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How One Small Word Change Could Mean Many More Contracting Dollars for Small Businesses

Sometimes, it’s the most subtle nuances in a phrase that matter most — and for small government contractors, that appears to be the case in the federal procurement rulebook.

The Federal Acquisition Regulation, a long list of government-wide contracting rules established by the heads of several federal agencies, requires all large companies bidding on prime contracts to specify what percentage of the money awarded would flow through to small-business subcontractors.

The rule is meant to ensure that small firms “have the maximum practicable opportunity to participate in performing contracts,” according to the FAR, and to help the government meet its annual goal of awarding 35.9 percent of all subcontracting dollars to small companies. Collectively, federal agencies have missed that mark each of the last five years.

Bob Justis says one odd word on page 1,343 in the rulebook isn’t helping.

“Out of all your planned subcontracting dollars, you’re required to set aside some percentage of that for small businesses,” Justis, head of Justis Consulting, a contracting proposal development firm based in Washington, said in a recent interview. “However, it’s required to be stated as a percentage of your total subcontract dollars — not as a percentage of the total contract dollars.”

It’s a subtle but important distinction, Justis explained, because a large prime contractor can, based on that rule, pledge to commit 40 percent of its subcontracting dollars to small businesses. If the company then handles all the work itself, resulting in a total subcontracting spend of zero, it still met its small-business subcontracting goal.

After all, 40 percent of nothing is nothing.

More often, Justis says, the wording leads to confusion between agencies and their prime contractors. Contracting officers expect to see, for example, a $10 million with a 40 percent small-business subcontracting goal to deliver $4 million to small companies (moving the agency $4 million closer to its annual goal). However, the actual total often comes in much lower, because the company is shooting for a goal based on a different formula.

“It makes a very big difference as to how much money ultimately goes to small businesses,” Justis said.

Several federal departments have already started tweaking their own procurement policies to require prime contractors to state their small-business subcontracting plans as a percentage of total contract dollars.

But different agencies operating under different rules isn’t likely to help with the confusion. Justis and several others in the federal contracting community have started urging officials to instead revise the FAR.

That would require action by the Defense Department, General Services Administration and NASA, which are charged with issuing and updating the rules.

“If there are amendments that makes sense, that’s something we will explore,” GSA Deputy Administrator Denise Turner Roth said when asked about the small-business subcontracting rules.

Sandra Broadnax, director of small business programs for the National Geospatial-Intelligence Agency (part of the Defense Department), says such an amendment makes perfect sense.

“I agree, it needs to be changed and be consistent with the small business participation plan,” Broadnax said. She noted that the Defense Department recently assembled a subcontracting working group to look at potential changes to the procurement rules. That’s one of the changes the group will consider.

“I’ve noted it, and we will work it,” she said.

May 22, 2014


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