Column: Is Your Goal to Become “Large”?

      Set-Aside Alert reported in our Nov. 30, 2018, edition on a study conducted by the Center for Strategic and International Studies: “New Entrants and Small Business Graduation in the Market for Federal Contracts” (https://bit.ly/2DGRcup). A primary conclusion of the study is that the government’s strategy of utilizing set-asides to promote small business expansion may be backfiring.

      “The low graduation rates of small businesses that survived for 10 years rings (sic) alarm bells over the efficacy of small business set-aside programs,” the CSIS report states.

      This narrow view of small business and its role in the economy and the federal marketplace has gnawed at me ever since the report was released. It furthers what I consider to be a number of mistaken beliefs about small business and its role.

      Over 600,000 small businesses are started every year. Forbes reported in 2013 that 50% of those small companies are still doing business after five years, 33% after 10 years and 25% after 15 years. One can fairly conclude that being small does not equate to inability to participate productively in the American economy.

      So let’s go back to the specifics of CSIS’ criticism of current small business programs. CSIS bases its analysis on the premise that businesses exist to grow large and “graduate” from their small business status, and furthermore that the objective of federal set-aside programs is to produce “other-than-small” – i.e., large – businesses.

      I disagree.

      First of all, only one of the set-aside programs currently has any kind of “graduation” to it, and that’s the Small Business Administration’s 8(a) Business Development program. That “graduation” has nothing to do with growing to become large. And when a company graduates from the 8(a) program, if they are small they continue to be eligible for small business set-asides and other set-asides for which they qualify (HUBZone, women-owned, service-disabled veteran-owned, etc.).

      Secondly, there are many different styles of small businesses serving Uncle Sam: • They may be created to exploit an innovative technology breakthrough achieved by an individual owner or small group who want to see it to fruition. These companies may aim to sell their idea or their company and retire to Florida, or use the proceeds to springboard the next development. • They may be created to maintain the services of experienced agency talent, such as in maintaining legacy systems or repairing older models of equipment when agency budgets or personnel are cut and the work is still essential. • Many small businesses serve a specific locale where commercial revenue is much more capable of supporting local services, e.g. logging or wildfire suppression or a larger manufacturer’s local dealer and parts networks. • Many small business owners recognize that growing large is not in their best interest as they would lose control and create headaches they prefer to avoid. • Some small business owners are very focused on a narrow niche, where there is little room for large scale growth but plenty of opportunity to satisfy the customer and the owner.

      All of these types of small businesses can be considered successful.

      I know a number of small business federal contractors that choose to remain small and work to take advantage of small business set-asides. For those companies it is an intentional part of their business plans to remain below small business thresholds.

      Do they constrain or impede the government’s buying practices? Of course not. They would not win contracts if they were unable to meet the terms of the contract as responsible, responsive, technically-evaluated awardees.

      Have they misused or “taken advantage of” a government “give-away program?” Of course not. The competition in the government set-aside contract arena is quite substantial, with numerous bids on offers. Compare this to the large Defense Dept. weapons systems contracts where frequently there are only one or two capable suppliers left among the primes.

      The small business programs also benefit the government in that there is a supply of experienced, capable, knowledgeable small business suppliers they can count on for quick response with expertise, delivery, low overhead and attention to the government’s needs.

      The CSIS study concludes, “Policymakers should reevaluate their small business set-aside programs as these programs could be creating perverse incentives for small businesses that are contracting with the federal government. Their focus should pivot towards helping small businesses survive simultaneously with growth.”

      We conclude that the authors have not done their homework. Small businesses are an essential and effective part of the American economy. The study team does not seem to understand the goals and objectives of business ownership. They have concluded that becoming “Large” is the objective desired by Congress for set-aside programs. On the contrary, the Congressionally-approved set-aside programs have never been incentives to growth, but rather protections to create cost-effective and reliable alternatives to the oligopolies in the Defense community today.

Tom Johnson is the publisher of Set-Aside Alert. You can reach him by email at tjohnson@setasidealert.com.

Carranza confirmed for SBA

House wants AbilityOne exempt at VA

GSA offers MAS mod guidance & RFI

DOD CPSR threshold rule

More time on mentor rules

Legislative Update

Column: Is Your Goal to Become “Large”?

Washington Insider: