Government Contracts Monitor

SBA Announces FY12 Small Business Goal Shortfalls; Information You Can Use in Marketing, Whether You Are Small or Large

September 4, 2013

The U.S. Small Business Administration (“SBA”) recently announced its Fiscal Year 2012 (“FY12”) small business goaling results. To no one’s great surprise, the federal government again fell short, for the seventh straight year, of its goal to award 23% of eligible contracts to small businesses. Much of the commentary on this shortfall has focused on either bemoaning the fact that the government continues unable to reach its small business contracting goals, or pointing out that the problem is even worse than it appears since (i) about one-fifth of all federal contract spending is not included in this data, and (ii) the data is distorted by recordkeeping issues and by fraudulent conduct resulting in awards being recorded as small that actually went to large businesses. These certainly are serious issues that must be addressed. However, it might be more productive for individual companies to focus on the good news contained in the data, and to determine how best to market themselves productively to government agency customers in view of such data and the continuing shortfalls.

By way of background, and as you may already know, Congress has established an annual overall small-business contracting goal of “not less than 23 percent of the total value of all prime contract awards.” Congress also has established goals of 5% for awards to each of (i) Small Disadvantaged Businesses (“SDBs”), including 8(a)s, and (ii) Women-Owned Small Businesses (“WOSBs”), and 3% for each of (iii) Service-Disabled Veteran-Owned Small Businesses (“SDVOSBs”) and (iv) HUB-Zone Small Businesses. Similar goals exist for subcontracting by large businesses, requiring 36% of eligible subcontracting to go to small businesses, with the same percentages as for prime contracting applicable to each of the same four sub-categories. Importantly, all of these “goals” are “minimums,” and agencies are encouraged to exceed these minimums. Indeed, each year each agency negotiates with SBA individual agency-specific goals for the coming year, based upon the specific agency’s past performance in each category. Thus, a specific agency’s goals may be significantly higher if the agency has shown an ability to obtain higher percentages in the past.

On the good news side, the federal government awarded 22.25% of contracts to small businesses in FY12, up percentage-wise from 21.65% in FY11 (although overall small business dollars went down somewhat, albeit less than the decline in overall spending). The government overall achieved the highest percentage of awards (8.0%) to SDBs in at least seven years, up from 7.65% in FY11. The government also exceeded the 3.0% SDVOSB goal for the first time since at least 2006, achieving 3.03%. While the government slightly increased the percentage to WOSBs, from 3.98% in FY11 to 4.0% in FY12, such still fell substantially short of the 5.0% goal. Awards to HUB-Zone small businesses, actually declined from 2.35% in FY11 to 2.01% in FY12, possibly due, at least in part, to the shrinkage in the number of HUB-Zone firms resulting from the decertification of more than 2,500 firms in FY12 based upon population changes per the 2010 census. The subcontracting results show that the government fell short of its overall 36% SB goal (33.6%), slightly exceeded the overall subcontracting goals for SDBs (5.1%) and WOSBs (5.6%), and fell woefully short for SDVOSBs (1.8%) and HUB-Zone SBs (1.3%).

These numbers indicate substantial marketing opportunities both for large businesses and for small businesses in the various categories. Large businesses have the opportunity to set themselves apart from their competitors by aggressively seeking out and including in their proposals outstanding small businesses that will help both them and their customer agencies increase and exceed the agencies’ respective small business subcontracting goals. Large businesses also should consider mentoring or teaming with small business primes, where appropriate. Small businesses similarly have the opportunity to market themselves, both as primes to their customer agencies, as well as subcontractors to large business primes.

In this way, both large and small businesses can create “win-win” scenarios for both themselves and their customer agencies. The government is putting increasing emphasis on the importance of attaining small business goals, and now considers such in personnel evaluations, and bonus and promotion decisions, for senior agency officials. This provides an added incentive for senior procurement officials to take these goals seriously.

Companies therefore should examine this data carefully, to determine specifically how the agencies with which they deal are doing in these regards, and how best to structure proposal teams and proposals in light thereof. The data reveals which agencies are doing best in each area, indicating receptiveness on the part of those with good results, as well as the problems for those not meeting their numbers. While the latter may indicate a lack of receptiveness and understanding, it also provides opportunities for good marketing.

It is easy for critics to say that the government needs to do better and make more awards to small business, and to clean-up its numbers and cut-down on fraud. However, the real challenge is for both large and small businesses to better market themselves in light of this data, and to create compelling “win-win” scenarios that garner more business for them, while educating and helping agencies increase their small business participation percentages in all categories.

Hopewell Darneille is the attorney responsible for the contents of this article.