Defense procurement chief pledges to boost small business contracting

Pentagon acquisition chief Deirdre Lee said last week that Defense agencies had "deserved" to be hit with new rules forcing them to open the procurement process to a wider range of businesses.

In remarks at a breakfast gathering of business executives in Northern Virginia, Lee discussed the rules, which were included in Section 803 of the 2002 National Defense Authorization Act.

"The Department of Defense deserved 803," Lee said. "I'm sorry, but we did." Too many contracts were being granted without full competition, she said.

Under the new rules, officials will now keep solicitations for bids open for longer than just a few days, she said, to ensure that smaller companies can compete. Larger companies are better able to prepare proposals quickly because they have more staff and money to devote to the time-consuming practice.

Under the new rules, contracting officers must make sure that multiple companies stand a chance of bidding on a contract. When using the General Services Administration's set of pre-negotiated schedules of contracts, officials must get at least three competitive bids, "not a bid from the incumbent and two 'no bids,' " Lee said.

To encourage greater competition, Lee said, "We must put out a better solicitation." Electronic notification tools can help spread the word to more companies about Defense agencies' intent to buy, she said.

Lee also said Defense needs to reexamine the way it counts contract awards to small businesses. Defense awarded $58 billion in contracts to small firms in fiscal 2001, she said. But she said companies that perform subcontract work for larger companies aren't counted. She cited the renovation of the Pentagon after the Sept. 11 attacks as an example where a large company led the work, but many small firms were involved.

At the same time, Lee acknowledged that Defense "has not been effective" in ensuring that prime contractors award required amounts of work to small businesses, women-owned firms or minority-owned subcontractors.

But Lee said it's not appropriate for Defense to "tell people who to subcontract with." That makes the department liable if the subcontractors don't perform as required, she said. Small businesses also must understand that some work, because of its size, cannot be reserved especially for them, she added. "Let's face it. The Joint Strike Fighter is not a small business set-aside," she said.

Addressing another area of concern for small businesses, Lee said Defense is still trying to figure out how to implement the Bush administration's demand last month that agencies reduce contract bundling. Bundling is a byproduct of the federal procurement reforms of the 1990s in which several contracts are merged into one large one to reduce administrative costs. The administration believes the process keeps small businesses from competing.

Lee also said she's concerned about new restrictions on the issuance of government charge cards, which are widely used for small purchases. Defense must now perform credit checks on cardholders, and she said she was worried about situations in which workers with poor credit histories were in jobs where they were required to use charge cards.

The $355 billion fiscal 2003 Defense appropriations bill limits the department to 250,000 cards. "We can live with that," Lee said. She acknowledged that recent incidents charge card abuse has caused legislators to be more cautious about expanding the program, but said "the majority of people did use the cards correctly."

Lee said Defense officials are considering whether to eliminate some of the department's acquisition regulations to speed up the buying process. The policies, known as the Directive 5000 series, govern the purchase and management of major systems, such as weapons programs.

The Pentagon is seeking "to unleash the creativity of the program manager" by eliminating some paperwork and procedural requirements in the procurement process, Lee said. Officials are circulating a document on the matter and say they expect it will be finalized within four months.