Small businesses fight to compete

Small businesses that sell technology to the government are closely watching several new policy initiatives that could open doors wider to them. Boosting small businesses is one of the Bush administration's priorities, and the president made a point to mention it in his January State of the Union address.

According to the General Services Administration, the number of small businesses receiving new contracts for work in the federal sector has shrunk dramatically, from 25,506 in 1991 to 11,651 in 2002. The proposed changes seek to reverse that trend.

Some agencies have already taken steps to bring smaller companies in through programs such as the Commerce Department's Commerce Information Technology Solutions contract, which is reserved for small companies.

"The objective was to get $1.5 billion in small-business contracts" during five years, said Michael Sade, director of Commerce's Office of Acquisition Management. "We're at $1.3 billion in year four, ahead of schedule."

The Small Business Administration's definition of a small business varies depending on the industry, but the term generally refers to a service company with less than $5 million in annual revenue or a product company with fewer than 500 employees, an SBA spokesman said.

Small businesses have had a rough ride with the federal government, Sade said, and not long ago they were stigmatized because they were less visible and less established than large firms. "I'm not sure it's completely disappeared," he said.

Small companies, however, true to their entrepreneurial spirit, do find ways to get in the federal door. It just takes more creativity and tenacity to make up for the lack of marketing dollars or high-profile track records that the larger players hold.

Corda Technologies Inc., which develops graphics software to display database information in charts and maps, makes sales by cozying up to agencies' Section 508 coordinators, said David Vandagriff, vice president of sales and marketing at the Lindon, Utah-based company. The 27-person company's software can make information accessible to people with disabilities, which Section 508 of the federal Rehabilitation Act requires.

"That has helped us get into a lot of agencies," he said. "The 508 coordinators talk among each other and our name gets passed around." The National Cancer Institute became one of Corda's customers that way, he said, and that relationship has led to other introductions.

Executive Business Decision Software LLC, a four-man company in Broomfield, Colo., used e-mail to get the word out about CXOToolKit, a product designed to help agencies comply with the Clinger-Cohen Act's emphasis on quantifying the business impact of IT spending.

When the product was ready to ship in January, the company sent e-mail messages to senators, agency chief information officers and chief financial officers. The maneuver hasn't made them any sales yet, but some agencies are arranging demonstrations, company partner John Santoro said.

"We were amazed at how responsive the government's been," he said. "The Internet has really levered up our ability to compete."

"A lot of times when people need any type of technology, the first place they turn is the Internet," said Ross Rainville, sales manager at i-O Display Systems LLC, which makes wearable display devices. The Navy was one of the Sacramento, Calif., company's first customers, and others have come along since.

"They're finding us more than we're finding them," Rainville said.

The changing nature of government has also helped small companies, said Carolyn Hyde, senior vice president of worldwide sales and marketing at SER Solutions Inc., a 250-person software developer with headquarters in Dulles, Va.

"I believe there are more business people in the government at very high levels," she said. "And I think as younger people have come into the government, they've come in with more of an entrepreneurial sense."

The smart large firms know that small companies often have special expertise in their areas of focus, said Ira Kirsch, president of Unisys Corp.'s federal government group. His organization won the Transportation Security Administration's $1 billion Information Technology Managed Services contract last year and has awarded 22 out of 36 subcontracts to small businesses, he said.

"You go to the bigger companies because they have the breadth and depth," he said. But for certain specialty areas, "a small business, because they are laser-focused, might be a better fit. They're very responsive, quick to engage."

However, small companies still struggle, and they're waiting to see if upcoming rule changes will help level the playing field. The administration's major proposals would:

n Open more federal work to private contractors by making it more difficult for agencies to declare a project or function "inherently governmental" and keep it in-house. The proposal was published late last year and a final version is expected soon.

n Limit the circumstances under which agencies can bundle contracts, a practice of grouping several small contracts into one and awarding the whole bundle to a single contractor, who is then expected to dole out the work to subcontractors. Proposed rules were published Jan. 31.

n Require small businesses on governmentwide acquisition contracts, including those on GSA schedules, to recertify their size and status each year. The Office of Management and Budget's Office of Federal Procurement Policy is drafting proposed rules that have not yet been published.

Leaders of some small businesses say the changes to contract bundling would be the single greatest benefit of the proposed changes.

"The theory was that you reduce the administrative costs of all these small contracts," said Eric Adolphe, chief executive officer of Optimus Corp., a software developer in Silver Spring, Md. "All of a sudden, a $200,000 contract, which is very attractive to a small business, suddenly that's tossed into a superhuge omnibus contract for a Lockheed [Martin Corp.]. That put a lot of small businesses out of business."

"It is a bit frustrating watching these huge efforts go to large integrators who are the de facto contract officers," agreed Richard Landry, president and CEO of Conquest Systems Inc., a small federally focused software developer in Washington, D.C. "The lion's share of the work has gone down those vehicles, and it's made it difficult for companies like us to compete."