Bill Could Shrink Small Biz Contracts

October 12, 2016

pic-defense-contractWhile the National Defense Authorization Act (NDAA) (H.R. 4909/S. 2943) was passed by each respective chamber, the legislation, which includes proposals which could have a major impact on small-business contractors, was bumped to the lame-duck session of Congress set to begin mid-November. The annual legislation sets policy and spending priorities for the Department of Defense (DoD), and is also commonly the vehicle for including changes to the government contracting/procurement process.

There are several positive provisions in the NDAA, including requirements to use plain language in small-business procurements; a pilot program to enable certain small-business subcontractors to receive a past performance rating; and changes to the Mentor-Protégé program to ensure both entities are truly separate. The Senate bill that passed through committee included language to permanently reauthorize the Small Business Innovation Research and Small Business Technology Transfer programs within the DoD—a major win for NSBA and its hi-tech arm, the Small Business Technology Council—however that provision was stripped from the bill that was ultimately approved by the full Senate.

Unfortunately there are also some very concerning provisions in the Senate’s version of the bill, namely, language that would enable DoD to count small-business subcontracts toward the agency’s overall small-business prime contracting goals. The specific language, sec. 838 of S. 2943, was only included in the final version of the bill that passed the Senate. Such a provision could decimate small-business procurement at DoD.

According to an article in Forbes:

“If the Pentagon were to take full advantage of the provision, under its existing subcontracting goals, it could replace as much as $22 billion in prime contracts with subcontracts. To put that in perspective, the agency’s total contracts with small businesses amounted to $52 billion in 2015. Across the federal government, small companies received $91 billion in that year.”

Interestingly, Science Applications International Corp. (SAIC), a major defense contractor, CEO Tony Moraco made some remarks to analysts in September that are very similar to the Senate’s subcontracting language, according to the Washington Business Journal:

“If we’re successful collectively in the acquisition community to give the acquisition officials credit for not just prime contract but the subcontract work, we think that will reduce some of the pressure to carve out small business set-asides and provide a more full-and-open competitive landscape going forward,” Moraco said.

The wrong-headed assumption being that small businesses can just make up any loss in prime contracts with subcontracts, which exemplifies a grave misunderstanding of the myriad benefits small businesses reap when awarded prime contracts, including: developing key relationships; more stringent payment schedules; establishing a past performance rating; and having far greater control over the scope of business under that contract. And while subcontracting can be a valuable tool for small businesses looking to enter the contracting arena, many view it as a foot in the door – not the destination.

Another provision included in the Senate NDAA would require DoD to examine whether or not a transition period for small contracting firms should be enacted in order to allow for more growth for these firms. Although a very limited transition period could certainly help some small firms, it is important that such a transition period doesn’t create a back-door entrance for large companies that buy out a small firm just to garner valuable federal contracts.

Given the timing of Mr. Moraco’s comments and the inclusion of the subcontracting provision in the Senate’s NDAA, NSBA is urging lawmakers to be vigilant in supporting small businesses’ role in the federal marketplace. Any efforts to reduce small-business participation in federal contracting ought to be strongly opposed—particularly given that large companies such as SAIC currently win some 77 percent of all federal dollars.