Small Business Related Correspondence November 2008
The Government Accountability Office is continuing to investigate fraud in small-business programs and has established an e-mail address to receive tips about instances of abuse.
The officials in GAO’s Forensic Audits and Special Investigations unit set up smallbizfraud@gao.gov for people to submit legitimate examples of fraud.
In a recent investigation, GAO auditors found numerous problems in the Small Business Administration’s Historically Underutilized Business Zone (HUBZone) program. In addition to HUBZone, officials said they are now investigating SBA’s 8(a) small-business program and the program for companies owned by service-disabled veterans.
“If you’ve got the juice on somebody, contact us,” said Bruce Causseaux, a senior-level contract and procurement fraud specialist at GAO, in an interview with Federal Computer Week.
GAO investigated the HUBZone program at the request of the House Small Business Committee. The program allows agencies to reserve contracts for companies in designated business zones and receive credit toward an annual goal of spending a specific percentage of contract dollars with such companies.
Investigators uncovered numerous abuses and found they could easily defraud the system. They said at least 10 small businesses in the Washington, D.C., area that had been certified as HUBZone companies didn’t belong in the program. Since 2006, agencies have obligated more than $105 million to those firms for work as prime contractors on federal contracts, according to GAO’s investigation. Auditors also got SBA to certify four fake companies as HUBZone firms.
“It looked like an unplowed field” of abuses, said Gregory Kutz, managing director of forensic audits and special investigations at GAO.
Officials said the abuses stemmed mainly from a self-certification system that had few, if any, checks or penalties. Kutz and Causseaux said punishing companies for fraud, perhaps by suspending or even barring them from further work with the government, would decrease the abuses.
Penalties “send a message to people,” Kutz said.
He added that the new investigations have already begun, and he expects to have results by next spring.
The General Services Administration said today it created a new Multiple Award Schedule contract vehicle to provide energy-management support services for agencies. The vehicle seeks to help agencies comply with a presidential executive order to strengthen environmental, energy and transportation conservation goals, the agency said.
Executive Order 13423, which President Bush signed last year, sets goals for agencies in energy efficiency, renewable energy, recycling, sustainable buildings, electronics stewardship and water conservation. The order also requires that agencies use environmental management systems as the framework for managing and continually improving those sustainable practices.
“EO 13423 was a tremendous step toward environmental responsibility governmentwide,” said Tyree Varnado, acting commissioner of GSA’s Federal Acquisition Service. “At GSA, we continue to strive to make it easier for all government agencies to comply.”
GSA’s affiliated contractors can provide the services and expertise agencies need to develop energy management in government buildings, ranging from preliminary energy audits to comprehensive, full-service energy-management solutions, Varnado said.
WASHINGTON – According to a GAO report issued last week, SBA has substantially improved the agency’s overall performance and improved employee morale.
“Over the past six years, the U.S. Small Business Administration has sought to transform the agency and improve its operations,” the GAO said in a performance audit. “In the past two years, SBA has applied key practices that support successful transformations to improve agency operations and, thereby, has taken actions to address recommendations GAO made in its 2003 report, including improving communication, performance management, and employee involvement.”
“I am very pleased with GAO’s findings that confirm the hard work of my predecessor Steve Preston, the diligence of SBA employees both at headquarters and in the field, and the Agency’s commitment to continuous improvement, transparent communications, and high employee morale,” said SBA Acting Administrator Sandy K. Baruah. “SBA’s ability to serve small businesses and entrepreneurs and ensure that our employees are equipped with the tools and support they need, depends on improving all aspects of SBA operations.”
“Instituting a solid performance management framework, improving agency communication and transparency, creating SBA University and additional training, and particularly, substantially improving SBA’s National Guarantee Purchase Center and other loan processing centers going forward, has helped to cement this progress,” he said. “While I am gratified by progress SBA has made, we have more work to do to further improve management and processes,” Baruah added.
The SBA made the following changes as a result of it’s commitment to the GAO recommendations, the GAO report noted. They include:
• “The development of a performance management framework was a key step in linking the agency’s reforms with strategic goals and employee roles.”
• “The Administrator also made a concerted effort to engage SBA’s employees in improving the agency, and meetings with employees affirmed that these efforts had a positive effect.”
• “Some employees continued to feel that management does not consider their ideas and concerns. SBA recently conducted focus groups to understand these concerns and plans to implement initiatives to address them.”
• “SBA senior officials also said that they are taking steps to institutionalize these improvements. SBA leadership’s commitment will be important to ensure that the agency’s transformation and reforms are successful. SBA took some actions to address its low employee morale . . . SBA’s 2007 survey results suggest that these recent actions, such as improving communication and training, have had a positive impact on employees.”
• “The creation of SBA University in 2007 was an important action since it provided training and also showed that the agency was willing to invest resources in the development of employees. SBA officials said they are developing a core training program.” Spanning three weeks in August, 2007, the SBA completed the largest staff training in its history, covering more than 1,300 of its 2,500 permanent employees with a near 80 percent approval rating by employees. Another 330 employees and managers attended a second round in April 2008. The SBA has provided GAO with a draft plan for continued
future training.
• “SBA continues to define the roles and responsibilities of the district offices, as evidenced by its recent determination that district offices should retain a role in loan processes that have been centralized. District directors and employees made positive comments about the flexibility they had in using resources to meet office goals.”
• “SBA recently re-engineered its guaranty purchase process. Its measures to track progress have emphasized the timeliness of the process, completeness of packages lenders submit, and customer service. Performance measures could provide more attention to the quality of reviews.”
SBA both agrees with, and is currently implementing, GAO’s recommendations to “develop measures to track and monitor quality assurance of its centralized loan guaranty purchase center” and to “develop a strategic training plan” for employees.
“In this difficult economic environment, SBA is committed to continuing to build upon the success achieved and will continue to focus on employee morale and agency performance and operations. We continue to be mindful of the agency’s mission, to provide access to capital, training and technical assistance, and to provide federal procurement opportunities for the nation’s small businesses and entrepreneurs,” said Baruah.
The full GAO report is available at http://www.gao.gov/cgi-bin/getrpt?GAO-08-995
Highlights - http://www.gao.gov/highlights/d08995high.pdf
WASHINGTON – Legislative changes will make a U.S. Small Business Administration loan program more accessible to small businesses facing financial loss when the owner or essential employee is called to active military duty by extending the application period, increasing the unsecured loan threshold, and raising the maximum loan limit.
Changes to the Military Reservist Economic Injury Disaster Loan (MREIDL) program became effective October 28.
“The SBA is proud to be able to support the men and women who serve in America’s military services,” said SBA Acting Administrator Sandy K. Baruah. “Their service is not only honorable and selfless, but it makes them more talented and resourceful employees when they return home. That makes it doubly important that the small businesses they left when they were called to active duty are still operating when they come home. As they have worked to defend their country, the SBA’s military reservist loan program aims to support those small businesses by providing the funds needed to cover their expenses and continue successful operations.”
