Based on reports released after the end of FY14, for the first time, the Pentagon has exceeded departmental goals for small-business contracting.
Small businesses made up 23 percent of the Department of Defense’s (DOD’s) prime contracts in fiscal year 2014, receiving about $53 billion in work.
In fact, DOD not only exceeded its goal, but is on course to exceed the federal-wide goal.
This is a historical milestone. I’ve done some form of Federal contracting for over 30 years and the DOD NEVER comes close to meeting its small business goals. In fact, it was always kind of an inside joke when the goals came out because anyone in systems contracting was like “yeah, right, like we’re going to meet that.”
And there were many good reasons for not meeting the goals. When it comes to buying most systems (this category includes aircraft and all the associated equipment and support required to keep it in the air), there is only one place to get it – the company that makes the aircraft (known as the Original Equipment Manufacturer (OEM). You cannot buy an F-16 at Wal-Mart.
So billions of dollars spent in systems contracting each year are done on a sole source basis to very large businesses. All the other combined non-systems contracting has to make up for the difference by awarding to small businesses. It’s a scale that’s almost impossible to balance.
This year, the first news I heard was that my local contracting office had met its small business goal. Then the HQ goal was met, and the Command goal. WOW! Our small business specialist was ecstatic since she is retiring and let her go out with a bang!
Then news started coming in at the higher levels about meeting DOD goals. The DOD also exceeded its goal of 3 percent for Service Disabled Veteran-Owned Small Businesses (SDVOSB) contracts (about $9 billion in contract value).
How was this accomplished? In my opinion, there are a variety of factors.
The government is simply not buying new “systems” the way they used to. Budgetary cutbacks are making the government focus on keeping current aircraft in the air and meeting war-fighting capabilities without the need to develop a new aircraft every few years.
Most large businesses lack the manufacturing flexibility to react to changing threats, technologies, and capabilities, but many small businesses are doing just that. It is much easier for a small business with leaner, more adaptable manufacturing lines to develop a new product than it would be for a large manufacturer with complex, static manufacturing processes. So the small businesses get the products to the market more quickly. It’s important to note that, in general, this concept is as true in the government market as it is in the private sector.
Competition drives affordability. With the implementation of Better Buying Power 1.0, 2.0, and 3.0, small business are incentivized to drive costs down and participate in competitions with small business “reserves” (certain parts of an acquisition set aside for one or more small business socioeconomic classification). Large businesses rarely think about cost reduction – why should they? You can’t get the items anywhere else, so you are going to have to buy it from them, right? Small businesses can develop lean processes and techniques that reduce their costs and make them more competitive.
For the first time, the small business office has a director that comes from the private sector. Andre Gudger, who previously spent 17 years in defense, intelligence, and investment banking, became the director of the DOD Small Business Programs Office in March 2011 where he serves as the principal adviser to the defense secretary on small business-related matters. This was driven by President Barack Obama’s focus on improving the relationship between government and business. The president has referred to small business as “the engine of job creation.” The small business office oversees $100 billion in spending, for products ranging from boots and clothing to supersonic aircraft, and small businesses play a role in every one of those contracts.
A common misconception is that small businesses don’t build planes or ships or nuclear equipment (i.e., “systems”). However, the Virginia-class sub — a nuclear sub — is 70 percent built by or developed by small businesses at the prime contract level. This led to the development of interoperable systems which drove down costs while helping the Navy modernize and sustain its supremacy in undersea warfare. So small businesses CAN build systems!
Bottom line is that a variety of factors led to DOD small business goals being met for the first time. It was a historically significant event. It’s good news for government contracting and it’s good news for small businesses. A WIN/WIN indeed!