Federal Contract Law: Agencies only seem to meet small-business goals

Karen Powell

Many small businesses feel like they have fewer and fewer opportunities these days to obtain federal contracts. They're probably right.

According to the market data firm Eagle Eye Publishers Inc. of Fairfax, Va., small businesses received $42.7 billion, or about 20 percent, of government prime contracts in 2001. Nearly 20 percent of these awards went to just 0.2 percent of eligible firms.

What's more, weaknesses in the system used by the Small Business Administration to track federal procurements cause the percentage of small-business awards to be overstated. This is significant. Since 1997 Congress has required at least 23 percent of prime-contract procurement dollars to be awarded to small businesses.

The Federal Procurement Data Center, using guidance prepared by SBA, annually reports the extent to which the government has met this goal. In fiscal 2000, prime-contract awards to small business totaled 22.3 percent, just shy of the mandated 23 percent. For several reasons, this reported figure is misleading. Small businesses actually received measurably less.

First, as noted in an August 2001 study by the General Accounting Office, SBA excludes from the calculation of governmentwide performance three broad categories. They are: awards using nonappropriated funds, awards by agencies such as the Federal Aviation Administration that are exempt from the Federal Acquisition Regulation, and awards for which small businesses have limited ability to compete.

This last category inexplicably includes all contracts for performance overseas, even if the contract is to be awarded domestically. In fiscal 2000, excluded awards totaled $22.6 billion.

The exclusions artificially inflate the percentage of small-business awards at several agencies. For example, the data center reported that in 2000 the State Department awarded an impressive 42.5 percent of prime-contract dollars to small businesses. But more than a third of the procurement expenditures were excluded. So in reality, State awarded only 27.2 percent of its expenditures to small businesses.

The governmentwide figures are also misleading because they exclude purchases below the simplified acquisition threshold or made using government purchase cards. This accounted for $12 billion in 2000, but the data center does not capture purchase card data.

How much of this $12 billion might have been spent with small businesses is anyone's guess. The anecdotal evidence indicates the vast majority of purchase cards are used at major retail chains, not to mention the odd casino or two.

SBA cannot perform its legislated role of ensuring that governmentwide small-business targets are met until it addresses these data reporting issues. Small businesses lose a valuable argument in pushing agencies to award more contract actions to them.

Given the obstacles small businesses already face from contract bundling and competition for orders under multiple-award contracts, this is unfortunate.

Karen D. Powell is a lawyer with the Washington law firm of Petrillo & Powell. E-mail her at kdp@petrillopowell.com.

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