The Demise of the Small Business Program

1
The Demise of the Small Business Program

• TRACK SMALL BUSINESS
• SESSION 1705
• Philip G. Bail, Jr., CPCM, Fellow
• Derco Aerospace, Inc
• Milwaukee, Wisconsin
• (A Sikorsky Aerospace Services Company)

2
Overview

• Identify Small Business Program Problems
• Make Recommendations for Saving the Program

3
The Problems

• The Original Intent of the Small Business Act Has
  Been Changed Over the Years
• Solicitation Mandated Subcontracting Goals Dont
  Recognize Prime Contractor Workforce or
  Subcontracting opportunities and May Violate the
  Federal Acquisition Regulation (FAR)
• The Word Goal Is Not Interpreted Correctly
• Flavor of the Day Mentality
• Small Business Types Compete for Attention -
  FAR Case 2006-034
• GSA, SBA, NAVAIR
• Setasides for WOSBs
• Realities of Supply Chain Are Not Considered
• DCMA Reorganization of Small Business Specialists
  Away from Geographic Orientation Has Negatively
  Affected the Small Business Program

4
The Problems (Continued)

• Contractor SBLOs and Government Small Business
  Specialists Knowledge of FAR Part 19.7 Is lacking
• Non Compliance with 13CFR125.6, Limitations on
  Subcontracting and Non Manufacturing Rule
• Myths
• Bundling
• Innovation Exclusivity To Small Businesses
• Other Issues
• DFARS 252.215-7003 Excessive Pass-Through Charges
  Identification of Subcontract Effort (APR 2007)
  

5
Historical Perspective of the Small Business
Program The Beginning

• 1929 Reconstruction Finance Corporation (RFC)
• 1938 Wagner-ODay Act (JWOD)
• National Industries for the Blind
• Javits-Wagner-ODay Program (now AbilityOne)
• 1942 Smaller War Plants Corporation (WSPC)
• 1947 Armed Services Procurement Act (ASPR)
• 1950 Small Defense Plants Administration (SDPA)
• 1953 Congress Created the Small Business
  Administration
• 1958 The Small Business Investment Act (PL
  85-536)

6
Historical Perspective of the Small Business
Program Focus Changes

• 1978 - Public Law 95-507 Amended the Small
  Business Act of 1958
• Made Large Business Participation Mandatory.
• Changed Best Efforts to Maximum Practicable
  Opportunities,
• Required a Subcontracting Plan
• Redefined Minority Firms as Socially and
  Economically Disadvantaged Business Concerns
  (SDBs)
• Reserved all solicitations under 25,000 for
  Small Business
• Required Federal Agencies to Establish Small
  Business Goals and Explain to Congress when Goals
  Were Not Met
• Established the Office of Small and Disadvantaged
  Business Utilization (SADBU)
• 1987 - Public Law 99-661- Implemented 5 Small
  Disadvantaged Business Goal and SDB Setaside
  (Setaside rescinded in 1996)
• 1988 Public Law 100-656 Established the 8(a)
  Program, Liquidated Damages Clause, 20 small
  business prime contract goal
• 1994 Federal Acquisition Streamlining Act -
  P.L.103-355 added a Woman-Owned Small Business
  goal of 5 in both prime and subcontracts

7
Historical Perspective of the Small Business
Program Focus Changes (Continued)

• 1997 - The HUBZone Act P.L. 105-135 preferences
  to small businesses located in HUBZones, 35 of
  employees living in HUBZones. Subcontracting
  Plans must incorporate these goals.
• 1997 Small Business Reauthorization Act, P. L
  105-135, increased annual goal of small business
  prime contracts from 20 to 23 percent.
• 1999 - P.L 106-50 Established goal for
  subcontracts by large businesses to Service
  Disabled Veteran Owned Small Business of 3.
  Subcontracting Plan must incorporate these goals
• 1999 FAR Part 19, Size Standards, Policies for
  Small Business Subcontracting Program

8
Historical Perspective of the Small Business
Program Summary

• Originally Created to Loan Money to all
  Businesses Following Depression.
• Federal Government and Large Businesses
  Encouraged to Buy from Small Businesses
• Business Education Provided to Small Businesses
• Small Business Administration Created to aid,
  counsel, assist and protect Small Businesses and
  Ensure a Fair Proportion of Government Contracts
  to Small Businesses
• Subsets of Small Businesses Created.
• Setasides to Small Businesses Begin
• Setasides to Different Types of Small Businesses