Under the new rules, a small business can apply for an MREIDL on the date the essential employee receives notice of the expected call-up. The application period is extended to one year after the essential employee is discharged from active duty, an increase from the previous 90-day application window.
In addition, the small business is no longer required to pledge collateral to secure an MREIDL of $50,000 or less. Previously, the business was required to put up collateral if the loan amount exceeded $5,000.
The Small Business Disaster Response and Loan Improvements Act, passed in May 2008, also increased the MREIDL cap from $1.5 million to $2 million.
The MREIDL is a direct working capital loan, and the funds may be used to cover operating costs until the essential employee or business owner is released from active duty. An “essential employee” is defined as an individual (whether or not the owner of the small business) whose managerial or technical skill is critical to the successful daily operation of the business. The interest rate on these working capital loans is 4 percent, with terms up to a maximum of 30 years.
Businesses can apply online by going to the Web site at www.sba.gov/services/disasterassistance. To get an application by mail, or for other questions about the loan program, contact SBA’s Disaster Assistance Customer Service Center at 800-659-2955 or by e-mail at disastercustomerservice@sba.gov.
The Federal Acquisition Regulation will be amended to reflect new ethics rules enacted in a recent supplemental appropriations bill, but many details remain unspecified.
President Bush signed the bill, H.R. 2642, June 30.
The bill requires contractors to report violations of the law and overpayments they receive from agencies, but it does not indicate to whom the contractors should report. Those specifics remain for the FAR Council to figure out, said Rob Burton, an attorney at Venable and former deputy administrator of the Office of Federal Procurement Policy.
"This, to me, is huge," Burton said, referring to the mandatory reporting requirements. He was moderating a panel discussion on ethics at the Executive Leadership Conference, an American Council on Technology/Industry Advisory Council event.
Congress also asked OFPP to look at how the FAR handles organizational conflicts of interest, another widely discussed ethical issue. Congress has essentially asked OFPP to see if the FAR rules on such conflicts needs to be strengthened. "The implication is, Congress thinks it does need to be beefed up," he said.
Stan Soloway, president of the Professional Services Council and a panelist, said he believes government should remain cautious about regulation and not impose too many restrictions on agencies and contractors.
"We have a few cases of waste, even fewer cases of abuse and almost no cases of genuine fraud," he said. "But we treat them all as they were synonymous."
While the presidential candidates talk about plans to cut back or end the use of contracts that provide companies an award for their work, rather than setting a fixed price, Congress has already acted.
Lawmakers clamped down on cost-plus contracts in the fiscal 2009 National Defense Authorization Act (S. 3001), that President Bush signed Oct. 14.
By mid-July 2009, officials must update the Federal Acquisition Regulation with direction on what circumstances warrant an agency turning to cost-plus contracts. The regulatory revision must include the necessary evidence to use those contracts and the resources an acquisition workforce must have to award and manage those contract types well, the law states.
Before the next president and Congress do more to limit the future of those unique contracts, acquisition experts say officials need to understand the real problems underlying the waste and abuse that critics connect to those contracts.
Clay Johnson, deputy director for management at the Office of Management and Budget, said in a recent speech that agencies carry most of the blame for the problems with cost-plus contracts. “We’re not good at contract management,” he said.
The arcane rules of federal contracting don’t get much attention from the public, but even so, cost-plus contracting came up in the first presidential debate. Republican presidential nominee Sen. John McCain said he would end cost-plus contracts as a way to control defense spending and manage costs.
“We need to have fixed-cost contracts,” he said. “We need very badly to understand that defense spending is very important and vital, particularly in the new challenges we face in the world, but we have to get a lot of the cost overruns under control.”
Under cost-plus contracts, the government carries much of the risk of a project that has many unknowns. The contracts offer agencies the flexibility to maneuver through unclear situations. But the FAR gives contracting officers several options to make the acquisition process run as smoothly as possible.
For instance, in cases where requirements are initially unclear, a department can pay a company for its time and materials, as it would under a cost-plus contract. But once the requirements are firm, they could modify it to a fixed-price contract. It may be true that cost-plus contracts can heighten the potential for abuse, but experts say that banning them from government use is too broad a solution.
“Why would you want to tie a contracting officer’s arms?” asked Kevin Plexico, executive vice president of information services at Input, a market research firm. Forbidding the use of the contract would bring unintended consequences, such as major project delays, timid companies and higher prices, he said. “If the government goes only to firm, fixed-price contracts, the contractors have no option but to bid high to cover their risk,” said an executive at a small IT support company. “You know what they say, ‘You get what you pay for.’ ”
Trey Hodgkins, vice president of federal government programs at the Information Technology Association of America, said the most obvious and immediate effect would be program delays as agencies take more time to define their requirements. Because they are bidding a fixed price, companies need to know exactly what they are bidding on.
Experts say there are better ways to avoid the problems of delays and higher prices: Well-defined project requirements and more supervision.
Experts say agencies often provide bidders with incomplete requirements when soliciting or even awarding contracts. In fixed-price procurements, contractors are at risk of having costs escalate after the contract is signed, which eats into their profits.
This is particularly true in projects with large unknown variables, such as research and development programs and urgent procurements. “It’s not in the government’s best interest to shoehorn a situation that has ill-defined requirements into a fixed-price contract,” Hodgkins said. However, if the cost-plus contracts are well-managed, the problems should dissipate, Plexico said. While McCain suggested the end of cost-plus contracts, Democratic presidential nominee Sen. Barack Obama’s position aligns with the language in the defense authorization legislation.
In a policy statement, Obama said he would require audits of a quarter of large contracts each year, focusing in the first year of his presidency on noncompetitive and cost-plus contracts. Obama said he believes these contracts are vulnerable to waste because they provide no incentive to control costs. Obama said he would encourage more fixed-price or incentive-based contracts. But when cost-plus contracts are necessary, he would force agencies to use incentives tied to performance goals and cost savings.
Congress seems to be generally leery of cost-plus contracts as well, Plexico said. Rep. Henry Waxman (D-Calif.), chairman of the House Oversight and Government Reform Committee, has pushed for years to reform contracting regulations, including curtailing cost-plus contracts.
Waxman has said cost-plus contracts leave the government vulnerable to wasteful spending. Those reforms found a home in this year’s Defense Authorization bill.
Similarly, Sen. Susan Collins (R-Maine), ranking member of the Senate Homeland Security and Governmental Affairs Committee, introduced contracting reforms to curb cost-plus contracts and add oversight to them. According to reports by both committees, the House and Senate believe cost-plus contracts have their place in the contracting officers’ toolboxes. But the contracts are abused because agencies often don’t keep tight reins on the contracts. For some longtime acquisition experts, hearing presidential nominees and Congress talk about cracking down on contracting brings back memories.
“You know it’s time to retire when you see the same solution to a problem that you remember seeing earlier in your career,” said an Air Force officer who works in acquisition. In the 1980s, the government was upset about program costs and decided to outlaw cost-plus contracts and allow only fixed-price contracts, which pay companies a fee and no bonus for good work or for other costs.
