only matched its own statutory goal, but it broke records by awarding more contracting dollars to America's small businesses than ever before," said SBA Administrator Hector Barreto in a statement.

The fiscal 2004 statistics are the first annual small-businesses numbers to come out of Federal Procurement Data System-Next Generation, the General Services Administration's revamped database for storing contract records.

Paul Murphy, president of Eagle Eye Publishers, a Fairfax, Va.,-based market research company that analyzes information in GSA's database, said he has yet to conduct his own review of the 2004 small business numbers. But he added that he suspects that the "actual percentages are lower than they're reporting."

The figures released by SBA exclude some large categories of contracts that are less likely to go to small businesses, Murphy said, such as those for work performed outside the United States. Contracts issued by the Transportation Security Administration and Federal Aviation Administration also are left out of the base figures.

The exclusions could have the effect of deflating the base number for total prime contract dollars awarded and inflating the percentage of dollars going to small business, Murphy said. Some exclusions would be appropriate for contracts that small businesses have little chance of winning, he said, but the exclusions process has "overstretched its mandate."

"I'm very surprised to see some of the categories that they're excluding," Murphy said. "Congress needs to take a close look at these numbers."

Rep. Nydia Velazquez, D-N.Y., said the numbers reported already are "a big concern." They show that "despite the phenomenal growth in the federal marketplace, our nation's small businesses only continue to lag behind in receiving valuable contracting opportunities," she said.

Small companies are losing out because SBA has failed to adequately monitor contract bundling to ensure that "megacontracts" are broken into chunks that are manageable for smaller businesses, Velazquez said. "If we are ever going to see improvement, the administration needs to stop making empty promises and start taking some action to reverse this devastating trend," she said.

The SBA report also includes a breakdown of small-business contract dollars by agency, and dollars captured by small disadvantaged businesses, women-owned firms and minority-owned companies.