Small Businesses and Federal Contracting: Good and Bad News

Small Businesses and Federal ContractingThere’s good news and bad news when it comes to small businesses and government contracting.

First, the good news: According to the SBA’s fourth annual small business Procurement Scorecard, small businesses got a record number of federal contracting dollars in 2009. Contracting to all five categories the government measures—small businesses, women-owned businesses, businesses owned by service-disabled veteran, businesses in HUBZones (historically underutilized business zones) and small “disadvantaged” businesses—rose compared to 2008 figures.

Now, the bad news: In every category except “small disadvantaged,” the federal government fell short of its annual small business contracting goals.

Some $97 billion or nearly 22 percent of prime federal contracts awarded between October 1, 2008 and September 30, 2009, went to small businesses. That’s an increase from $93 billion in 2008, but falls some $5 billion below the 23 percent goal that was legislated in 1997.

SBA Administrator Karen Mills says, “This represents real progress, but not enough. We must reaffirm our commitment to ensuring that the 23 percent goal is met and exceeded.” This is the fourth year the scorecard has been issued, but the first time that the SBA used a letter-grade system to rate federal agencies’ performance. The grading is part of efforts to make the data more transparent.

Sixteen agencies were graded A or B, which means they either met or exceeded their goals; four agencies were graded D or F. Goals were set individually for each agency by negotiating with the SBA and were based on past performance and the number of procurement opportunities that were realistically available for small firms.

Reporting on the data, the Wall Street Journal noted that many organizations, including the U.S. Government Accountability Office, have criticized the SBA for not tracking contracts accurately, and have contended that many contracts supposedly set aside for small firms actually go to large companies posing as small ones.

Joe Jordan, the SBA’s associate administrator for government contracting and business development, told the Journal the SBA has boosted efforts to prevent fraud and correct errors. However, the American Small Business League, which has long criticized the SBA’s data, contends the problems have not been resolved. “Generally speaking, we are finding fraud and abuse at the same rate,” Christopher Gunn of the ASBL told the Journal.

Some of the agencies that got poor grades argue that the grading system does not take subcontracts—which are more likely to go to small businesses—into account. The SBA has said it will do more to unbundle big contracts into separate, smaller ones that are easier to award to small companies.

Small businesses have profited from the American Recovery and Reinvestment Act’s stimulus spending, which started in early 2009. Many of the stimulus contracts are small, making them good fits for smaller businesses. As of early August (per the SBA) 30 percent of these contracts have gone to small firms.

You can find the full scorecard and an explanation of the methodology used for grading federal agencies at the SBA’s website.

More in:

Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.