Characteristics of Recent Federal Small Business Contracting

Full Report

Research Summary

No. 397                             May 2012

Characteristics of Recent Federal Small Business Contracting

Eagle Eye Publishers, Inc., Fairfax, Virginia. 64 pages. Under contract SBAHQ-09-M-0271.

This study documents the role and impact of federal
procurement programs on small businesses. It
further provides a backdrop to evaluate the impact
of the American Recovery and Reinvestment Act
(also known as the ARRA, the Recovery Act, or the
Stimulus) on small business contracting.

Overall Findings

The report has two main findings. First, agencies
that achieve their small business procurement goals
have three factors in common: they have a high utilization
rate of new small businesses; small firms
make up a larger share of these agencies’ contractors
compared to agencies that fell short of their
goals; and a large share of their contract actions are
fixed-price contracts. Second, procurement initiated
under the Recovery Act successfully utilized small
contractors, both in terms of number of entities and
dollars spent. Of the $51.7 billion spent on Recovery
Act contracts by 28 agencies from February 2009
through December 2010, 25.5 percent of the total, or
$13.1 billion, was expended through small business
contracts.

Highlights

Each year, the U.S. Small Business Administration
(SBA) negotiates goals with each federal agency for
procurement from small businesses, as well as goals
for important socioeconomic groups: women-owned
small businesses; small disadvantaged businesses,
HUBZone small businesses, and service-disabled
veteran-owned small businesses.

The statutory small business and socioeconomic
goals are important because they make contracting
officials aware of the full range of businesses willing
to perform the work. When an agency achieves its
small business and socioeconomic goals, it receives
high marks on its SBA scorecard. But benefits

stretch beyond this, in the form of more small businesses
in the federal marketplace, more small business
innovation, and heightened price competition.
The government, the purchaser of the goods and
services, obtains better services at more competitive
prices, that is, a better value for the dollars spent.

• In FY 2009, 35 percent of agencies met or
exceeded their negotiated small business procurement
goals; on average, these agencies surpassed
their small business utilization goal by 12 percent.
Sixty-five percent of agencies fell below their negotiated
small business goals; the average shortfall was
13.8 percent. The agencies that achieved their negotiated
small business goals used small businesses at a
rate that was 10 percent higher than the agencies that
missed their goals.1

• Agencies meeting their small business procurement
goals were more successful at breaking up
large requirements into projects addressable by small
businesses. These agencies also had higher levels
of set-aside procurements, and they awarded more
actions through open competition.

• The small business share of Recovery Act–
funded procurement over two years measured 25.5
percent; this is 4.2 percent higher than the 21.3 percent
small business procurement share achieved by
agencies in FY 2009 (including FY 2009 Recovery
Act dollars).

• Five agencies met all their goals (including
Recovery Act procurement actions): Department
of Agriculture, Department of Defense–Air Force,
Department of Defense–Army, Department of State,
and Federal Communications Commission.

• The three agencies that spent the most
Recovery Act funds—the Departments of Energy,
Health and Human Services, and Defense–Army—
significantly exceeded their negotiated small business
goals. In fact, all major participating branches
of the Department of Defense exceeded their small
business goals issuing Recovery Act contracts.
While the Department of Education exceeded its
goal by the highest percentage point difference, the
Departments of Energy, Health and Human Services,
and Defense made the highest dollar impact.

• Only eight of the 28 agencies that actively
participated in Recovery Act procurement met their
service-disabled veteran-owned small business goals;
18 agencies met the small disadvantaged business
goal; 13 agencies met the HUBZone goal, and 13
met their women-owned business goal.

Representative Agency Case Studies

The authors analyzed small business procurement
practices at 28 agencies, and they gave detailed
assessments of a representative large, medium, and
small agency (Army, U.S. Agency for International
Development, and Nuclear Regulatory Commission,
respectively). The primary conclusions follow:

In FY 2010, the Army met four out of five small
business statutory goals. While falling short of its
5 percent women-owned business goal, the Army
is experiencing success with its small business outreach,
as indicated by its 150 percent increase in
the dollar share of vendors new to the federal marketplace.
The Army’s set-aside and GSA schedule
contracts are below government-wide averages.
Outreach to an experienced network of small businesses
in the areas of interest could raise the agency’s
small business utilization.

The U.S. Agency for International Development
exceeded its goals in three out of five statutory goal
categories in FY 2010. Shares of agency expenditures
devoted to small business, small disadvantaged
business, and HUBZone fell, leading to a 9 percent
drop in its small business goal achievement. Every
set-aside category’s small business dollar, company,
and transaction share was below the government-
wide set-aside ratio. These are all potential areas for
increased activity and research into source selection.

The Nuclear Regulatory Commission’s small business
dollar share grew in four out the five statutory
goal categories. The four-fold increase in the dollar
share of its new small vendors combined with the
increase in new small business utilization are indicators
of NRC’s successful small business outreach
efforts. NRC’s small business dollar share of GSA
schedule contracts is five times greater than the
overall government share, but this share has fallen
slightly year-over-year.

Additional Findings

• Fifteen percent of all Recovery Act contract
dollars were awarded under set-aside conditions.
The most popular set-aside program was the 8(a)
program, followed in popularity by small business
set-aside, service-disabled veteran-owned small business,
and HUBZone.

• The federal contracting marketplace undergoes
significant small business turnover each year.
In terms of small business births, for the period
FY2005–FY2009, an average of 17.6 percent of all
small vendors were new to the federal marketplace.
The agencies that met their small business goals lost
fewer small vendors (18.4 percent) than the agencies
that fell short of their goals (21.5 percent).

• For FY 2009, the analysis shows that 13.8
percent of contract awards in manufacturing went to
small businesses.

Scope and Methodology

The data for this study come from the FY2009–
FY2010 Federal Procurement Data System-Next
Generation (FPDS-NG). To render the data in this
study consistent with the way the SBA analyzes its
small business procurement goal achievement, the
researchers applied the SBA’s exclusion process to
all the spending data. This process excludes certain
categories of spending from the overall universe of
spending data against which small business procurement
achievement is measured. This report was peer
reviewed consistent with Office of Advocacy data
quality guidelines. Information on this process can
be obtained from the director of economic research
at advocacy@sba.gov or (202) 205-6533.

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1 The SBA–certified numbers for FY 2009 show that of
the 24 agencies covered by the Chief Financial Officers’
Act, 33 percent met their FY 2009 goal, surpassing it by an
average of 12 percent, while the average shortfall was 5.08
percent.

This report was developed under a contract with the Small Business Administration,
Office of Advocacy, and contains information and analysis that was reviewed and
edited by officials of the Office of Advocacy. However, the final conclusions of the
report do not necessarily reflect the views of the Office of Advocacy.

Attachments: 397tot.pdf rs397.pdf