Congress Steps Up Call to Award More Pentagon Contracts to Small Businesses

By Sandra I. Erwin

Members of the House Armed Services Committee are escalating a campaign to help small- and medium-size companies score more Pentagon contracts, claiming that the procurement system is stacked against outsiders and mom-and-pop businesses.
“How do we make sure it’s not the same usual suspects getting all the contracts?” asked Rep. Adam Smith, D-Wash., the ranking minority member on the committee. How to give small businesses greater access to defense contracts is one Smith’s top concerns, he said March 1 during a breakfast meeting with reporters.
Small businesses in his home state and elsewhere see the overwhelming bureaucracy in Pentagon procurement and turn the other way, even though they might have products that the military needs and that might cost less than larger contractors charge, Smith said. “I hear that in my district a lot,” he said.
Leading the charge against the Pentagon’s business unfriendly policies is Rep. Bill Shuster, R-Pa., who chairs the House Armed Services Committee’s “Panel on Business Challenges Within the Defense Industry.”
The panel was created six months ago by HASC Chairman Rep. Buck McKeon, R-Calif., in an effort to challenge the Defense Department’s regulatory and contracting impediments.
Shuster’s spokesman Jeff Urbanchuk told National Defense that the panel has spent months conducting hearings and industry roundtables across the United States to asses how companies interact with Defense Department and to identify “barriers to entry.”
Shuster, a former business owner, is of the view that the Pentagon’s red tape and auditing demand cripple small firms. The panel is working on a report that will be submitted to HASC in the coming weeks. Shuster would like to see the committee propose legislative changes in the next defense authorization bill, said Urbanchuk. The panel likely will recommend more lenient auditing requirements for small businesses and ways to promote mentor-protégé relationships between prime and subcontractors, he said. “We want to make sure small companies don’t get discouraged from entering the defense acquisition process.”
Pentagon officials, for their part, regard these complaints as unfounded. 
“Small business participation in total DoD programs is north of 37 percent,” said Richard T. Ginman, the Pentagon’s director of defense procurement and acquisition policy. The department awards 23 percent of contracts to small businesses, but when one includes the dollars that these firms receive as subcontractors to primes their share soars to 37 percent, Ginman said last month at an Aviation Week & Space Technology conference. 
In many of the largest military procurements, he said, most of the money flows down into the supply chain.
Defense officials also caution that congressional gripes about small business participation often ignore the realities of producing military equipment. In many cases, commercial suppliers cannot meet the technological requirements of military systems, said Brett Lambert, deputy assistant secretary of defense for manufacturing and industrial base policy.
“You have to be realistic about the environment,” Lambert said at a recent conference hosted by the Center for Strategic and International Studies. There are high barriers to entry, but sometimes they are legitimate, he said. “We require our systems to last a long time,” he added. “We try to lower the barriers but we do so carefully.”
Another concern for the Pentagon is when potential suppliers appear to be more interested in making a quick buck and do not intend to stay in the market for the long run. “We want companies in our sector for the long haul,” said Lambert. “We want to reward companies that are dedicated to our marketplace and the unique needs of the department,” he said. “Then we want to take advantage of small innovative companies,” Lambert said. “The risks are too great to do away with the requirements we have to protect our base and open up to any company.”
David J. Berteau, director of the CSIS international security program, said recent studies confirm that the Defense Department has exceeded small business targets in the percentage of contracts it awards to small businesses, especially in the area of services. The statistics might show that small firms only score 20 percent of Pentagon contracts, but those numbers mask the real story, Berteau said. Unfortunately, he said, there is no reliable federal data that breaks down total dollars that flow to small businesses from prime contractors. “It’s not in the interest of primes to keep that data. The government could get that data if it paid for it.”
Andre Gudger, director of the Defense Department’s office of small business programs, told Shuster’s panel that rather than just focus on “set asides” or mandatory percentages of contract awards that must be given to small businesses, his office is seeking to align programs with Defense Department needs. The Pentagon, for instance, would like to see more participation by small businesses in supplying green energy technologies. Gudger said a change made last year to the Pentagon’s financial system allows for accelerated payments to any small business that has a prime contract. Instead of having to wait for 30 days, they receive payments in 20 days. Most small businesses, though, will not benefit from this rule because they are subcontractors to larger primes.  

Topics: Business Trends, Doing Business with the Government, Defense Contracting, Procurement, Defense Contracting

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