DoD carries weight of governmentwide small business goal

Tuesday - 10/9/2012, 8:00am EDT

(This story is part one of Federal News Radio's special report, The Small Business Dilemma.)

For the federal government to finally hit its 23 percent small business goal, the Defense Department will have to step up its efforts to contract with small firms. But the nature of DoD's large contracts often leave out small companies.

In four of the last five years, if DoD had made its small business contracting goal, the federal government would have hit its overall goal. In fiscal 2011, the government fell $5.4 billion short. The Defense Department, with a goal of 22.28 percent for small business contracting that year, missed its mark by $7.2 billion. Each agency negotiates with the Small Business Administration its own small business prime-contracting goal.

Defense contracts make up two-thirds of the entire government's contracting expenditures. DoD is best known for buying planes, tanks and ships — often products and services out of the scope of small companies. Last year, for example, DoD spent tens of billions of dollars across 11 product codes that included everything from guided space missiles to space vehicles. Of that, less than 1 percent went to small businesses.

That doesn't mean the Pentagon is abdicating its influence or responsibility. DoD is finding ways of carving out a space for small firms on large contracts and targeting businesses for certain industries, but it has been a challenging endeavor for the agency.

Small business contracting challenges

Budget uncertainties in recent years have created extra hurdles for small businesses. The continuing resolution was "the single largest negative impact to us" in fiscal 2011, said Andre Gudger, the director of DoD's Office of Small Business Programs.

The uncertainty cuts the time agencies have for doing acquisition forecasting that can help identify small business opportunities.

“It's critical for us as a department to modernize and enhance our industrial base to make sure we have enough capable companies to deliver what we want to buy.”

— Andre Gudger,
Director of DoD's Office of Small Business Programs

Additionally, Recovery Act funds — more than 30 percent of which went to small businesses — expired last year.

A more long-term challenge is DoD's need to buy large weapons systems, leaving less procurement dollars available for small business contracts.

These large weapons systems contracts potentially could be broken down into small contracts, "but it takes a lot of effort and it takes a lot of time" on the part of the acquisition workforce, said Linda Hillmer, chairwoman of the Small Business Division of the National Defense Industrial Association.

The department — like the rest of the federal government — has struggled with maintaining a well-trained acquisition workforce, especially with new employees expected to enter the workforce in coming years. A 2008 Government Accountability Office report found 55 percent of the acquisition workforce will be eligible to retire in 2018.

"The acquisition workforce, their job is to get those contracts out and to get them out according to law. For them to find small businesses and try to hunt down small businesses and then qualify small businesses — it takes a lot of time," Hillmer said. "Traditionally, the Department of Defense has not rewarded that kind of effort. I think things are changing now throughout the federal government and they are trying to reward small business contracts, but there's a long way to go."

The department has made up the shortcoming in weapons systems by devoting more small business dollars to other areas, such as facilities management and research and development.

But this scenario puts DoD in the position of "defining the market space," said Stan Soloway, president of the Professional Services Council.

"If I'm a larger company ... that has an expertise in facilities maintenance, that market is slowly but surely closed off to any other-than-small or very large facilities contract," Soloway said.

Opportunities in subcontracting

The department has had more success in subcontracting to small businesses. In 2010 and 2011, DoD exceeded its subcontracting goal of 31.7 percent — hitting 35.2 percent in fiscal 2011 and 37.3 percent in fiscal 2010.

“[Being a subcontractor], you generally don't get to meet with the client yourself, so you don't get to form that very important relationship that in the future could result in a prime contract directly to the small business.”

— Linda Hillmer,
Chairwoman, Small Business Division, National Defense Industrial Association