Everyone wants an equal opportunity to make that dough and earn that bread. And no, I’m not talking about hobbies picked up during quarantine. I’m talking about the opportunity to make money working with the federal government.
While the SBA has helped small businesses secure record amounts of small business contracts, these days fewer and fewer businesses are reaping the benefits. Those disproportionately falling behind are left with a sour taste in their mouth.
According to a recent report released by HigherGov, which offers market intelligence and development tools for government contractors, the number of small business contractors receiving federal contracting awards continues to fall despite the record number of money being channeled to small businesses. Said differently, “the government has put almost exclusive focus on increasing the dollars being awarded to small businesses rather than increasing the number and diversity of small businesses winning contracts.”
Small businesses received 23.2% of all federal government contracts awarded in 2022—a 3% increase over the prior year and the highest percentage ever recorded. In general, this seems really great. But, as you scratch the surface, a systemic issue lies beneath.
SBA has a numbers and diversity problem that money won’t fix. For starters, the number of small businesses receiving awards continues to decrease. Compared to the 121,270 small businesses that received prime contracts in 2010, only 58,681 small businesses received prime contracts in 2022. Not only has the number of small businesses receiving prime contracts been cut in half, Women-Owned, Black-Owned, and Hispanic-Owned small businesses are disproportionately falling behind the pack. While the total dollars received by these groups increased in 2022, the total number of awards has ultimately declined. Since 2018, the number of prime contracts awarded to these groups dropped by 6.5%, 13.1%, and 16.8%, respectively.
HigherGov’s report suggests that the decline in small business awards is a result of expanding regulations (such as cybersecurity requirements), contract bundling that ultimately benefits larger firms and incumbents, and agencies using contract vehicles only available to a limited number of businesses.
Fixing this problem is a two-way street. To improve access to contract awards for small businesses, HigherGov suggests that all contracting opportunities be made public, contract bundling be minimized, contract on-ramps for longer contracts be made the norm, and regulations be finalized to provide smaller businesses with better chances of receiving prime contract awards. SBA recently published a rule allowing small businesses to utilize their first-tier subcontractor experience to bolster past performance requirements found in many procurements.
This rule aims to level the playing field for small businesses. According to HigherGov’s report, more than $100 billion was awarded to small business subcontractors in 2022 (approximately two-thirds of what was directly awarded by the government). Small businesses can now use the experience gained by a Mentor-Protégé relationship or joint venture agreement to compete for prime contracts. Small businesses would be remise not to take advantage of this regulation by building partnerships with established contractors and competing for prime contracts.
Small businesses are typically more conservative and deliberate in selecting and pursuing contract opportunities. This is because time and resources are limited, and thus, more valuable. Thus, failure to secure a contract award will have a greater, negative impact on a smaller businesses than it will have on a larger business with more resources. However, the odds of winning a prime contract are better than some may think. According to HigherGov’s report, the average government solicitation receives only 4.5 bids and approximately 40% of all competitive solicitations receive fewer than three qualified bids. These odds combined with the SBA’s recent subcontracting past performance rule should give small businesses more confidence to, as HigherGov suggests, “bid early and bid often.”
The decline in prime contract awards to small businesses is concerning. A direct result of having fewer contractors competing for an award is less competition. This results in higher bid prices and the government (*cough, cough . . . taxpayers) spending more money on services and supplies. While the government should continue to adequately fund small business, it should also recognize this issue and continue to make changes to the procurement process to incentivize more small businesses to compete and ultimately win the government’s awards.
If you are a small business and need help navigating the procurement process, please do not hesitate to contact our office at (913) 354-2630 or by submitting a form at the following link.