A new report released on Tuesday sheds a lot of light on the state of the federal government’s procurement from small businesses. The report, from the Bipartisan Policy Center in partnership with Goldman Sachs’ 10,000 Small Businesses program identifies the issues and offers solutions.

According to the report, “the number of small businesses providing common products and services to the federal government shrank by 38 percent from 2010 to 2019. Even more dramatically, the number of small businesses entering the procurement marketplace as new entrants declined by 79 percent from 2005 to 2019.”

The report claims that the high price in terms of time, money and resources are a major barrier for small businesses looking to do business with the federal government

While the federal government has been meeting its goal of awarding 23 percent of procurement dollars to small businesses every year for seven years now, it has been consistently falling short when it comes to doing business with firms that have certain kinds of business certifications.

For example, women-owned small businesses, or WOSBs, are supposed to get five percent of contract dollars, but that goal has only been met twice since the goal was established in 1994.

Meanwhile, historically underutilized business zones, or HUBZones, are supposed to get three percent of contract dollars, but that goal has never been reached.

The upswing is that goals for small disadvantaged businesses, or SDBs, and service disabled veteran owned businesses, or SDVOSBs, have been met every year since at least 2006 and 2011 respectively.

The law that started this system was called the Small Business Act, which was signed into law by President Eisenhower in 1953. Every time that law is reauthorized it contains a certain passage noting that these kinds of measures are meant to “preserve competition.”

But with 38 percent fewer small businesses doing business with the federal government, competition is at a low, even if the small business share of contract dollars has gone up.

The report references a previous survey by Goldman Sachs’ 10,000 Small Businesses Voices program which focused on companies that had tried to contract with local and state governments as opposed to the federal government. 

“Small business owners consistently said the process is too time-consuming and too complicated, that there is not enough information on federal contract opportunities, and that they feel success is unlikely because small businesses are not adequately prioritized,” the report says.

Another issue which may make the actual participation numbers even smaller than what they seem is the policy of “double dipping.” For example, let’s say a WOSB is awarded a contract with the government, and that WOSB also happens to be located in a HUBZone. The contracting dollars they receive from the government would count for both WOSB and HUBZone goals, even though it was just one contract to one business.

The report makes many suggestions to fix a lot of these issues, which are vague but further broken down into actionable policies. They include things like “expand the breadth of small business participation and reduce barriers to entry,” which entails the establishment of “specific annual goals for new small business entrants and for the overall volume of small business participation” and providing the Small Business Administration with more resources to achieve WOSB and HUBZone procurement goals.

Other suggestions which are further broken down in the report include: “Enhance assistance for small businesses to increase competition,” “Improve transparency, accountability, and oversight,” “Modernize the 8(a) program” (this is the program that certifies small businesses,) and “Make category management work better for small business contractors.”

Photo via InvestmentZen.