Just less than two years ago, the Pentagon warned in a report to Congress that “continued uncertainty will hit smaller, innovative, and niche product companies particularly hard due to a lack of capital resources.”
But Pentagon officials offered a much cheerier outlook last week as they unveiled the results of the fiscal year 2014 small business federal scorecard.
The federal government overall awarded 24.9 percent of all prime contracts to small businesses in 2014, or about $91.7 billion. And defense contracts accounted for more than half, at $54.3 billion, a figure that earned the Pentagon high praise from the Obama administration.
“This is the highest percentage of contracting dollars ever awarded to small businesses since the 23 percent goal was established in 1997,” said Small Business Administrator Maria Contreras-Sweet, who appeared at a Pentagon news conference June 26 with Undersecretary of Defense Frank Kendall.
“Small businesses now are filing more patents than ever,” she said. “So they’re also driving innovation.”
The Pentagon has made a deliberate effort over the past five years to boost small business contracting, said Kendall. The Defense Department’s “better buying power” procurement guidelines specifically promote the use of small businesses, “both for innovation and for efficiency and to control costs,” he said. “Small businesses, particularly in the services industry, tend to be leaner and more anxious to get work, and thus tend to be more economic in many cases for the department.”
Defense officials’ upbeat talk about small business contracting is a far cry from pessimistic forecasts that followed the military spending downturn between 2009 and 2013. CEOs of large prime contractors repeatedly warned that they feared losing small business suppliers, especially those that make specialized defense-unique products.
Under Kendall, the Pentagon’s industrial policy office launched a sweeping “tier by tier” study of the defense supply chain out of concern for the financial health of small suppliers.
Today, there are no reasons to worry, said Andre J. Gudger, acting deputy assistant secretary of defense for manufacturing and industrial base policy.
“We don’t have a weak supply chain. We have a very healthy one,” he said. “There’s areas of concern that we have that we focus on, but yes, we have overall a healthy industrial base set up from our first tier to our sub tier suppliers.”
Kenyata L. Wesley, acting director of the office of small business programs, credits Kendall’s better buying power for the improved climate. “Better buying power strategically focuses on small business as well as technology and innovation,” he said. “If you look at better buying power 3.0, which is now the third iteration, there’s a lot more initiatives based on small businesses, because we’re not stopping, we’re not taking the foot off the gas. … It’s not a political statement that they’re the economic engines. They’re technology engines.”
Gudger said he continues to monitor the state of the industry. “I’m responsible for the industrial base and ensuring that it’s a modern, healthy, robust industrial base. And we look at the fragility and criticality of all businesses, not just small. That includes the medium and the large, to see where we have critical capability where we might have an industrial base that’s thin or weak.”
Today, he said, “there is no systemic crisis” concerning defense suppliers. “Our industrial base looks very healthy. We have improved it.”
The SBA has programs to help cash-strapped federal contractors, said Contreras-Sweet. One is called “emerging leaders,” she said. “We take experienced companies, as we help them grow to scale, put them through what we call a mini-MBA.” Another is called “quick pay,” aimed at suppliers with cash flow problems.
Defense Department service contracts appear to be the sweet spot for small businesses. About half of all defense contracts are for services. “The Department of Defense made a decision to focus on areas that were very healthy for small businesses,” said Gudger. “We focused on areas such as knowledge base services, electronic and communications, and facilities management.”
In the federal scorecard, the SBA gave the Defense Department an “A” grade. Eighty percent of the grade is based on the actual prime contracting dollars, said John Shoraka, associate administrator for government contracting and business development at SBA. Ten percent of the grade comes from the amount of subcontracting dollars, and the remaining 10 percent is based on subjective factors such as specific leadership efforts.
Shoraka noted that the federal government also broke a new record for contracts awarded to businesses owned by our military disabled veterans. The goal is 3 percent, but in 2014 that percentage rose to 3.7.