Small businesses net bigger share of contracts

Small businesses earned a record amount of prime federal contract dollars in fiscal 2009, but the government once again fell short in meeting its statutory 23 percent goal for contracting with undersized firms, according to new data released on Friday.

The annual Small Business Administration score card was a good news-bad news report for federal agencies and small business contractors. On the positive side, small businesses won $96.8 billion in prime contracts between Oct. 1, 2008, and Sept. 30 2009 -- up $3.6 billion from the previous year. But with governmentwide contracting increasing by roughly $30 billion during that same period, those figures can be deceiving.

Meanwhile, the percentage of governmentwide contracts small businesses earned -- the metric SBA uses to determine compliance with small business goals -- rose slightly from 21.5 percent in fiscal 2008 to 21.9 percent in fiscal 2009.

"This represents real progress, but not enough," said SBA Administrator Karen Mills. "We must reaffirm our commitment to ensuring that the 23 percent goal is met and exceeded."

As in previous years, the only subcategory in which the government met its goals was small disadvantaged businesses, which took in $33.5 billion or just over 7.5 percent of all prime contracts. The goal is 5 percent. Under the 8(a) business development program, small disadvantaged firms can be awarded sole-source contracts of less than $3.5 million for services, and less than $5.5 million for manufacturing.

Among the four small business program categories, the percentages of contracts and dollar amounts have increased since fiscal 2008. But the government missed its 5 percent goal for women-owned firms and the 3 percent goal for businesses owned by service disabled veterans and those operating in Historically Underutilized Business Zones.

Subcontracting with small businesses improved as well -- up from 28.6 percent in fiscal 2008 to 31.8 percent in fiscal 2009 -- with all four categories showing increases. The government's small business subcontracting goal is 35.9 percent. Despite getting a larger share of the pie, small business totals went down from $71.6 billion to $68.8 billion because overall spending on subcontracts decreased.

Joe Jordan, associate administrator of SBA's Office of Government Contracting and Business Development, said the data indicates several positive trends, although he concedes that much work remains. "We are on the right path to success," Jordan told Government Executive in an interview on Friday. "We are seeing real progress."

While the new data reflects trends similar to 2008, the methodology for grading agencies and the government as a whole has been dramatically overhauled.

Gone are the much-maligned stoplight-style grades popularized during the Bush administration. Instead, SBA introduced a more nuanced letter grade system --from A+ for excellence to F for failure. The score card encompasses prime contracting performance (representing 80 percent of the total grade), subcontracting (10 percent) and progress toward meeting certain goals (10 percent). Agencies submitted progress reports that were evaluated by federal small business advocates and specialists in nine categories.

"We think this is a much more holistic way to look at things," Jordan said.

The governmentwide score was 94.1, a solid B. But 10 agencies earned As. They include the Energy, Education, Homeland Security, Agriculture, Transportation, Labor, Interior, and Veterans Affairs departments, the Environmental Protection Agency, and SBA.

On the opposite side of the spectrum, three agencies scored Fs for small business contracting, including the U.S. Agency for International Development, the National Science Foundation and the Office of Personnel Management. OPM officials, in particular, took issue with their score.

"We are concerned that the score card methodology used by SBA does not give the public an accurate accounting of our program's success," the agency said in its submitted comments, another new feature of the score card report.

Similar to other agencies that struggled in 2009, OPM pinned the blame on a number of large, mandatory contract actions, saying they were out of reach for small businesses and lowered the agency's overall percentage.

Agencies pointed to the $800 billion Recovery Act as a source of both their small business success and failure. More than 32 percent of all stimulus contracts have been directed to small businesses. But the funding, often appropriated for specific projects, actually hurt several agencies typically known for strong performance in small business contracting.

The General Services Administration, which in fiscal 2008 met or surpassed its goals in all categories, took a step back in 2009, with small business contracting down from 38.7 percent to 27 percent. GSA received a significant amount of Recovery Act funding for large capital construction projects, which were generally unavailable for small businesses, the agency said.

"Despite this challenge, GSA is committed to small business participation in its [Recovery Act] projects," agency officials wrote in their response.

NASA and the Commerce Department also attributed their small business contracting woes to strict stimulus spending requirements.

Civilian agencies, however, reflect only about 30 percent of governmentwide contract spending annually. The main driver -- and thus the government's small business performance -- is the Defense Department.

The department increased its small business performance from 19.8 percent in fiscal 2008 to 21.1 percent in fiscal 2009. Those figures were still short of the Pentagon's 22 percent goal. Defense officials noted nearly one in five contracting dollars goes to big-ticket items critical to the war effort, such as aircraft carriers, submarines and destroyers.

According to Jordan, improving Defense's score will be critical to achieving the overall goal of 23 percent. "Every agency is important," he said. "But we are cognizant that, as goes DoD, so goes the governmentwide performance. They must carry a lot of weight."