“Didn’t work then and won’t work now because the type of contract is not the problem,” he said. Phil Kiviat, partner at the Guerra Kiviat consulting firm, who started working for the government in 1972, said he’s heard that before, too.
“There’s a cycle to everything,” he said.
The government came close to meeting its governmentwide small-business contracting goal of 23 percent in fiscal 2007, missing by less than 1 percent. However, Small Business Administration officials said the percentage is based on error-filled data, making it difficult to know whether the failure was real or illusory, and what the real numbers might be.
Sandy Baruah, acting SBA administrator, said SBA doesn’t directly control how thoroughly agencies clean their past small-business data in the Federal Procurement Data System, or how much emphasis agencies put on getting good data. SBA has no way to check up on the quality of agencies’ data, he said.
“We provide the summary of all the data that comes up through the federal agencies” but ultimately the score is based on the data they submit, Baruah said last week.
In cleaning data from fiscal 2006 small-business contracting, officials removed approximately $5 billion in miscoded small-business data in FPDS. That comes to roughly 6 percent of contracting dollars.
The problems with data were confirmed by a 2008 report by the Interior Department’s inspector general. The IG found contracting officers’ coding errors were the primary reason large companies were listed as holding small-business contracts. Interior took credit over the past two years for more than $5.7 million in small-business contracts that it actually awarded to large corporations, some of which are Fortune 500 companies.
“Contracting officers often click through mindlessly when entering contracts” in FPDS, the report states, quoting a contracting officer at Interior who was interviewed for the report.
The Office of Federal Procurement Policy in 2007 told agencies to make data quality a top priority so FPDS could be an authoritative source for federal information.
To get that improved data, Jim Williams, acting administrator of the General Services Administration, suggested in a speech last week that electronic purchasing tools would likely help. Maintaining a flow of quality information will continue to be important for whoever wins the presidential election, he said.
But based on the data SBA has, the federal government missed its overall small-business contracting goal for fiscal 2007. The government spent $83.27 billion, or 22 percent of its contracting dollars, on prime contracts with small businesses in fiscal 2007, an increase of $6.07 billion compared the previous year, according to SBA’s small-business contract score card. The governmentwide goal is 23 percent annually.
As a whole, agencies reached only one of five governmentwide socioeconomic goals in fiscal 2007. Small, disadvantaged businesses received $24.9 billion, or 6.58 percent of agencies’ contracting dollars. The goal is 5 percent.
The federal government missed its overall small-business contracting goal for fiscal 2007, Small Business Administration officials said today.
The government spent $83.27 billion, or 22 percent of its contracting dollars, on prime contracts with small businesses in that year, an increase of $6.07 billion compared with the previous year, according to SBA’s small-business contract score card released today. The governmentwide goal is 23 percent annually.
Agencies as a whole reached only one of the governmentwide socioeconomic goals in fiscal 2007. Small, disadvantaged businesses received $24.9 billion, or 6.58 percent of agencies’ contracting dollars. The goal is 5 percent. Agencies fell short of contracting with small businesses owned by women, service-disabled veterans and businesses located in Historically Underutilized Business Zones, according to the score card.
“The federal government, across all federal agencies, has more work to do to ensure that we meet, or hopefully exceed, our government goal for small-business contracting,” Sandy Baruah, acting SBA administrator, said.
For fiscal 2007, three of the 24 departments measured on the score card reached all of their small-business goals: the Veterans Affairs and Energy departments and SBA. However the U.S. Agency for International Development and the Justice Department reached none of their five small-business goals, according to the score card.
SBA rates agencies with green, yellow or red scores on each individual goal established by Congress. Individually, each federal agency and SBA work out a different annual small-business goal.
To grade agencies on those goals, SBA uses data from the Federal Procurement Data System, which is filled out by agencies. Baruah acknowledged that the data has errors because of mistakes by agencies. Agencies enter the contracting information into the data system, although procurement officials have pushed for cleaner data through certifications by agencies. SBA does not directly control that input, he said.
As a result of checking the FPDS’ information, officials removed $5 billion from 2006’s total contracting dollars, he said. Baruah estimated about a 6 percent error rate for the data.
SBA’s score card includes those errors and they may affect the scores, but Baruah said SBA relies on agencies to do their part in entering accurate data into FPDS.
Small businesses won a record $83.2 billion in federal prime contracts in Fiscal Year 2007, an increase of almost $6 billion from 2006, according to the U.S. Small Business Administration’s second annual small business procurement scorecard, which was released today. In addition, each socio-economic group increased its share of federal contracting dollars by at least $1 billion.
The total does not include $3.9 billion worth of contracts for which size was not indicated in the federal government’s official database, the FPDS-NG. As a result, none of those dollars were counted toward small business achievement numbers. Also not included was an additional $64.8 billion in federal subcontract dollars received by small businesses.
All told, the federal government database shows that federal agencies awarded 22 percent of their contracting dollars to small businesses, just short of the 23 percent government-wide goal. Achieving 22 percent, shy of the 23 percent goal, reflects the need for the federal government to bolster its efforts across government to secure contracting opportunities for small businesses. It also reflects SBA’s efforts to increase the transparency, accuracy and accountability of small business federal contracting have been effective.
“We are proud of the small business community for capturing more dollars in federal contracts and also of the agencies for making good progress in reaching their goals,” said SBA Acting Administrator Sandy Baruah. “This year, the SBA made it more challenging for federal agencies to meet their goals, due to our initiatives to cleanse the federal contracting database of bad data, and ensure that small businesses receiving small business contracts meet the definition of small. This is good news for small businesses because it means the government will need to work harder to get federal contracts into the hands of small businesses.”
Small Business Goaling Summary Report
Small Businesses
2006: Goal - 23%, 2006 percentage - 22.8%, 2006 dollars - $77.7 billion
2007: Goal - 23% 2007 percentage - 22%, 2007 dollars - $83.2 billion
Small Disadvantaged Businesses
2006: Goal - 5%, 2006 percentage - 6.8%, 2006 dollars - $23 billion
2007: Goal - 5%, 2007 percentage - 6.6%, 2007 dollars - $24.9 billion
Service-disabled Vets
2006: Goal - 3%, 2006 percentage - 0.9%, 2006 dollars - $2.9 billion
2007: Goal - 3% 2007 percentage - 1.01%, 2007 dollars - $3.8 billion
Women
2006: Goal - 5%, 2006 percentage - 3.4%, 2006 dollars - $11.6 billion
2007: Goal - 5% 2007 percentage - 3.4%, 2007 dollars - $13 billion
HUBZone
2006: Goal - 3%, 2006 percentage - 2.1%, 2006 dollars - $7.2 billion
2007: Goal - 3% 2007 percentage - 2.2%, 2007 dollars - $8.5 billion
Baruah also said the release of the Scorecard this year was delayed partly because he wanted to personally review the process and the rationale for the ratings after he was named Acting Administrator in August. Also, he said he wanted to ensure that senior officials at federal agencies had the opportunity to fully review and understand their data and how they were graded.
