How small biz can get bigger piece of IT pie

Consolidation in the federal information technology industry is on people's minds. The schedule for this year's Executive Leadership Conference includes a workshop on mergers and acquisitions. And rumors have been circulating about smaller companies up for sale.

Some are quick to attribute the merger wave to procurement reform and to bemoan the impact of procurement reform on small firms. But the IT industry should cool its heels.

Consolidation is a major trend in commercial IT— a world where federal procurement reform is irrelevant. It is also appropriate to dim the halo that small firms selling to the government often seek from the heroic stories of commercial IT startups. Such startups— from Microsoft Corp. to America Online to SAP America Inc.— have indeed created innovations that big firms did not deliver.

By contrast, it is hard to come up with a list (though I'm sure there are a few) of small businesses that started selling IT to the government and have pioneered significant innovations for either government or commercial customers. Instead, too many government-oriented, small IT firms have been generalist body shops more adept at gaming traditional procurement rules than providing unique value-added products. A number of the maligned governmentwide acquisition contracts (GWACs) have seen significant awards to small businesses. (Forty-five percent of Information Technology Omnibus Procurement awards have gone to small firms.) And the amount of IT contract dollars small businesses have collected has not changed much.

Nonetheless, clearly some small businesses have had trouble doing well in the reform environment. I want to suggest four steps— two each by industry and government— to create a more small-business-friendly federal market.

* Generalist body shops will to continue to have a hard time, so small firms need to undergo a painful process of reinvention. They need to look for niches and specialty skills as well as to get better at innovating. Everybody else in industry and government is having to reinvent themselves. Small businesses cannot expect to be exempt.

* The second step is directed toward large-business primes on GWACs. There are too many complaints from small subcontractors not getting work or getting only crumbs for this complaint to be mere whining. I urge large-business GWAC primes through their trade associations to pledge to increase the proportion of the dollar value of their GWAC business going to small subcontractors during fiscal 1999.

* An agency should establish a GWAC limited to small and minority firms. Existing GWACs have made progress in including small firms as primes, as evidenced by the increased role for small business in the solicitation for ITOP II. But a small or minority business GWAC— as suggested by Jim O'Connor at the Small Business Administration— would allow a governmentwide, streamlined ordering vehicle that would specifically showcase those firms and provide a ready way for agencies to conduct small-business-exclusive competitions for task orders.

* Last, agencies should heed an important memo to agency procurement executives on the use of simplified procedures to award contracts under $100,000 to small businesses. The memo, dated July 28, was co-signed by Office of Federal Procurement Policy acting administrator Allen Brown and Small Business Administration administrator Aida Alvarez. Normally, the government is required to advertise contract opportunities greater than $25,000 in the Commerce Business Daily, to wait (in the case of noncommercial service jobs) 45 days and then to evaluate all bids received.

Agencies can avoid these requirements by doing even small jobs using GWACs. The memo, pursuant to statutory authority established if OFPP and SBA act jointly, encourages agencies to issue agencywide waivers of the notice requirement for contracts less than $100,000 awarded to small businesses. When notice procedures are waived, the memo encourages, but does not require, agencies to consider five bidders of their choosing. (In my view, three bids, the number used when making buys under $25,000, is sufficient). The memo notes that bids may be evaluated using simplified procedures basically identical to those required for competing task orders under GWACs.

This memo is a huge step forward. Such waivers will allow the government to go directly to any small business with the same ease as using a GWAC. This is a crucial part of creating a more small-business-friendly environment because not every small or minority business can get included as a GWAC prime, even in a small-business-only GWAC.

Jobs less than $100,000 are the most appropriate ones for startups that have the hardest time getting their foot in the door in the GWAC environment. Buying these jobs through GWACs, rather than going directly to a small firm, is often unnecessarily expensive. Small jobs allow an agency to take a risk on an unknown firm that may provide great value for the dollar but that does not have a past-performance record. IT people in government should urge the procurement people to push through their agency waiver pronto!

-- Kelman was the administrator of the Office of Federal Procurement Policy from 1993 to 1997. He is now Weatherhead Professor of Public Management at Harvard's Kennedy School of Government.