Small Businesses Escape Major Contract Killer

www.marketintelligencecenter.com

Update - Back in the fall, the U.S. Senate, with help of executives of major defense contractors, crafted the FY 2017 defense authorization bill that would potentially cut federal government contracts to small companies by as much as a 25 percent. I also commented on this legislation on LinkedIn. 

The legislation in question was Section 838 of the annual National Defense Authorization Act (NDAA), which allowed the Department of Defense to count subcontracts with small businesses against the agency's prime contract goals. This was a huge issue for the small business community, since the provision could have replaced as much as $22 billion in prime contracts with subcontracts. 

Section 838 was thankfully stripped from legislation — for now — when President Obama recently signed the 2017 NDAA into law, and replaced it with a call for information from the Pentagon.

The Pentagon will also have to recalculate its annual performance goals for small business contracting after excluding some other types of contracts, such as overseas contracts that typically are not awarded to small businesses.

Small businesses were rightfully worried about this provision, but can breath a sigh of relief, for the time being. Hopefully the Trump Administration will allow for better opportunities for small businesses, and overall improving performance goals for the taxpayer.

Are you a small business with a federal government contract? Not for long…

foodgps.com

There is no question that the current environment in the federal market for small businesses is challenging, to say the least. However, the environment for small business may soon need to be declared a full on disaster zone.

Two recent developments are moving forward to continue making being a prime contractor and a small business more difficult, if not impossible.

First is the recent decision by a federal judge to rule against the small business community. One of the leading voices fighting for small business federal government contractors is Lloyd Chapman, President of the American Small Business League (ASBL). Mr. Chapman had hoped to bring to light the state of the small business federal government contracting market, and the way that small businesses get cheated out of billions of dollars in potential contracts.

In the wake of the decision, Mr. Chapman stated:

"This case would uncover billions in fraud in federal small business contracting programs. If the Federal courts cannot stop fraud in federal small contracting, where do you go?"

According to a Government Accountability Office report, the Small Business Administration had included billions of dollars in federal small business contracts to over 5,300 Fortune 500 firms and other large businesses. Therefore, the government's compliance with the goal of awarding 23% of government contracts to small business continues to be in question.

Even government contract experts agree that the small business community is seeing a large share of lost contracting opportunities:

Professor Charles Tiefer, one of the nation's leading experts in federal contracting law and former Commissioner of Wartime Contracting in Iraq and Afghanistan, submitted a declaration in support of the ASBL case. "If the lawsuit had been allowed to get its rightful day in court on the merits, the lawsuit would have required the SBA to give all small businesses -- and doubly so for minority, women-owned, and disabled veteran businesses -- a larger and proper share of federal procurement."

The ASBL plans to appeal the ruling to the 9th Circuit Court of Appeals.

Second, and more pernicious, is the unthinkable actions by Congress, who are supposed to be fixing this problem.

With no surprises behind the impetus, Section 838 of the 2017 National Defense Authorization Act, Counting of major defense acquisition program subcontracts toward small business goals, is nothing short of a small business killer.

The impact would be catastrophic on the small business community, since the Pentagon spends the most. This provision allows the Department of Defense to count first tier and second tier subcontract dollars towards the current goal established for competitive and noncompetitive set-aside awards to small business. Subcontract dollars would therefore replace dollars being awarded to small contractors today.

To see the potential impact, and the potential disaster awaiting small businesses, Guy Timberlake, the Chief Visionary Officer of the American Small Business Coalition, has an excellent analysis on the situation.

In three separate events in Washington D.C. this week where this issue was mentioned, all three representatives of the small business office for agencies at the individual events were excited at the prospect. They falsely believe this will help meet their numbers, but correctly believe this will be much less work for them. It was clear where the priorities are for these, and other, small business offices across federal government.

All small businesses should be up in arms over these developments, as the powers that be are aligned to punch down and cheat small businesses out of billions of dollars in federal contracts. Small businesses need to be aware of what is happening, and contact their members of Congress.

If this gets adopted across the federal government, small business government contracting can be a thing of the past. 

Politicians and Protests Don't Mix

blog.theodorewatson.com

According to language included in the National Defense Authorization Act (NDAA), which passed out of the House Armed Services Committee on April 30, Congress is seeking answers to the recent surge in protests the last few years.

The NDAA has a provision instructing Defense to commission a study regarding how Defense contractors are using the protest process in their favor, or simply manipulating the system.

I believe the Government Accountability Office (GAO) has already addressed these issues in their latest report to Congress (here). Also troubling is the desire to use a Federally Funded Research and Development Center for this analysis, which is a troubling potential contracting issue in and of itself.

Allow me to answer the commission's questions and save the taxpayers untold millions:

The issues this “commission” is tasked with analyzing include: 

(1) If contractors who currently have a DoD contract enter a bid protest to delay the implementation of new contracts that would draw business away from the old one. The Government Accountability Office has up to 100 days to review a bid protest and render a decision.

I have had only one contractor be candid with me about it, but of course you are going to protest in this situation as the incumbent! Honestly, what do you have to lose? You lost the contract, and that is 3 extra months of revenue. What is the downside? Some would argue bad faith, strained customer relations, etc. Ninety more days of revenue trump these concerns, especially in this cutthroat, hyper-competitive government contracting market. 

(2) The extent to which companies file a bid protest even when they do not believe the Defense Department made an error in order to delay or otherwise disrupt the process.

I call these protests “sour grapes,” and no attorney worth their salt will admit to them, since the attorneys, in my opinion, are the only ones that win here. Some firms just get bad legal advice, other firms may just not know any better.

However, I have had several companies tell me that these protests were filedsimply because the risk averse contracting community is not providing enough information in the debrief process to give contractors confidence in the contract award decision.

Therefore, these protests are filed in hopes of digging up some dirt, and ultimately exerting pressure on the Contracting Officer for the ultimate goal of the protest and the third issue;

(3) Whether there are net benefits for companies filing a protest or indicating they plan on filing a protest.

The statistics show that this is the real path to protests, getting another bite at the apple in some form or fashion through corrective action. 

This effectiveness rate, which held steady at 43 percent of all cases filed last fiscal year, and as reported by the GAO, is the important figure. Nearly half of all protests ended by having the protested agency take some action. Those are pretty good betting odds.

This corrective action might take the form of pulling and rewriting objectionable parts of the solicitation, brokering with the protestor to win work with the winning contractor, or reevaluating the losing contractor's proposal.

The buying environment is creating the protests pressures on both sides, and the continued lack of communications and collaboration with industry by government exacerbates the issues. Further, many firms use protest after protest as part of their contract development strategy, with little consequence since the protest process is ripe for abuse. 

We do not need Congress to waste money on reports and committees that provide little useful information. Instead, taxpayers would be better served by properly resourcing government management and demanding accountability for results.