9
Solicitation Mandated Goals May Violate FAR
19.704 (a) (2)

• 19.704 (a) (2) requires a prospective contractor
  to identify total dollars planned to be
  subcontracted
• s planned to be subcontracted might differ
  greatly from company to company depending on
  in-house capability
• Contracting Officer cannot mandate his/her
  goals without fully understanding the
  individual company
• Example

10
Example

• US Army Corps of Engineers, New York District
  Solicitation W912DS-07-B-0011
• Small Business Goals Identified in RFP
• SB 51.71
• SDB 8.89
• HUBZone 7.37
• WOSB 3.13
• VOSB 3.00
• SDVOSB 2.00
• If plan includes goals less than indicated,
  explain extenuating circumstances why (COE)
  identified goals cant be met
• Protests or Responsiveness of Bids Could Be An
  Issue (see FAR 14.301(a))

11
What is a Goal?

• Goal The purpose toward which an endeavor is
  directed objective
• The
  American Heritage Dictionary
• Some Agencies requiring goals based on Contract
  value
• Some Agencies requiring statutory goals as
  minimum

12
Flavor of the Day -Setasides to Different Types
of Small Businesses

• DoD SDVOSB Strategic Plan In Response of
  Executive Order 13360
• Winter 2007 Issue of Beyond Goals Air Force
  Small Business Newsletter
• Scott Denniston, Director of the Office of Small
  and Disadvantaged business Utilization,
  Department of Veterans Affairs stated
• in past years contracting officers had been
  encouraged to setaside procurements to 8(a)
  certified disadvantaged small businesses and
  women-owned small businesses
• He hopes that government contracting officers
  will now focus on veteran-owned small businesses.
• GSA 21 Gun Salute

13
Flavor of the Day (Continued)

• SBA Initiative 3
• Increase Contracting Opportunities for Small
  Business
• Reform Procurement Center Representative (PCR)
  Responsibilities to better help agencies meet
  goals
• Require Agencies to Provide PCRs with All
  Purchase Requests (DD Form 2579 from COs to SBA)
  
• NAVAIR Strategic Plan To Increase Awards to
  SDVOSBs
• Increase Training Outreach to Increase Use of
  Sole Source and Restricted Competition with
  SDVOSBs
• Work with CVE to Identify Potential Suppliers
• Disseminate Information On How To Do Business
  With NAVAIR
• Setasides to WOSBs
• Still Under Heated Discussion
• Only Allows Setasides Under 4 of 140 Industries
  IF Agency can show underutilization of WOSBs in
  the Industry to be Setaside

14
Realities of Large Business Supply Chain
Management Decisions

• Improve Supplier Selection Process
• Reduce the Number of Suppliers
• Decrease Outsourcing Costs per Unit by Leveraging
  Major Suppliers for Lower Prices
• Increase Global Sourcing, especially in
  geographic areas of lower labor costs
• Maximize Economies of Scale
• RESULT These Initiatives Are Not Always a Good
  Fit With Small Business Requirements

15
DCMA Audit of Large Business Small Business
Program Doesnt Always Recognize Outreach Efforts
of the Large Business

• Limited Face-To-Face Contact with Each Large
  Business
• Limited Understanding of Large Businesses
  Products/Services or the Market Itself
• Unrealistic Focus On Year-Over-Year Increases in
  Goal Accomplishment
• Outstanding Rating must exceed at least 1 goal
  and meet all other on every contract
• Highly Successful Meet all Traditional Goals
  and at Least 1 of New Goals for Each Contract.
• Acceptable good faith effort to meet all goals
• Possible Light At End of Tunnel Newly Assigned
  Head of DCMA Small Business Program Kevin R.
  Loesch, formally with U.S. Army
  Communications-Electronics Life Cycle Management
  Command (CELCMC)

16
Contractor SBLOs and Government Small Business
Specialists Knowledge of FAR Part 19.7 Is lacking

• Cant Differentiate Between a Comprehensive,
  Master, Commercial, or Individual Subcontracting
  Plan
• Are Not Familiar with SF 294, SF 295 and/or eSRS
• Cannot Identify Mandatory Requirements of a
  Subcontracting Plan
• Dont Know How to Report Small Business Dollars
  if a Small Business Fits More Than One Business
  Size Category
• Dont Understand That an Individual Small
  Business Subcontracting Plan Should identify
  Dollar and Percentage Goals of Expected Vendor
  Spend
• Dont Realize That Contracting Agencies Must
  Allow Use of a Commercial Plan on Their
  Contract if the Plan Covers the Product Line or
  Division It Was Approved For

