Nadler: Giving small companies a chance

One of small-business owners' most common complaints is that they do not receive work on prime government contracts even though they participate as subcontractors on major information technology programs.

Small-business owners complain that prime contractors include them in proposals to take advantage of their special qualifications or comply with the government's goal of using a certain number of small business as subcontractors. However, once agency officials award prime contracts, small-business executives say that prime contractors award less subcontract work than promised during the teaming phase. Their complaints appear to be well-founded.

An October 2002 report by Office of Management and Budget officials notes a sharp decline in small-business contracting during the 1990s. Notably,

the overall number of contracts awarded to small businesses dropped from 26,506 in 1991 to 11,651 in 2000.

Several factors contributed to this decline, but the biggest is the federal government's weak enforcement of small-business goals. Procurement officials consider the requirements a toothless tiger.

A proposed Small Business Administration rule likely to take effect next month attempts to add teeth to the requirement that small businesses be able to fully and fairly participate in government contracting.

One significant aspect of the proposed rule is that it authorizes — but does not require — procurement officials to consider prime contractors' dedication to meeting subcontracting goals when making procurement decisions. Prime contractors are currently only required to make good faith efforts to comply with subcontracting plans.

The new rule would allow officials to ensure that subcontracting goals are met through on-site and follow-up reviews that measure the level of compliance among prime contractors. Although the new rule is a step forward, there is room for improvement.

SBA officials should provide better guidance on evaluating prime contractors' performance in meeting small-business subcontracting goals. The inclusion of a past-performance factor should become a requirement.

Damages must be assessed against prime contractors that fail to meet small-business plans, but this penalty should be reserved for egregious or repeat offenders to avoid hampering agency/contractor partnerships.

Agency officials also have a role to play in changing the culture of the procurement community in favor of compliance with subcontracting goals.

Government officials must ensure that subcontracting requirements are realistic and not burdensome for prime contractors, which manage many and varied subcontractors.

The new rule helps foster small-business participation in government contracts by providing incentives to ensure agency compliance with the guidelines. That should also translate into an increase in small-business contracting revenues.

Nadler is a procurement attorney with Dickstein Shapiro Morin & Oshinsky in Washington, D.C.