The annual Scorecard rated federal agency performance in meeting the overall small business goal and the component contracting goals for small disadvantaged businesses, small businesses in HUBZones, and small businesses owned by women, and service-disabled veterans.
• The following 17 agencies met their small business contracting goals:
the departments of Veterans Affairs, Agriculture, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, Interior, Labor, State, Transportation, Treasury, and the Environmental Protection Agency, General Services Administration, National Aeronautics and Space Administration, Nuclear Regulatory Commission, Office of Personnel Management, and SBA.
• The following 17 agencies met their goals for contracts to small
disadvantaged businesses: the departments of Agriculture, Interior, Defense, Veterans Affairs, Energy, Homeland Security, Housing and Urban Development, Labor, State, and Transportation, and the Environmental Protection Agency, General Services Administration, National Aeronautics and Space Administration, National Science Foundation, Nuclear Regulatory Commission, Office of Personnel Management, and SBA.
• The following 16 agencies met their goals for women-owned small
businesses: the departments of Veterans Affairs, Agriculture, Commerce, Education, Energy, Homeland Security, Interior, Labor, State, Transportation, and Treasury, and the Nuclear Regulatory Commission, General Services Administration, Environmental Protection Agency, National Science Foundation, and SBA.
• The following 10 agencies met their HUBZone contracting goals: the
departments of Agriculture, Energy, Homeland Security, Veterans Affairs, Transportation, Interior, and the Social Security Administration, General Services Administration, Nuclear Regulatory Commission, and SBA.
• The following four agencies met their goals for small business owned
by service-disabled veterans: the departments of Veterans Affairs and Energy, the Environmental Protection Agency, and SBA.
According to the Scorecard ratings of performance on all five goals:
• Three agencies – VA, DOE and SBA – met or surpassed their goals in all areas.
• Seven agencies – DHS, USDA, DOT, and DOI, NRC, GSA, and EPA – met or surpassed four of the five goals.
• Two agencies – DOL and State, – met or surpassed three of the five goals.
• Five agencies – Treasury, HUD, OPM, NSF and NASA – met or surpassed two of the five goals.
• Five agencies – DOC, DOD, SSA, Department of Education, and HHS – met or surpassed one of the five goals.
• Two agencies – DOJ and USAID – met none of the five goals.
SBA’s Scorecard builds on a series of significant initiatives the agency began two years ago to improve small business access to federal contracts. SBA, along with the Office of Federal Procurement Policy, ordered the federal contracting database to be scrubbed, removing many cases of non-profits, state or local governments, and large companies that were recorded erroneously as small businesses.
The agency also issued a rule – effective July 1, 2007 – requiring any small business with a federal contract to recertify its size if it merged or was acquired, and to recertify its size a minimum of every five years on a contract longer than five years. In some cases, businesses had won contracts when they were small, but then grew, merged, or were acquired by large firms and were still recorded as small businesses.
“SBA, working with federal agencies, has made tremendous strides to ensure that the small business government contracting system has integrity, accuracy and opens opportunity for small businesses,” said Baruah. “The release of the scorecard is a useful tool that allows federal agencies to track their progress and identify areas of improvement. We are committed to making government contracting programs work effectively and look forward to continuing our work with sister agencies on reaching small business procurement goals.”
About the Scorecard
SBA rates 24 agencies green, yellow or red on each of the individual goals established by Congress and gave a numerical score to each agency based on how many of the five goals were met or surpassed.
Each federal agency has a different small business contracting goal, determined annually in consultation with SBA. SBA ensures that the sum total
of all of the goals meets the 23 percent target established by law.
With nearly 10 million contracting actions each year, miscodings and errors will not be completely eliminated from the contracting database. By publicizing the reports, and providing new tools to facilitate public review of the database, SBA and OFPP will enlist affected businesses and other stakeholders in the effort to continuously improve the accuracy and integrity of the procurement data.
The goaling reports released today by SBA are available at
http://www.sba.gov/aboutsba/sbaprograms/goals/index.html
Today The Washington Post reported that in 2007, $5 billion of federal contracts coded as having gone to small businesses actually went to large companies. This finding confirms the U.S. Small Business Administration’s long-stated assessment of the relative size of the large business/small business contracting issue and refutes claims that a much larger sum goes to large companies. In 2006, SBA’s own analysis of contracting found $4.6 billion in miscodes.
The Post reviewed FY 2007 contracts in the General Services Administration’s Federal Procurement Database System-Next Generation that were counted toward federal agencies’ small business contracting goals. In 2007, $83.2 billion in federal prime contracts went to small business, a significant increase from $77.7 billion in 2006. In 2001, the total number of federal small business contracts was $50 billion.
“While we haven’t had a chance to review The Post’s analysis in detail, in general, the findings confirm SBA’s analysis,” said Acting SBA Administrator Sandy K. Baruah. “Transparency is the best medicine and SBA welcomes public scrutiny to help identify errors in the government’s database.”
Baruah noted that the 2007 miscode number was likely higher than it would be in subsequent years as SBA’s recertification rule to address the issue took effect in summer 2007. This rule requires small businesses with federal contracts to recertify their size if they merged or were acquired, and to recertify their size a minimum of every five years on contracts longer than five years. In some cases, businesses have won contracts when they were small, but then grew, merged, or were acquired by large firms and were still recorded as small businesses. The agency estimates that at least $10 billion in incorrectly coded small business contracts will be cut from federal roles in the near as a result of the new rule.
Baruah also noted that The Post confirmed SBA’s judgment that large companies were listed as small business due to miscodings in the government- wide database, which in 2007 was more than six million individual contract actions recorded across the federal government.
This conclusion was bolstered last summer by the Department of the Interior’s Inspector General which found contracting officer coding errors were the primary reason large companies listed were listed as holding small business contracts.
“The main reasons contracts to large businesses have been incorrectly coded as small business contracts relate to data entry mistakes, reliance on incorrect data, and a failure on the part of contracting officials to verify business size reported in Central Contract Registration,” the report said.
See: http://www.sba.gov/idc/groups/public/documents/sba_homepage/press_releas
e_08-67-a.pdf
Baruah also noted that since 2006, SBA and the Bush Administration have made several major reforms which are improving the small business contracting system:
• Clean Data – In conjunction with the Office of Federal Procurement Policy, ordered the federal contracting database scrubbed last year to bring much greater integrity to the data. This removed $4.6 billion from the contract database.
http://www.sba.gov/idc/groups/public/documents/sba_homepage/news_06-61.pdf
• Recertification – SBA tightened the definition of small business in the federal database. We estimate an additional $5 billion-$10 billion will be removed this year and that with these steps, the quality of data will increase measurably over time.
http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_monnews_0740.pdf
• Scorecard – Last year SBA inaugurated an important tool to hold agencies publicly accountable for their small business contracting achievements. This public scrutiny has greatly improved SBA's ability to improve small business contracting.
http://www.sba.gov/idc/groups/public/documents/sba_homepage/sba_news_07
-51.pdf
• Public data – As mentioned, the data on all contracts has long been open to the public. However, new Web resources such as usaspending.gov further improve the public’s visibility into the matter. Additionally, SBA provides a snapshot of the small business data annually through its Goaling Report.
http://www.sba.gov/idc/groups/public/documents/sba_homepage/sba_news_07
-51.pdf
• The Office of Federal Procurement Policy issued guidance to the federal acquisition community requiring that they establish and document procedures for validation and verification of contracting data contained in the Federal Procurement Data System-Next Generation, and that they attest to the data each year.
