Congress moves forward on measures for small-business contractors

budget 4By J.D. Harrison

Under the direction of former Chairman Sam Graves (R-Mo.), the House Small Business Committee over the past six years made overhauling the federal contracting process one of its top priorities, spearheading a number of initiatives intended to funnel more work – and by extension, taxpayer money – to small businesses. When Graves stepped down from the panel at the end of last year, it was unclear whether that effort would continue, or at least whether it would remain near the top of the committee’s to-do list.

Instead, it’s like he never left.

Now led by Rep. Steve Chabot (R-Ohio), the small business committee has picked up right where Graves left off. Chabot and crew recently held a series of hearings on a number of challenges facing small contractors, and last week, the panel marked up and approved a comprehensive package of changes stemming from those conversations.

“We know that when small businesses compete for federal work, it creates jobs, improves the quality of work, and saves taxpayers’ money,” Chabot said when rolling out the proposal, calling the proposed bill – dubbed the Small Contractors Improve Competition Act – “a commonsense approach to make sure that Washington is working with Main Street.”

This latest effort comes after federal agencies last year successfully hit their annual goal of delivering 23 percent of contracting dollars to small businesses for the first time since 2005. However, the money is flowing to a smaller number of businesses in the form of increasingly larger awards, suggesting that new and particularly small players may be struggling to break into the contracting arena. At the same time, there’s evidence that many of the contracts that are categorized as small-business awards actually go to large companies.

The committee has attempted to address both problems, among others, with this latest piece of legislation.

It’s unclear whether the package will be able to move through Congress on its own, but if recent history is any indication, the changes have a good shot at becoming law. Similar bundles of contract reforms approved by the small business panel have passed as part of the annual defense spending budget in each of the last few years. However, that process doesn’t take place until the end of the calendar year; thus, it could be some time before changes take effect.

For now, here’s a look at some of the proposals in the package and what they would mean for small companies that currently – or hope to in the future – work with Uncle Sam.

More emphasis on subcontracting goals

In addition to the overall 23-percent small-business contracting target, the Small Business Administration must every year set individual goals for each agency (combined, they must add up to allow the government to hit the 23 percent mark). What’s not as widely known, though, is that each department also has a small-business subcontracting goal. All told, roughly 40 percent of the money flowing through prime contractors is supposed to go to small businesses.

In handing out contracting grades, though, the SBA’s process gives little weight to an agency’s subcontracting performance. In other words, an agency can earn high marks even if most of its contracts are flowing through small businesses and into the hands of large corporations. Changes in the proposed legislation would require the SBA to factor each agency’s subcontracting performance more heavily into its annual grades. In addition, the bill would require that the small-business subcontracting goal performance be part of the evaluation process for senior agency officials for bonus purposes.

“The federal government awards billions of dollars in contracts and subcontracts to small businesses every year,” Rep. Judy Chu (D-Calif.), who initially proposed some of the subcontracting rule changes, said in a statement after the markup. “But without appropriate means of tracking awards, there is no accountability to ensure that we are succeeding at reaching our goal.”

Cut back on contract bundling

One of the most common complaints from small government contractors is that departments often “bundle” many small projects together, essentially making the contract suitable only for large companies with a large arsenal of capabilities – not highly specialized small businesses. While there are some laws already in place to deter agencies from bundling, the committee in recent hearings heard testimony indicating that the process still exists, sometimes leaving thousands of small businesses ineligible to compete for work they handled in the past.

Under the proposed legislation, each department would have to investigate their current processes and implement a plan to better adhere to anti-bundling laws. In addition, when departments currently lump smaller contracts together, they have a year to publish documents justifying the decision and showing why small firms won’t lose out. Under the new bill, every department would have to file those documents at the same time they solicit bids for the project.

Barriers removed for new joint ventures

A valuable tool for small companies looking to expand their presence in the federal procurement arena is the joint venture. Small firms can – and in fact are encouraged in many cases – to partner with a large company to bid on contract proposals. In the past, Congress approved language stripping away some of the restrictions on those sorts of joint ventures in an attempt to encourage even more small businesses to consider that path.

In some cases, though, new joint ventures struggle to win contracts because a number of federal departments have said that they only consider past performance of the partnership – that is, if this is the first time the companies have joined forces, there may be no history to consider, even if the small business has a proven track record with the federal government. If approved, the legislation would require agencies to take each party’s past performance into account.

An investigation into fraud and abuse

Despite a number of attempts to eliminate fraud and abuse in the government contracting arena, millions of dollars of contracts reserved for small businesses wind up in the hands of large corporations every year. The problem appears to stem from a combination of fraudulent activity by large companies masquerading as small businesses as well as mismanagement and reporting errors by contracting officers.

In response, Rep. Janice Hahn (D-Calif.) floated an amendment requiring the Government Accountability Office to conduct another investigation (there have been several in the past) into the problem, identify the root causes and recommend actions Congress and the administration can take to ensure that small-business contracts are actually awarded to small businesses. Her proposal was unanimously approved by the committee and folded into the legislation.

“When Fortune 500 companies are awarded small business contracts, small businesses across the country miss out on billions of dollars,” Hahn said.

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