Swallowed Up

Small businesses struggle to swim with the big fish.

After years of legislative and bureaucratic inaction that allowed procurement opportunities for small businesses to dwindle, a turnaround might be in the works.

A bill making its way through Congress, along with recent Small Business Administration regulations, will pressure federal agencies to award more contracts to small firms. They offer a ray of hope that agencies might finally begin meeting their small business contracting goals.

The Small Business Fairness in Contracting Act, sponsored by Rep. Bruce Braley, D-Iowa, would increase from 23 percent to 30 percent the proportion of prime contracts agencies are expected to award to small businesses. The bill, which passed the House in May, also would make it more difficult for agencies to bundle contracts-grouping small contracts together and awarding them as one larger contract often out of the reach of small firms.

Meanwhile, SBA says it has closed a loophole that allowed agencies to count companies as small businesses even after they grew out of that status or were purchased by large firms. Small businesses that merge or are acquired now must immediately recertify their size. Small companies also will have to recertify their status at the completion of the first five years of any existing contracts.

SBA says it will take only a year to eliminate most of the improperly coded small business data. Today, huge corporations such SAIC, General Dynamics Corp. and Lockheed Martin Corp. dominate the upper reaches of the small business ranks, collecting billions through their acquisitions of smaller firms.

The other dominant small business players are Alaska native corporations. ANCs utilize SBA's 8(a) program, which allows agencies to award sole-source contracts of unlimited value to small and dis-advantaged businesses. A June 2006 report by the Government Accountability Office found major problems with the ANC program, including a failure to monitor the percentage of work that ANCs subcontract.

"The deck is stacked in favor of [ANCs]," says Guy Timberlake, co-founder of the American Small Business Coalition, an industry trade group. "There are no protests and no dollar limits and agencies can work with the contractor to set the terms of the deal."

While overall contract spending has grown to more than $425 billion-up from $388 billion last year-the percentage of awards to small businesses has continued to decline. Roughly 20 percent of prime contracts went to small firms in fiscal 2006 compared with 21.57 percent in 2005. SBA disputes those figures, saying the percentage awarded to small businesses is significantly higher. The agency, however, does not count contracts performed internationally, including in Iraq, where most do not go to small companies.

In addition, SBA has not yet scrubbed the data on the Lockheeds and Boeings. Both factors tend to artificially inflate the percentage going to small businesses.