Reforms Deliver Wins for Small Businesses

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By some metrics, 2017 was a banner year for small business federal contractors. In May 2018, the Small Business Administration announced that, for the first time, the federal government exceeded $100 billion in prime contract awards to small businesses in fiscal year 2017.

Despite reaching this milestone, small business federal contracting still has room for improvement. For example, the SBA’s data also show that the percentage of total federal contracting dollars earned by small businesses declined for the second year in a row, falling to 23.8 percent from a historic high of 25.7 percent for fiscal year 2015.

Given these mixed results, is there a case for near-term optimism for the small business contracting community? Recent changes to federal caps on the use of micro-purchasing and simplified acquisition methods hold the promise of more agile acquisition, benefitting small businesses.

Indicative of the big changes forthcoming is a June 2018 White House Office of Management and Budget memo streamlining small business contractors’ access to federal contracting opportunities.

Memo-18-18, “Implementing Statutory Changes to the Micro-Purchase and the Simplified Acquisition Thresholds for Financial Assistance,” takes steps to accelerate implementation of increases in the thresholds for micro-purchases and of simplified acquisitions, which Congress mandated in the 2017 and 2018 National Defense Authorization Acts.

Conducted mostly using government purchase cards, micro-purchases occupy the lowest-cost, but most commercially open end of the spectrum of federal acquisitions.

Acquisitions that fall under the simplified acquisition threshold yet exceed the micro-purchase threshold are eligible for streamlined, but still competitive bidding-based contracting procedures.

Although the memo did not apply to Defense Department contracts, its raising of the micro-purchase threshold and simplified acquisition threshold — to $10,000 and $250,000, respectively — for nonprofit research federal grant recipients signals similar government-wide increases expected later this year.

The department also has taken steps to streamline small-dollar procurements. It implemented its own smaller micro-purchase threshold increase in 2017. It followed up in April by raising the contract value trigger at which contractors are required to provide cost and pricing data for certification, from $750,000 to $2 million. This change will give contracting officers the discretion to grant awards without having to verify a proposal’s pricing justification.

At the same time, the Defense Department raised the simplified acquisition threshold for defense contracts to $250,000. Following the same pattern, a proposed Defense Acquisition Regulation System rule would grant contracting officers emergency procurement authority with enhanced thresholds to acquire products or services to aid in response to a cyberattack.

These acquisition reforms will likely benefit small business contractors. The most direct impact will come from the increase of the simplified acquisition threshold.

"The combined impact of these procurement changes benefits more than just the small business contracting community."

Across all federal agencies, the government reserves procurements that fall between the micro-purchase threshold and the simplified acquisition threshold for small business contractors; with the simplified threshold authorized to rise by 150 percent, small businesses will have more and better opportunities to win contracts of greater value.

The Federal Procurement Data System indicates, for fiscal year 2017, $434.3 million in contracts valued between $100,000 and $250,000 were awarded to firms other than small businesses. Under the higher simplified threshold, it’s likely most of those dollars will go to small businesses. The increased micro-purchase threshold will also likely boost small business contracting opportunities.

Although small businesses do not have a preferred status for micro-purchases, these transactions allow anyone with a government purchase card significant sourcing discretion, and they do not have to follow typical competitive bidding procedures. In fact, OMB in 2011 instructed senior acquisition and financial officers to increase their use of micro-purchase authority to acquire goods and services from small businesses.

The combined impact of these procurement changes benefits more than just the small business contracting community. For the last few years, “agility” has been the key buzzword in acquisition reform circles, articulating reformers’ preeminent goal of achieving an acquisition system that combines speed with responsiveness to dynamic strategic and technological environments.

By reducing contracting red tape and expanding contracting officers’ discretion over vendor selection, these reforms improve the agility of the acquisition system, which should deliver better capabilities and materiel to warfighters more rapidly. Greater agility comes not simply from facilitating easier procurement from open market commercial platforms or making it easier for contracting officers to give contracts to small innovative tech firms.

Rather, as the Coalition for Government Procurement argues, increases in the two thresholds also allow for greater use of traditional agile contract vehicles, such as multiple-award, indefinite delivery, indefinite quantity contracts that pre-clear rosters of products, services and providers for price competitiveness and compliance with other statutory requirements. Thus, increases in small-dollar procurement opportunities help link acquisition agility to acquisition quality.

Through the threshold reforms, the federal government takes a major step toward an acquisition system that both gives small businesses access to big opportunities and harnesses small business’ innovation.

Christopher Smith is a regulatory research associate at NDIA’s policy division. He can be reached at csmith@ndia.org.

Topics: Defense Department, Government Policy