Small business reps accuse big contractors of pulling a ‘bait-and-switch’

Even after spending many hours and thousands of dollars working with large businesses to win federal contracts, small firms are not receiving a fair share of the work, representatives told lawmakers on Tuesday.

Large businesses generally need -- and accept -- many proposals from small, minority-owned companies when preparing and submitting their bids, said David Ferrara, vice president of government relations for the U.S. Hispanic Chamber of Commerce, during a Senate Small Business and Entrepreneurship Committee roundtable discussion on meeting subcontracting goals. "But there is generally no mechanism in place which requires them to go use these [small disadvantaged businesses] and they end up recompeting the work after award," he said. "It's almost a bait-and-switch sometimes."

Ronald Newlan, chairman of the HUBzone Contractors National Council, called the problem an "epidemic."

"The small businesses help the big businesses win. We do a lot of work [and] a lot of writing, and all we get is a promise that downstream we may get work," Newlan said. "Perhaps the concept should apply that the prime contractor can't mention in their proposal what they're not prepared to take on, or put up real money for small businesses to help with the proposal. That's what hurts the most, small businesses spend $10,000, $20,000, $50,000 of their own time and energy to help the big business win, then the big business wins and you have a problem. If we got paid that $50,000 there wouldn't be quite as big a complaint."

Samuel Zepada, president and chief executive officer of Vistas Construction of Illinois Inc., noted that spending time and money and then being excluded is particularly harmful for small businesses, which have limited resources.

Sen. Mary Landrieu, D-La., noted that if the government is going to require that contracting dollars go to small businesses, then it has a vested interest in ensuring its goals are met.

The government has been working to improve monitoring of subcontracting, said David Drabkin, chief procurement officer for the General Services Administration. He cited the relatively new Electronic Subcontracting Reporting System as a significant step forward. ESRS requires prime contractors to report on their actual -- not proposed -- subcontracting, including their performance against small business goals. In the past, contractors submitted subcontracting performance reports on paper to the contracting officer, Drabkin said, meaning there was a separate file for each of the 11 million annual contract actions at GSA.

"Now, going online and having prime contractors report there their actual performance under their subcontracting plans, we're beginning to get data we can use to determine whether or not prime contractors are living up to their commitments in the contract to achieve certain levels of subcontracting with small businesses," he said.

Drabkin, however, was skeptical about having government get too involved in relationships between prime contractors and subcontractors, especially before award. "Whom a prime contractor negotiates with up front to submit their bid to the government is less important to us as purchasers of goods and services than their actual performance after they've received their prime contract award," he said.

Representatives from the Defense Department and Small Business Administration said they are aware of the issue and are working to address it. Linda Oliver, acting director of the Defense Office of Small Business Programs, said subcontracting small business goals are likely to be enforced if they are part of a contract, but chances of enforcement diminish if the commitments are made only as part of a small business plan.

Joe Jordan, associate administrator of government contracting business development at SBA, said, "the bait-and-switch … is certainly something we're concerned about and [an issue that is] frequently raised to us." SBA is working both with agencies and contractors to ensure goals are met and information is available, he said.