“The Post’s report, taken along with other credible analyses, should lay to rest once and for all the unsubstantiated or uninformed claim that scores of billions in small business contracts is purposely diverted to large businesses,” Baruah said.
For more on SBA’s contracting reforms, see: http://www.sba.gov/idc/groups/public/documents/sba_homepage/calvin_jenkin
s_commentary.pdf
U.S. government agencies made at least $5 billion in mistakes in their recent reports of contracts awarded to small businesses, with many claiming credit for awards to companies that long ago outgrew the designation or never qualified in the first place, a Washington Post analysis shows.
The Post examined a sampling of the $89 billion in contracts the agencies classified as small-business awards, which help them satisfy a congressional mandate to award nearly a fourth of all government work to small firms.
In the data The Post analyzed, federal agencies counted Lockheed Martin and its subsidiaries as "small" on 207 contracts worth $143 million. Dell Computer, a Fortune 500 company, was listed as a small business on $89 million in contracts.
The Navy claimed that $60 million in work it gave to Digital System Resources, a division of General Dynamics, went to a small firm -- a year after agencies were warned that DSR did not qualify. The Defense Department, which for a century has used Electric Boat to build submarines, labeled the firm as a small business for $1 million in supplies and services. The Department of Veterans Affairs said a computer glitch caused it to claim a $29 million payment to defense security giant CACI as a small-business award.
Government officials questioned by The Post acknowledged that mistakes are a long-standing problem, leading to exaggerated claims about the amount of federal work directed to a growing sector of the economy. The Small Business Administration, which annually reports on how agencies performed, said it thinks that many agency mistakes, including some The Post identified, have been corrected in a long-delayed report it plans to release today. The SBA has worked with agencies in the past several weeks to scrub errors from the data.
An SBA spokesman said it will report that small businesses obtained $83.2 billion in federal work last year -- about a $6 billion drop from what agencies claimed last month in a federal database SBA uses to track small-business awards.
"Are there lots of errors in the data? We have to say yes," said Calvin Jenkins, SBA's deputy associate administrator for government contracting. "But is it getting more accurate? Absolutely, it is. We rely to some extent on the public to help us fix some of these obvious errors."
The federal definition of a small business varies dramatically from industry to industry. For some, a business qualifies as small if it has fewer than 500 employees. For others, it must have less than $17 million in annual revenue.
Advocates for small businesses contend that the mistaken agency claims are more than a numbers game. When agencies take credit for awarding contracts to companies that are not small, they penalize legitimate enterprises that need government help, they say.
"I keep asking, 'How does this keep happening, and why isn't it being caught?' " said Robert Taddeo, president of Pacifica Electronics, a small business that repairs military aircraft communication systems. "What I've learned is the U.S. government is just lazy and lax in making sure to use legitimate small businesses that can do the work and keep down the cost to the taxpayers."
Lloyd Chapman, president of the American Small Business League, said the Bush administration has hurt the economy by not protecting small businesses' fair share. "For very dollar that was taken away from small business and miscounted, companies were forced into bankruptcy and to close their doors," he said.
The administration pledged last year to impose new controls to ensure greater reporting accuracy. But problems persist.
Acting SBA Inspector General Peter McClintock said he is frustrated. "It is clear that more needs to be done and that contracting offices need to be held accountable for accurate reporting," he said.
Congress in 1997 established the government-wide goal of awarding 23 percent of its work to small businesses because they play an increasingly critical role in driving the economy. Small firms now employ more than half of the nation's workers and are responsible for 60 to 80 percent of jobs created each year.
The 23 percent goal is in addition to tailored government programs that reach out to disadvantaged or minority firms by setting aside certain contracts for them or programs that give bidding preferences to small businesses.
Companies doing work with the government are entered into a huge government database known as the Federal Procurement Data System and maintained by the General Services Administration. Procuring agencies note whether the company qualifies as a small business.
To sample the data's accuracy, The Post examined contracts awarded to the top 200 winners that were also classified last month as small businesses, a total of about $13 billion in contracts. The analysis also scrutinized $1 billion in contracts won by eight specific Fortune 1,000 companies and their subsidiaries.
The most errors -- 70 percent -- were made by the Defense and Homeland Security departments and the General Services Administration, the Post analysis showed.
The Post found that 36 of the 200 companies at the top of the government's list do not qualify as small under government definitions and were improperly counted. Federal procurement officials either did not check or ignored readily available records, including the government's own small-business registry.
About $1.2 billion in work was won directly by international conglomerates with thousands of employees. That included global defense giants such as British Aerospace, General Dynamics, Northrop Grumman and Science Applications International Corp. (SAIC) and their subsidiaries.
SAIC and its subsidiaries were the biggest winners of work that was improperly counted. The San Diego-based information technology firm and its subsidiaries won $258 million in contracts initially classified as small-business awards -- $223 million from the Defense Department. SAIC spokeswoman Laura Luke said the firm never presents itself as small and alerts the government that firms it has purchased should lose their small-business label.
The Pentagon said it is reviewing The Post's findings, but suspects some acquired companies remained classified as small under long-term contracts that were not modified.
"The department takes the accuracy of the information reported to FPDS very seriously," said James Finley, defense's deputy undersecretary for acquisition and technology.
The main reason why mistakes persist is that no real sanctions exist for agencies that consistently overstate their small-businesses awards. The errors are unlikely to be caught, officials say, because the SBA lacks the staff and the clout to stop them.
"These big companies have been allowed to get away with this for so long, they don't even bother to change or hide their name," said Bill Miera, chief executive of Fiore Industries, a military contractor in New Mexico. "The motivation is purely profit."
Corporate officials who reviewed The Post's findings said the government sometimes is mistakenly categorizing behemoth contractors as small, but more often is failing to notice when small companies are absorbed by larger corporations.
Leaders at Lockheed Martin, Dell and many other large corporations acknowledge the errors but say they are not to blame.
"We have not found any instances that Dell Marketing L.P. or Dell Federal Systems L.P. was inaccurately described (by Dell) as a small business," Dell said in a statement.
Lockheed Martin said in a statement that the government appears to have miscounted as small businesses some of the firms it purchased, and added: "We do not bid on or compete for federal contracts as a small business."
Last year, the Pentagon counted as small-business contracts the $62 million it gave to SYColeman, a video production company in Arlington.
