Mid-size contractors feel edged out by small and large companies

Mid-size contractors who feel squeezed out of the federal procurement arena by small businesses and industry giants lack the data and organization to fix the problem, government and congressional observers said on Tuesday.

This midtier dilemma occurs when a company grows beyond its small business designation and is thrown into the contracting competition pot with gargantuan firms operating in a wide range of areas. The U.S. Chamber of Commerce and Professional Services Council held a forum in Washington for midtier firms to discuss the issue on Tuesday.

Al Matera, director of the General Services Administration's acquisition policy division, said there is a dearth of information on midtier businesses in federal contracting. There are approximately 17,000 contractors on GSA's multiple award schedule, who take in more than $35 billion in sales annually. While 80 percent of the contractors on schedule are small businesses, the remaining 20 percent account for 65 percent of sales, totaling almost $23 billion. Matera said, however, that details about these "other" businesses are scarce.

"We think the MAS [Multiple Award Schedule] program promotes the interest of the midtier … but we don't know how much of that $23 billion is going to the midtier," he said.

While Matera said there's plenty of room for policy considerations to address the mid-tier squeeze, agencies need more information before they can take any action to remedy the situation. Not only is the definition of midtier still up in the air, agencies also need hard data before they can determine the actual situation those firms face in the federal marketplace, he said.

Thomas Essig, chief procurement officer at the Homeland Security Department, said the lack of information indicates that midtier contractors do not receive much DHS business, but it's not clear why. "We need governmentwide data collection on midtier businesses," Essig said.

Brad Nelson, who works for the Defense undersecretary for acquisition, technology and logistics, said the midtier squeeze is most prevalent in the defense service sectors where there is high participation from massive defense contractors such as Lockheed Martin Corp. and Northrop Grumman Corp. Still, he said, finding solutions to the problem is not a top priority yet.

"We're in the monitoring stage and are out there looking for good ideas," Nelson said. "There really is a shortage of data and policy tools."

While defining exactly what a midtier firm is and assigning certain benefits to that status, as is done for small businesses, might be too difficult, "we need to know what happens after small businesses graduate from the program," Essig said.

Forum attendees provided anecdotal corroboration of the challenges mid-size companies face in federal contracting, but one said the focus on data collecting is misguided. "I'll be in my grave by the time these studies are done," said the participant, who requested anonymity.

In addition, small firms outperform midtier companies when it comes to collectively lobbying Congress. Richard Beutel, former senior counsel to Maine Sen. Susan Collins, ranking member of the Senate Homeland Security and Governmental Affairs Committee, said he knows all the statistics on small businesses -- job growth, patents and their effects on communities. Andrew Hunter, a professional staff member on the House Armed Services Committee, agreed that the small business community's narrative has worked well on Capitol Hill.

"Small businesses sell a story of job growth and creation, and they do a good job selling that they are homes of innovation," Hunter said.

Midtier companies need to do more outreach, said Beutel. "I don't have a clue about you people. You have to make yourselves sympathetic constituents."

Beutel offered the midtier firms a number of recommendations to promote their cause on the Hill, including lobbying for anti-contract bundling legislation and adding state and local businesses as customers for the GSA schedules. He also said including midtier firms as a distinct category in the Federal Procurement Data System would help increase the group's profile.

"You need visibility and you don't have it now," he said.