“Thirty-six years ago, a young computer programmer working out of his parents’ garage was looking for investments so he could create the world’s most user-friendly personal computer. “The programmer in question is the late Steve Jobs, and the fund that helped seed Apple in its infancy was part of the Small Business Investment Company (SBIC) program – the SBA’s investment arm,” said the December 19, 2014 SBA Blog.
Until recently, the Air Force struggled to meet SBA “negotiated” small business goals (SBA Agency Small Business Contracts Data), but there have been steady improvements due to a number of factors, such as implementation of the AF Small Business Improvement Plan. On January 20, the headquarters of the Air Force Materiel Command announced they’d met small business goals for the first time in nine years.
From my perspective as a member of the Air Force for 31 years who has been working on small business contracts for the Air Force the past two years, I have observed the following 10 factors driving the recent success of small business in the Air Force and other services/agencies:
Defense budgets are puckered up. Our Department of Defense (DoD) is painfully trying to balance the needs for research and development, modernizing major weapon systems, increasing personnel costs, heavy deployment requirements and soaring sustainment costs and risks for weapon systems and infrastructure. Amidst all the sequestration, continuing resolutions for funding, budget cuts and racking and stacking priorities, DoD still confronts greater requirement vs. resource deltas than ever before.
It’s so tight, in fact, that it’s very hard to spend $1 million this fiscal year to save $5 million over the next several years. Still, the DoD funding process drives organizations to the $1 million this fiscal year or face reduced budgets next year.
Cost effective readiness is the current theme – in the language of business, this means cutting costs to survive. And this is only going to get worse; indeed, it may not get better. This is everyone’s problem … and opportunity. To successfully support the mission with far less resources, some short-term implementation risks must accepted and mitigated — a little glass will get broken to get to the big picture. Small business agility is a strength needed for that journey.
Major defense contractors are expensive. Overhead for large companies is significant because of high costs for internal management, personnel, R&D, marketing/BD, infrastructure, etc. Although highly government, when needed, when specialized products, services and personnel can be avoided, that same overhead drives the cost of most IT labor rates much higher on average 30+ percent) than the marketplace averages. This gives small businesses an advantage.
Competition rules. Because of shrinking budgets, more companies capable of performing the work, frequent political embarrassment delivered by Government Accountability Office (GAO) audits, “60 Minutes,” Google, etc., the DoD acquisition community has kicked up the quest for competition many notches. And not just the policy documents and public endorsements, but a real shift in culture across the work force of program managers as well as contracting officers/specialists.
When proprietary and political obstacles are moved aside, small businesses are highly competitive in application services and other business technology areas, and almost always at lower cost than large business. Small business has an Advantage. However, there’s a caveat. The lowest price, technically acceptable (LPTA) evaluation criteria is not the Holy Grail for competition. If government has a rock solid set of clearly defined requirements, then LPTA might be the best way to get best value — otherwise, a best value acquisition strategy with tradeoffs between cost and technical/other factors is better. When it comes to most business IT services, requirements are typically just not that well defined.
Requirements and technologies evolution. Mainframe to mid-tier to Web to Cloud to mobile. The kind of IT work desired and needed by the AF and the greater Department of Defense, is rapidly evolving from big box toward hand-held device with virtual support. Although pretty secure and having high performance transactional processing, mainframes are very, very expensive – hosting applications, data, services, etc.
The Defense Information Systems Agency (DISA), for instance, is struggling with higher costs due to a smaller user base. These big islands of computing power were needed when first developed because it was the “only” way to do this type of work, given other technologies available at the time. So, the Air Force leveraged these capabilities to implement countless major IT systems and made great improvements in the supply chain and business operations. For the Air Force, many major systems were first put into service in the 80’s and 70’s, with some in the 60’s. But at the time, only large companies had the skills/resources to develop and sustain these aging monsters (many have several million lines of largely COBOL code).
Now, fast forward to 2014. Imagine you’re a sweet, old 1965 Corvette vs. the 2015 model Corvette. The point is, current/future requirements are much more easily satisfied by next generation COTS, “open source,” industry best practice and hybrid solutions in terms of cost and performance. NETCENTS-2 clearly displays how small businesses can build and leverage the right mix of expertise, experience and price from their multi-billion dollar large business and other indefinite delivery, indefinite quantity (IDIQ) contract partners. The right technologies and methodologies can be brought together in a customized solution and team that will give the Air Force the best bang for those precious bucks. This, again, creates an advantage for small businesses.
