DHS says spending provision could hurt small business contracting

Language requiring full and open competition for all contracts could prevent the designation of work for small firms, official says.

A provision in a House spending bill could hamper the Homeland Security Department's efforts to do business with small companies, an agency official said Thursday.

The provision -- Section 537 of the fiscal 2008 homeland security spending bill (H.R. 2638) -- states that funds for DHS can be obligated only for contracts awarded through full and open competition, except in cases of national emergency.

During a House Small Business Committee hearing Thursday, Paul Schneider, undersecretary for management at DHS, said the language would be "absolutely detrimental" to the department's small business contracting programs because it would not allow for work to be set aside for small firms.

"We're all for competition," Schneider said. "But we want to be able to execute the small business programs we've been exercising because we think they're absolutely essential to stimulate growth in that particular area of the economy."

Rep. Charles Gonzalez, D-Texas, attempted to clarify the purpose of the provision, while admitting it may be susceptible to strict interpretation.

"We're attempting … to address some problems," Gonzalez said. "And one of those is, of course, to ensure we don't have a proliferation of no-bid contracts or to make sure that we don't have favoritism based on political party affiliation demonstrated in the awarding of contracts." Gonzalez added that he agrees care is needed to avoid "unintended consequences."

The Bush administration has come out against the provision. In a policy statement, officials said they strongly support competition in awarding contracts, but believe the department should have the ability to use all available procurement tools, including well-established exceptions to full and open competition when justified.

Lloyd Chapman, president of the American Small Business League, said the provision could simply exacerbate an existing reluctance to award contracts to small companies.

"I don't think the Department of Homeland Security has the kind of commitment to small businesses I'd like to see them have," Chapman said. "I see excuses from every agency in Washington and I don't believe them. [The provision] just gives them another excuse to not work with small businesses."

While Chapman said small companies would not be able to compete with large businesses in full and open competition, Todd McCracken, president of the National Small Business Association, disagreed.

"In general, small businesses can compete unless the contracts are unfairly bundled," McCracken said. Contract bundling refers to the practice of combining two or more contracts into a large single agreement, and is believed to put small businesses at a disadvantage. McCracken said he planned to get in touch with Schneider to discuss any effect the spending bill provision would have on set-asides for small businesses.

While the Senate version of the bill differs from the House version, Sen. John Kerry, D-Mass., chairman of the Small Business and Entrepreneurship Committee, said he would work to ensure any provision enacted does not adversely affect small firms.

"I support fair, open competition for federal contracts, but it must not be done at the expense of America's small businesses," Kerry said. "I will continue to fight for contracting provisions that level the playing field, and that includes designating contracts specifically for small firms. The language in the House bill appears vague and open to interpretation, so I will work with my colleagues to make sure small business set-asides are protected."

The House passed its version of the spending bill in June and the Senate passed its version on July 26; differences between the two will be worked out in conference negotiations.

At the House hearing Schneider implored members of the committee to advocate against the provision.

"If there is anything that you can do, we would really ask for your support in conference getting this turned around," he said. "This is a big deal for us, and we would appreciate your help in that regard."