The millions of dollars paid to produce pro-American articles and broadcasts for Iraqi television and radio, however, went to a subsidiary owned by L-3 Communications. The L-3 conglomerate headquartered in New York is the one of the world's largest defense contractors and boasted $12 billion in revenue last year.
A spokesman for U.S. Special Operations Command said that labeling SYColeman a small firm was human error.
"On June 10, 2008, the SYColeman contract was listed in the federal database as a 'small business' in error after a USSOCOM contracting officer entered the wrong code," Lt. Cmdr. Marc Boyd wrote.
Sen. John F. Kerry (D-Mass.), chairman of the Senate committee on small business, said it is another example of the government's "phony numbers" and broken promise to the small businesses that make up 99 percent of U.S. companies.
"They aren't checking. They don't care," he said. "They simply aren't doing their job of looking out for small business."
Members of Congress, concerned by several recent high-profile contracting fumbles, want the Defense Department to improve its processes for collecting and using information about contractors’ past performance.
The Senate Armed Services Committee thinks DOD is sometimes getting poor performance from contractors because of its own poor performance in checking companies’ track records, according to a committee report.
“Contracting officers have become somewhat lax,” said Robert Burton, former deputy administrator at the Office of Federal Procurement Policy and now partner at law firm Venable.
In the report, which accompanied the fiscal 2009 National Defense Authorization Act (S. 3001), the Senate committee pressed officials to show how they intend to improve their use of past-performance information. At least some of that information is seriously flawed, the report states.
In one example the committee cited, the Air Force awarded a communications contract to a company that had received top ratings on its past-performance. However, it was a new company that had never done similar work.
In another case, the Army awarded a $300 million ammunition contract to AEY, a small ammunition company. The company didn’t package the materials as the contract required. The company also provided ammunition originally made in China, while telling the Army it came from Hungary, according to congressional testimony.
However, AEY had good past-performance information. Ralph Merrill, president of weapons dealer Vector Arms, wrote in an e-mail message to a DOD contracting officer that AEY had been a good working partner and he would work with the company again. He described the company as “reliable, competent, efficient and honest,” in that 2006 message. Despite the good recommendation, the Army ultimately ended the contract because AEY was “in direct violation of contract requirements,” according to the testimony.
Meanwhile, DOD’s information-gathering process is haphazard, according to an inspector general review. The IG found that 82 percent of DOD’s past-performance assessments didn’t contain sufficient narratives to establish that ratings were credible and justified. Similarly, the IG found that 68 percent of assessments were overdue and 39 percent were overdue by a year or more.
“Government acquisition officials do not have all past-performance information needed to make informed decisions,” DOD’s IG concluded in a February report on past-performance assessments.
Learning of these problems and specific examples, the Senate panel is pressing DOD officials to show it how they intend to improve their use of past-performance information. By Oct. 2009, the committee wants to know the steps DOD officials intend to take to have the acquisition workforce gathering the information in greater detail and putting it to better use.
In response to the IG’s report, officials from DOD and the Air Force said they would require contracting officers to register contracts into a database within a month of award and have the officers complete their assessments in four months of the performance evaluation.
As officials attempt to get more information compiled and filed on time, Burton said the performance information can only be used to a greater extent if the officials take time to really analyze a company’s performance, instead of merely jotting down an unsubstantiated rating. But with the number of acquisition workers growing only slightly compared with federal spending, contracting officers have limited time available to review past work.
In addition to heavy workloads, the officers are also required to do administrative tasks, such as gathering and entering information into databases such as the Federal Procurement Data System, Burton said. He recommended agencies reorganize the work and give the more mundane task s to lower-grade employees.
Despite their workload, contracting officers need to make time to write narratives about a contractor’s work, Burton said. Those narratives can help the next agency decide if the contractor is a worthy partner.
However, Marcia Madsen, chairwoman of the Acquisition Advisory Panel and partner at law firm Mayer Brown, said past-performance reviews are subjective and can be hard to analyze.
“Past performance is a convenient tool to say it’s always the contractor’s fault,” she said. It’s important to talk to people who have worked with the contractor and read any rebuttal the company files with the contracting officer’s account of the quality of work, Madsen added.
In a best-practices guide released in 2000, OFPP urged contracting officers to back up their general scores with detailed, written reasons. That allows others to understand the rationale for the overall rating. OFPP also reminded contracting officers that others “may need to consider a contractor’s rebuttal, and they need to know the story behind your scores.”
To get a good record of a contractor’s work, Burton said an agency’s acquisition team, from the program manager to the contracting officer’s technical representative, should settle early in the acquisition planning process on the relative importance past performance will play in determining the contract’s award.
In March, the U.S. Court of Federal Claims scolded the General Services Administration for the way officials reviewed past performance of the 62 companies that bid on the 10-year, $50 billion Alliant governmentwide acquisition contract for telecommunications and information technology. GSA hired another firm to check the companies.
But it didn’t ask in-depth questions and didn’t follow up on answers that could have shed light on a company’s work history.
In his ruling, Judge Francis Allegra said GSA encouraged the contractors to ask follow-up questions but gave minimal guidance about what to ask.
“It should come as little surprise that the answers received — or at least those transcribed — often did not provide the sort of detail that would allow agency personnel to evaluate past performance rationally in accordance with the evaluation criteria,” Allegra wrote.
He upheld a lawsuit by several companies that bid and lost on the Alliant contract because of past performance and several other factors. GSA officials expect to award the contracts in December.
Burton said there are many ways that agencies go about collecting and evaluating contractors’ past-performance information.
“Conformity is the issue,” he said.
Acquisition regulations require departments and agencies to share past-performance information with one another to support future award decisions. And Burton said the Past Performance Information Retrieval System has helped move toward a way of swapping information.
Nevertheless, officials must make past-performance information a priority, the DOD IG wrote, or acquisition officials won’t know whether they’re making a good decision that will yield a return on their investment.
Provisions of a new law require the Defense Department to recast acquisition as an exciting career field to attract the best officers.
The House and Senate Armed Services committees made that recommendation in the fiscal 2009 National Defense Authorization Act (S. 3001) that President Bush signed Oct. 14.
In the law, Congress requires the each military branch to ensure that its general officers and flag officers are groomed for the acquisition field and assigned to it. Those officers who are considering acquisition as a career must especially see there are promotions ahead and ways to advance in the field. The law also requires the military to reserve a sufficient number of officer billets for the acquisition field to get the best managers for the growing field.
Although the law gave no specific figures, the Senate Armed Services Committee said at least 12 percent of the general officers and flag officers should be in acquisition and at least 10 percent need to have significant contracting experience, according to a report accompanying its original authorization measure.
Congress acted after a commission led by Jacques Gansler, a former undersecretary of defense for acquisition, found that the Army has not respected the skills and experience of its personnel in the contracting field. That mind-set has left the Army with a skeletal acquisition workforce increasingly burdened by a growing workload and greater scrutiny, the commission said.