Decline of propriety and influence. Many IT systems were packed with proprietary products/services over the years by original large developers. They were proprietary because of the significant resources required to develop them ( kind of like a new drug), and, with the government addicted, those companies could charge whatever the budget could swallow in sustainment costs (which used to be a lot). With tighter budgets, excruciating independent oversight and more visibility of the drug problem, incumbent contractors are increasingly being told to hand over government technical documents/data (for a cost of course) to enable fair, open competition on the next contract.
And, the new solicitations are increasingly stating to “not” propose proprietary property and/or setting source selection evaluation criteria to put some weight on “open source” products and “life cycle value” considerations — when they don’t get led down a falsely promised LPTA path). Thus, with all the increased oversight and shrinking corporate bonds and debts budgets, it’s also getting difficult for large companies to influence directed awards. The playing field has been leveled.
Who stole my bench? In years past, larger companies made significant investments in maintaining a bench of temporarily non-billable or partially-billable resources. These folks helped capture new work, write proposals, build intellectual capital for reuse and were generally available for the next contract award. It gave them a lot of clout for smooth transition to a new major program. The bench was a strength and a differentiator versus most small businesses who couldn’t afford a bench. Not anymore. They can’t afford it, either. Another level playing field.
The land of Small Business IDIQs. With the pressure of doing good business for DoD and constant improvements in information management across the acquisition organizations, we’re seeing more and more IDIQ contract vehicles being planned and awarded. Although they take a lot of upfront effort, these IDIQs rapidly provide ROI using leaner, faster task orders to satisfy requirements.
In just one example, NETCENTS-2 Applications Services (small business), the Air Force awarded an IDIQ with a ceiling of almost a billion dollars to 12 small business teams. It’s successfully awarded over $375 million in two years. To my knowledge, of over 70 task order awards, there have been no sustained protests, no terminations and the turn time from RFP release to award has averaged less than 60 days. The large business side of theIDIQ, due to several protests, has yet to issue its first task order. This, again, is another advantage for small businesses.
Now you see them, now you don’t. The days of massive workforces in contractor-owned or government-owned facilities are gone. But, many large companies are still reshaping their organizations and facilities to lean down to the new normal. If you walk around the once bustling cubical farms in large business IT land, it could look like an evacuation. Some are now with small businesses that won contracts. Some are still working on government sites. Many are working from home. While there are lots of pros and cons regarding on-site vs. virtual work, in today’s IT world, the virtual pros are winning, especially because of lower overhead costs. Again, an advantage for small businesses.
SBA quotas have teeth. While the Small Business Administration has been around since 1953, it didn’t have enforceable consequences in place for not meeting small business goals until recent legislation such as the National Defense Authorization Act (NDAA) of 2011. As part of their annual performance evaluations, senior executive service members responsible for acquisition are now being measured by their achievement of small business goals within their area of responsibility. This is driving a gradual culture change across DoD reflecting the priorities of smallbusinesses.
Just win. Years ago, big IT programs and small companies were a mismatch. Small companies didn’t have the expertise (especially proprietary) or experience (lack of prime contracts) to hold the risk meter on low. And the news of small business failures spread fast and could be accentuated with the cultural bias that the small, new, non-brand name guys don’t have what it takes in the big IT and government contracts world.
Part of the cause was an inadequate qualification (vetting) process for small businesses. Today, though, there are many government programs (e.g. 8(a)) and industry associations that do a much better job of getting small businesses ready for the big jobs. And, many small businesses are led and filled with former large business employees who are both highly experienced and very hungry.
While the Air Force and DoD overall are highly structured and often reorganizing with many layers of influence and control making rapid decision making and collaboration challenging, a good small business is flat, fast and empowered — which makes a great compliment to partner with large businesses and DoD to accomplish the mission.
Today, there are countless success stories for large IT programs run by small businesses, providing excellent performance … and nearly always at reduced cost.
Go small, or Go home!
Mark Douglas is a defense client executive at Array Information Technology, one of the nation’s leading DoD and National Security IT services firms.