EPA requires justification for fully competitive contracts

Apparently, the Environmental Protection Agency has concluded that small is not only beautiful, it is also darn near mandatory.

In a memo circulated last September, Barry Breen, deputy assistant administrator for the agency's solid-waste office -- which manages the Superfund program and other cleanup projects (including Hurricane Katrina) -- declared that the office will require written justification for any service contract over $1 million that is not reserved for small businesses.

The justification must be submitted a year in advance and must explain why open competition is preferable to a small-business set-aside. "I understand that there is appropriate rationale to pursue full and open competition for some of our contracting needs," Breen wrote. "Such cases should be well justified and documented."

Small-business set-asides are nothing new. The Small Business Administration sets targets for each department and agency, with a government-wide goal of hiring small businesses as prime contractors on 23 percent of the total value of government contracts.

The government also has detailed goals for contracting with female-owned businesses (5 percent) and "service-related disabled veteran-owned" businesses (3 percent). But in general, the feds prefer that contracts be open for competitive bidding, with any set-asides made on a case-by-case basis.

The waste office's memo "has taken the present process and stood it on its head," said Alan Chvotkin, senior vice president of the Professional Services Council, which represents 200 companies that sell professional and technical services to the government. "It's the first time I've seen an agency invert the priorities and say, 'We are going to give first preference to small business, and if we are not going to give it to them, we need to have a justification.' "

Christopher Yukins, co-director of the Government Procurement Program at George Washington University Law School, is blunt: "I've never seen such a clever and draconian bureaucratic maneuver."

The goal of all federal procurement is supposed to be achieving the best value for the taxpayer's dollar, Yukins says. The waste office policy would instead declare that "we care first about the size or disadvantaged status of the businesses," he contends, "and second about the best value for the taxpayers. And that just can't be right."

Some procurement experts say that this kind of policy reversal puts pressure on procurement officials to do business with companies that may not be qualified to perform the tasks required. Systems are already in place to benefit small businesses or disadvantaged businesses that have the capability to perform government contracts. Rewriting those policies to make size the primary criterion for bidders would work mostly to the benefit of small businesses that cannot win an open competition for services under the old rules.

The EPA memo also raises the question of what exactly qualifies as a small business. For example, the General Services Administration's electronic contracting database indicates that EPA has given 75 percent of its $194 million worth of Katrina-related contracts to small businesses. (GSA warns, however, that the database is probably incomplete and is constantly being updated.)

According to GSA, $136 million of that total went to one "small business," a Cincinnati-based waste-handling firm called Environmental Quality Management. Under standard SBA definitions, a "remediation services" company qualifies as a small business if it has less than $13 million in annual receipts. A company that does more than just clean up waste -- such as testing, site inspection, and waste storage -- may fall under the "environmental remediation services" category, for which the "small-business" cutoff is 500 employees, regardless of income.

The contract documents in the GSA database indicate that Environmental Quality Management has 150 employees and $51 million in annual revenue, but the company claims on its Web site to have provided "more than 700 skilled personnel" for EPA's cleanup mission on the Gulf Coast, and its revenues have evidently more than doubled in the past year.

Ironically, EQM won its contract in an open competition. The company did not return phone calls seeking comment.

Chvotkin says that EQM may be an example of the kind of "churn" that EPA's new rule may create -- that is, when small companies get big contracts, they are quickly disqualified for further consideration for small-business advantages. But EPA can still claim to be contracting with a small business because the firm was small when the contract was written.

In response to questions about Breen's policy, EPA spokeswoman Roxanne Smith said in an e-mail, "The September 2005 memo does not change EPA or federal contracting policy. The memo simply requests explanatory information that is designed to encourage [solid-waste] offices to consider contracting with socioeconomic firms when it is appropriate to do so. The request is consistent with EPA and federal government contracting goals and practices."