17
Non Compliance with 13CFR125.6, Limitations on
Subcontracting and Non Manufacturing Rule

• Limitations on Subcontracting
• FAR 52.219-14 Limitations on Subcontracting
• Non Manufacturer Rule see 13 CFR 121.406
• "Non-manufacturer rule" - a contractor under a
  small business or 8 (a) set-aside shall be a
  small business under the applicable size standard
  and shall provide either its own product or that
  of another domestic small business manufacturing
  or processing concern
• Refer to FAR 19.102(f)(1)-(7) for waivers.

18
Myths

• Bundling
• SBA claims 34,221 new bundled contracts were
  awarded from 1992 to 2001, transferring 840
  Billion of contract revenue from small to large
  businesses, causing a 56 decline in the number
  of small businesses contracting with the
  government
• Yet, only 25 bid protests were filed by
  contractors between 1992-2004 over contract
  bundling, sharply contradicting the governments
  estimates of bundling frequency.
• Government Contract Bundling Myth and Mistaken
  Identity by Timothy T. Nerenz, Defense
  Acquisition Review Journal, December 2007, Vol.
  14, NO. 3

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Myths (Continued)

• Innovation Is Exclusively a Small Business
  Phenomenon
• Some sectors are hobbled with intractable,
  industry-wide problems that only a large company
  can solve.
• Andy Grove Co Founder of INTEL
• Examples
• Apple Computer -----------Music Business
• Wal-Mart ---------------------In Store Health
  Clinics
• General Electric ------------Could Probably
  Build An Electric Car
• Source Portfolio Magazine, December 2007

20
Other Issues

• Excessive Pass Through Charges
• DFARS 252.215-7003 Excessive Pass-Through
  Charges Identification of Subcontract Effort
  (APR 2007)

21
Saving the Small Business Program

• Require Large Business Compliance with FAR 19.702
• Evaluate Contractor Identified subcontracting
  opportunities and Goals Instead of Mandating
  Goals
• Re-assign Military Services Small Business
  Specialists to Contract Specialist or Item
  Manager Billets and Rely on SBA and Procurement
  Technical Assistance Centers (PTAC) To Work with
  and Identify Small Businesses to the Agencies
• Re-Examine Size Standards for Small Business.
  Maybe a small business manufacturer should have
  fewer than 50 employees rather than fewer than
  500 employees.
• Assign DCMA Small Business Specialists Oversight
  of Large Business To Companies In Immediate
  Geographic Area
• Change FAR Part 19.5 by Eliminating Current
  Small Business Setasides Unless Quantifiable Data
  Supports the Present Assumption that Small
  Businesses Cannot Exist in the Federal
  Marketplace and Receive a Fair Proportion of
  Government Contracts Without Setasides.
• Re-compete procurements formerly setaside for
  Small Business as Open Competition, Large or
• Small and Evaluate Impact on Small
  Businesses and Prices Paid
• Revert to Original Intent of Small Business Act
  Loans and Training

22
Background Reading Material

• The Future of Small Businesses in the U.S.
  Federal Government Marketplace, Major Clark III,
  J.D. and Chad Moutray, Ph.D, Office of Advocacy,
  U.S. Small Business Administration, Presented at
  the International Public Procurement Conference,
  Ft. Lauderdale, Florida, October 21-23, 2004
• Socioeconomic Programs - On the Road to Failure?,
  Philip G. Bail, Jr., CPCM, Fellow, Contract
  Management Magazine April 2006
• The Governments Role in Aiding Small Business
  Federal Subcontracting Programs in the United
  States, Office of Advocacy, U.S. Small Business
  Administration, September 2006
• Questioning the Sacred Cow Reexamining the
  Justifications for Small Business Set Asides,
  Andrew George Sakallaris, Public Contract Law
  Journal, Vol. 36, No 4, Summer 2007
• QA, A Conversation with Scott Denniston, Beyond
  Goals, Winter 2007

23
Questions or Comments

• Send Feedback to
• p.bail_at_dercoaerospace.com
• or call me at [phone]
• Thank You For Your Attention
• www.dercoaerospace.com