However, numerous legislative and organizational attempts over the last 20 years to change that perspective have failed, the commission wrote in a 2007 report. The commission added that without major changes at its core, the Army acquisition processes can be expected to inevitably decline.
In a speech Oct. 16, Lee Harvey, deputy program executive officer for the Army’s enterprise information systems, said staffing is the service's biggest problem in contracting.
“I think they’re in a crisis,” he said about the Army's contracting officers. He also said the contracting field offers few rewards for the stressful work.
The Gansler Commission’s findings a symptomatic of a broader decline in the size of the acquisition workforce across DOD, the Senate committee said.
In fiscal 2000, 104 general officers — roughly 12 percent of all general officers in DOD — worked in acquisition positions. Seven years later, DOD had only 73 general officers serving in such positions. Meanwhile, DOD’s spending has almost doubled during that time.
The commission recommended increasing the Army’s military personnel by 400 and civilian personnel by 1,000. It also recommended adding 583 Army personnel to fill Defense Contract Management Agency jobs.
“Without increasing the number of general officers serving in these positions, DOD is unlikely to reverse the ongoing decline in its acquisition workforce and revitalize its acquisition and contracting practices,” the Senate committee wrote.
President Bush today signed into law the fiscal 2009 National Defense Authorization Act.
The bill (S. 3001) mandates changes to contracting regulations, including more competition for task and delivery orders. It also limits to one year the length of certain noncompetitive contracts, such as those awarded for urgent and compelling circumstances.
"This law will strengthen competition in federal contracting, help rebuild the government’s long-neglected acquisition workforce, and increase accountability and transparency to protect taxpayer dollars,” said Sen. Susan Collins (R-Maine), who introduced many of the contracting reforms in a separate bill that was included in the authorization bill.
The House and Senate passed the legislation in September.
The Administration of President George W. Bush announced this week that two senior U.S. Small Business Administration (SBA) staff members, Jennifer Main and Delorice Price Ford, received the prestigious Presidential Rank Award for 2008.
Each year, an elite group of career members of the Senior Executive Service, Senior-Level and Scientific and Professional corps are selected by the President for their exceptional leadership, accomplishments, and service over an extended period of time. Recipients are nominated by their agency heads, evaluated by boards of private citizens, and approved by the President.
“Jennifer Main and Delorice Price Ford are exemplary public servants and leaders in their fields,” said SBA Acting Administrator Sandy K. Baruah. “Thanks in part to their dedication and skill, SBA has significantly improved its service to America’s small businesses. The agency is honored to have them on our team and congratulates them on this impressive honor.”
Main, who received the Distinguished Executive Award, has led a turnaround of SBA’s Office of the Chief Financial Officer since joining SBA in 2002. Main oversaw the office's resolution of more than 200 Inspector General audit findings and recommendations going back to 2003. As a result, in 2007 the agency received its first unqualified positive audit opinion showing no material weaknesses, the first such review since 2000. In her second role, as Associate Administrator for Performance Management since 2007, Main has developed and implemented a transparent system for performance improvement and accountability across the agency.
Ford, who received the Meritorious Award, is Assistant Administrator for the Office of Hearing and Appeals (OHA) and was also the Acting Assistant Administrator for the Office of Equal Employment Opportunity and Civil Rights Compliance (EEO & CRC). During FY 2005 and FY 2007, Ford provided leadership and successful management of both offices which focus on two very different and specialized areas of law. In 2007, OHA's performance goals were to issue 90 percent of their decisions within 120 days from close of record, and reversal of not more than three cases per year. Under Ford's leadership, OHA exceeded both goals—100 percent of OHA's decisions were issued within 89 days or fewer and without a single OHA decision being reversed by the federal courts. She has also been instrumental in streamlining the EEO complaint process, resulting in improved quality, efficiency and enhanced customer service.
The Presidential Rank Award of Distinguished Executive and Distinguished Senior Professional may be awarded to no more than one percent of career members of the SES and SL/ST corps and includes a cash award of 35 percent of basic pay. Meritorious Executive and Meritorious Senior Professional awards may be bestowed to no more than five percent of the career SES and SL/ST corps and includes a cash award of 20 percent of basic pay. Each winner is also presented with a signed certificate from the President and a distinctive lapel pin.
Top naval information technology officials said on Friday that they expect to issue requests for proposals by spring 2009 for a system that would replace the service's massive enterprise network that tied together hundreds of thousands of desktops across its shore-based facilities.
Officials said the Navy is working with industry and seeking comments on the best way to proceed with the Next-Generation Enterprise Networks program.
The Navy's IT officials spoke to an audience of about 300 people at an industry luncheon in Pentagon City in Arlington, Va., sponsored by the Armed Forces Communication and Electronics Association. Before the discussion, conference organizers said the speakers asked that their comments not be attributed to them by name. The officials said providing their names would not allow them to be candid in their discussions with the audience, the majority of whom were federal IT contractors.
The four-person panel discussed the Navy's project to replace the $10 billion Navy Marine Corps Intranet, a contract that EDS won in 2000, with the Next-Generation Enterprise Network. NGEN will expand on NMCI and look to tie in the on-shore networks with those on ships at sea.
So far the service has held one industry day and plans to sponsor two more, one in December and another in early 2009. One of the officials on the panel said he expects the Navy will ask for requests for proposals in spring 2009. The Navy also is considering 43 white papers on NGEN that contractors have submitted.
An official said the service had opened a special program office staffed with both Navy and Marine Corps personnel, who would coordinate NGEN. The program office reports to several high-ranking officials, and a Navy speaker called it a new, very interesting construct that may be applied to other programs if it proves successful.
An official said the Marine Corps should be using NGEN before the Navy and the Navy will take lessons from how the Marines Corps deployed the new network.
The NGEN program office has divided the program into eight segments to deliver capabilities more quickly. The segmentation also will allow the Navy to contract out different portions of NGEN to various companies rather than relying on one contractor.
Growth in prime contracts awarded to small businesses is leveling off, but the top opportunities still offer more than $8.5 billion in potential value, according to a new report from the research firm INPUT.
While spending is moving toward multiple award, task order-based contracts, federal agencies still are committed to meeting small business goals, the report noted. In fiscal 2000, the government awarded prime contracts valued at $208.8 billion to small businesses, INPUT said. That number had more than doubled to $436.4 billion by fiscal 2007, according to the report.
The value continues to increase, according to INPUT's report, though it is not rising as fast since agencies are nearing the congressionally mandated goal of awarding 23 percent of contracting dollars to small businesses annually.
"Although we commonly hear that federal agencies are not meeting their small business set-aside goals, the data shows that the situation is clearly improving," said Alex Rossino, senior analyst at INPUT. "Further pressure from Congress and more accurate tracking of small business procurement by the Small Business Administration suggest that federal agencies will edge even closer toward meeting their small business set-aside contracting goals in the coming years."
Most of the top 10 set-aside opportunities in fiscal 2009 are reserved for small businesses, but there are several for service disabled veteran-owned businesses and 8(a) firms as well.
