Should the U.S. Small Business Administration be in the business of helping small-business owners procure federal contracts? Its critiques allege that SBA’s procurement program is rife with fraud. More specifically they say that affiliates of large businesses are gaming the system to glean contracts meant for small businesses. Additionally, most of the small businesses that apply, fill out the multitude of forms, register and follow SBA’s instructions, and wait for government procurement officers to call them. But the phone never rings.
SBA is charged with helping small-business owners get 23 percent of all federal contracts. That is in accordance with the "goaling" mandate passed by Congress and signed by the President. Of the 23 percent, the goal is further subdivided to give disadvantaged groups a leg up.
Five percent of prime and subcontracts are targeted to small (minority-owned) disadvantaged businesses. Another five percent of prime and subcontracts are targeted to women-owned small businesses. Three percent of prime contracts are targeted to small businesses in historically underutilized business zones called "HUBZones." And three percent of prime and subcontracts are targeted to service-disabled, veteran-owned small businesses.
In fiscal year 2008, the federal government awarded $93.3 billion in contracts to small businesses. That was 3.5 percent short of its 23 percent mandate. Even though it is close to meeting its goal, The American Small Business League claims that some of the businesses are actually larger than SBA’s definition of "small." ASBL has been fighting SBA in the courts for full disclosure of all contract recipients.
But, in my opinion, whoever wins is of little consequence. That is because by meeting the mandate, federal procurement officers have to bypass some larger, more experienced and better-qualified contractors. In other words, almost 25 percent of the contractors making weapons, armor and other combat paraphernalia, are chosen based upon company size rather than who is best for the job. Is that how we want to equip our troops going off to war? The Defense Department and our federal agencies should choose their contractors based upon quality and bid price -- not business size and disadvantaged status.
My recommendation is to let small-businesses compete for government contracts based on their ability to do the job. As a result, small businesses may have to spend a few years subcontracting, forming relationships with federal procurement officers and convincing them that they are worthy of bidding for prime contracts on their own.
Furthermore, SBA should get out of the procurement business altogether so that they can concentrate on what they do best -- guaranteeing loans against default. The agency is well endowed with the full faith of the federal government behind its loan guarantees. That makes it uniquely qualified to induce lenders to make loans by reducing their risk.
With the money it saves by ending its procurement outreach, SBA can increase its lending programs. And even though it is politically unattractive, the agency should make direct loans to marginally qualified applicants when its approved lenders will not. That includes loans for start-ups and fledgling companies that pay their bills on time but have insufficient collateral or lack a significant history of profit.
According to a quote that is often attributed to Albert Einstein, "Insanity is doing the same thing over and over again and expecting different results." Continuing SBA’s failed procurement program is also ‘insanity." Karen Mills, SBA’s new administrator should discontinue it instead of expecting different results.
Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA’s 2006 national "Journalist of the Year" award winner. He is a former entrepreneur, commercial mortgage banker and business lender. Follow Jerry on Twitter, www.twitter.com/JerryChautin.