With only 2.5 percent of small businesses that graduate to mid-sized status keeping any federal contracts, the Government Accountability Office said solutions that won’t end up decreasing small-businesses opportunities could include requiring agencies to consider past performance to make small- and mid-sized businesses more competitive or raising revenue-based size standards.
Defining a mid-sized businesses as having up to five times the revenue or employees as a standard small business (using multipliers from Small Business Administration standards), the GAO found that from fiscal years 2008 through 2017 “very few small businesses that were awarded limited competition (set-aside) contracts grew to be mid-sized and continued to receive contracts.”
The GAO looked at 5,339 small businesses that were awarded set-aside contracts in 2008 and also received any kind of federal contract in 2013. Just 104 of the small businesses had grown to mid-sized by that point and continued to receive contracts.
“Of those 104 businesses, 23 remained mid-sized through 2017 and won 75 contracts. Another three businesses became large and won six contracts,” the report added.
More than $482 billion in federal contracts were awarded in fiscal year 2018, and small businesses got more than $120 billion of those awards. Small businesses that grow to mid-sized status can find themselves in a no-man’s land where they’re too big to qualify for small-business set-asides but are too small to compete with the largest contractors for prime awards.
House Small Business Committee Chairwoman Nydia Velázquez (D-N.Y.) and Ranking Member Steve Chabot (R-Ohio) asked the GAO last year to study how mid-sized businesses could be suffering in terms of contract opportunities and look for ways to increase their chances of winning awards. The agency conducted its study from April 2018 to this August.
GAO studied data from the Federal Procurement Data System-Next Generation (FPDS-NG) for fiscal years 2008 through 2017 and reviewed the Federal Acquisition Regulation (FAR) as well as SBA documents related to its mentor-protégé programs to include mid-sized businesses that won set-aside contracts through joint ventures with small businesses.
GAO then got recommendations from 11 individuals or organizations representing trade associations, researchers, and federal agencies to gain “important perspectives.”
“Some options for increasing federal contracting opportunities for midsized businesses identified in our literature review would help mid-sized businesses more than others, according to stakeholders. They noted that establishing a set-aside for mid-sized businesses – the option designed to help mid-sized businesses most directly – also would pose challenges for small businesses and agencies,” said the report. “In contrast, some options primarily would help small businesses that were growing (revenue or employees approaching the size standards). This, in turn, could offset any of the advantages that mid-sized businesses would derive. For instance, benefiting small businesses could increase competition and result in fewer awards to mid-sized businesses.”
GAO said the suggestions fell under the categories of (1) establishing a set-aside for mid-sized businesses, (2) modifying the rules for multiple-award contracts, (3) changing how past performance is considered when evaluating bid proposals, and (4) modifying SBA’s size standards.
GAO gave a draft of the report to the Department of Homeland Security, Department of Defense, General Services Administration, and SBA for review, and DoD and GSA replied that they didn’t have any comment. DHS “provided technical comments,” which the GAO said were “incorporated where appropriate.”
SBA’s response “made the larger point that they believe any option to help mid-sized businesses would hurt small businesses,” and opined that “a formal study should be performed to establish a baseline definition of a mid-sized business” and the methodology used in the report “means that in some industries, almost all firms would be considered mid-sized under our definition of mid-sized”; GAO defended its methodology and replied that “our goal was not to establish a baseline definition of a mid-sized business.”
“SBA stated that (1) the report should explain the basis and method for selecting the sample of 5,339 businesses awarded set-aside contracts in 2008 and (2) a sample of 104 out of 5,339 firms over that period of time was too small to be generalizeable. The 5,339 businesses awarded set-aside contracts in 2008 and awarded any sort of federal contract in 2013 were not a sample; rather, they were all the businesses that met these criteria,” the report added. “Therefore, we did not generalize to the population based on a sample. Our analysis showed that only 104 of these 5,339 businesses grew to mid-sized by 2013.”