INPUT's analysts cautioned that a growing number of small business opportunities are encountering major delays. Of the top 10 fiscal 2008 small business prospects the firm identified, five had a later request for proposal release date than anticipated, three were in source selection, one was canceled and one was placed on hold. While the reasons for the delays varied, the research firm found that contracting and program offices governmentwide were taking longer to develop requirements documents.
"This trend is being driven by an increased desire among government agencies to 'get it right' when it comes to acquisitions," the report stated. "Doing so reduces vendor protests and agency procurement costs, even though it takes longer to get programs up and running."
INPUT's report offers detailed information on the top 10 opportunities and an analysis of the significance of each. The following contracts made the list:
1. Air Force's NETCENTS II small business set-aside, with an estimated $4.2 billion ceiling;
2. Support to Assist the Assistant Secretary of the Army's Manpower and Reserve Affairs, with an estimated $1 billion ceiling;
3. Army's Space and Missile Defense Initiatives Support III, with an estimated $730 million ceiling;
4. NASA's Multidisciplinary Engineering and Technology Services II, with an estimated $500 million ceiling;
5. Army's Strategic Sourcing Environmental Enterprise Services, with a $470 million ceiling;
6. Army's Information Technology Services small business, with a $400 million ceiling;
7. Federal Aviation Administration's Service Operations Support 7 and 8 -- recompete, with a $400 million ceiling;
8. Defense Information Systems Agency's DISN Global Services Management small business with a $300 million ceiling;
9. National Oceanic and Atmospheric Association Link, with a $250 million ceiling;
10. Navy's Consolidated Afloat Network Enterprise Services Service-Oriented Architecture Integration contract, with a $250 million ceiling.
The Small Business Administration will no longer verify the status of companies seeking certification as small disadvantaged businesses, shifting the time-consuming and costly application process to the companies themselves or to third parties.
In an interim final rule published in the Federal Register on Friday, SBA explained that the value of the small disadvantaged business designation has tailed off in recent years as the financial incentives have disappeared or been ignored.
"The SDB certification process is time-consuming and costly for small businesses and offers little to no benefit," the agency noted in its explanation of program changes.
As of Oct. 3, companies seeking to obtain federal prime or subcontracts can self-certify their status as small disadvantaged businesses -- an option that has been available since 2004 -- or use a third-party private certification firm. In limited circumstances, the procuring agency can certify the company.
Companies already certified as small disadvantaged or 8(a) firms will not be affected until that status is scheduled for renewal.
The SDB and 8(a) Business Development programs are designed to provide contracting assistance to small businesses that meet specific social, economic, ownership and control eligibility criteria. Certification lasts for three years.
The Small Business Administration has certified more than 2,800 small disadvantaged businesses and another 9,000 for the 8(a) program. About 12,000 to 13,000 others have self-certified their status, according to Calvin Jenkins, SBA's deputy associate administrator for government contracting and business development.
For the past 10 years, the agency has certified SDBs on behalf of other agencies, which would then reimburse SBA for the administrative costs associated with the application process.
Before December 2004, small disadvantaged businesses could receive a price evaluation adjustment of up to 10 percent on their bids for contracts, providing them a healthy advantage over competing firms. Then the statutory authority for the adjustment expired for all but three agencies: the Defense Department, NASA and the Coast Guard.
The Pentagon generally has ignored the price adjustment tool while still relying heavily on SDB contractors. In fiscal 2006, Defense awarded more than $14.6 billion in prime contracts to small disadvantaged and 8(a) firms, representing more than 6 percent of its total procurement spending and exceeding the 5 percent statutory goal.
NASA and the Coast Guard also rarely use the price evaluation tool, and each consistently meets the 5 percent goal. All three agencies will be allowed to use the price adjustment through the end of fiscal 2009.
Governmentwide, agencies awarded nearly $23 billion, or 6.7 percent, of prime contracts to small disadvantaged businesses.
Since 1998, agencies have reimbursed the Small Business Administration for $27.5 million in SDB certification costs; they are obliged to pay another $1.2 million for fiscal 2008. In the absence of the price evaluation tool or any other potential benefit, agencies told SBA recently that they will cease all reimbursements as of Sept. 30.
"Without the SDB price evaluation adjustment for prime contracts, there is no direct benefit to the SDB firm, and the SDB designation is only used for statistical purposes to determine governmentwide SDB goal achievement," the agency announcement said.
The notice said self-certification "is cheaper, quicker and less burdensome," than SBA certification, but there are potential drawbacks to the honor system. Skeptics say self-certification could open the door for unscrupulous companies to misrepresent themselves to become more attractive to agencies looking to beef up their small business numbers.
Without the price evaluation tool or any governmentwide set-aside contracts exclusively for small disadvantaged businesses, Jenkins doubts that companies will have much incentive to misuse the system. The agency, however, will continue to investigate any protests about a company's SDB status, he said.
A spokeswoman for the Senate Small Business and Entrepreneurship Committee said the panel had no concerns about the rule change.
The Small Business Administration expedited the rule without public comment after learning that most agencies would cease the certification reimbursement at the end of fiscal 2008. SBA will still accept comments on the change through Nov. 3 and consider them in any potential revisions to the rule.
Contracting officers would need to follow a stricter rule that enforces competition on task and delivery orders on existing contracts according to the Defense Authorization bill that passed Congress Sept. 27.
A provision in Section 863 of the National Defense Authorization Act of fiscal 2009 (S. 3001) requires contracting officers to obtain three bids, rather than simply notifying three bidders, for schedule procurements and task orders on multiple-award or indefinite-delivery, indefinite-quantity contracts, said Stan Soloway, president of the Professional Services Council. The legislation requires the government to amend the Federal Acquisition Regulation within one year of the bill’s passage to reflect the new policy.
The bill was awaiting President Bush’s signature as of Oct. 3.
A similar rule applies to Defense Department contracts only, but the new legislation would extend it governmentwide, Soloway said. The provision originated in legislation introduced by Sens. Joseph Lieberman (I-Conn.) and Susan Collins, (R-Maine), the chairman and ranking member of the Senate Homeland Security and Governmental Affairs Committee, respectively.
“We think it is a reasonable step to enhance competition and also prefer that the government operate under a unified set of overarching rules and policies,” Soloway said.
Implementing the new policy at all civilian agencies will take some work, but it can be done effectively, said Ray Bjorklund, senior vice president and chief knowledge officer at market research firm FedSources.
Similar measures have been successful at the Defense Intelligence Systems Agency, Bjorklund said. DISA appointed an ombudsman to handle questions and disputes as they arose, On the other hand, the implementation could further tax the already overstretched government contracting workforce, he added.
DOD’s experience with its own rule, under Section 803 of a previous authorization bill, suggests the measure is reasonable, said Joseph Petrillo, an attorney at Petrillo and Powell. It applies to orders worth more than $100,000.
“The rules have been in effect at DOD for several years,” he said. “There is a track record and people are satisfied that they work.”