Small Federal Contractors Say Procurement Rules Shut Them Out

Small business contractors may get better opportunities to bid on federal contracts if a Democratic lawmaker succeeds at overhauling federal contracting initiatives designed to streamline procurement.

Witnesses told the House Small Business Committee on Tuesday that the subjectivity of contract officers, changing contract requirements, and lack of clear definitions are all contributing to the headaches of small businesses that want to compete for federal work.

The number of small businesses with federal contract work shrank by 38% between 2010 and 2019, Committee Chair Nydia Velázquez (D-N.Y.) said in her opening remarks.

Velázquez said that the implementation of the federal government’s category management initiative—an effort to buy goods and services under a single enterprise to save money—has lead to a decline in small company contractors.

She’s called for more stand-alone contract opportunities and the creation of entry-level governmentwide contracts for the smallest firms, among other proposals.

Witnesses said lumping multiple wide-ranging products for one solicitation, along with the costs and resources needed to bid on the contract, are making it difficult for small businesses to win government work.

Lynn Ann Casey, CEO of Arc Aspicio, estimated that it costs her firm between $60,000 and $100,000 per proposal just to meet quality certifications. After that, award time frames can take at least a year, which delays opportunities to bid as a company awaits a contract award.

Since the category management initiative was implemented in 2016 through 2019, the number of small firms serving as federal contractors shrank by 17%, Velázquez said.

Velázquez also criticized “Best-In-Class” contracts’ use of a self-scoring evaluation which limits competition to just big businesses or “those that team up to collectively become the biggest.”

Best-In-Class contracts can be used by multiple federal agencies with criteria defined by the Office of Management and Budget.

‘Buy or Be Bought’

“The bundling and consolidation required by category management has required the industry to buy or be bought. Companies now must acquire their competitors to scale at a meaningful pace or buy into a sector to increase revenue,” Amber Hart, co-owner of The Pulse of GovCon, told the committee.

Isaias Alba, partner at PilieroMazza, said the current state of contracting forces companies to go after their private peers as partners so they can check off boxes, rather than trying to prove they’re the “best companies” for that job. This creates a “jack of all trades, potentially master of none scenario,” he said.

Currently, there’s no way of internally tracking the performance work of joint ventures. Alba said it could be beneficial to not only track the money but also to report who’s doing what work to make sure the small businesses are actually benefiting from the joint work.

Witnesses also testified that Covid-19, inflation, and supply chain issues have affected their work under federal contracts with little to no room for adjustments.

“I would think there needs to be some sort of clause or flexibility in there to allow small businesses who are probably not flush with tons and tons of cash—otherwise they’d be bigger businesses—to be able to survive,” committee ranking member Rep. Blaine Luetkemeyer (R-Mo.) said.

Hart noted a February executive order allowing greater flexibility for defense contractors due to inflation.

Witnesses also suggested more oversight and accountability for mentor-protege programs, which partner businesses without previous federal experience with experienced ones.

To contact the reporter on this story: Patty Nieberg in Washington at pnieberg@bloombergindustry.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com