While SBA Touts Achievement of Goals, Small Business Participation Rates Are Down

Published: May 22, 2017

Contracting TrendsSmall BusinessSBA

Last week, the US Small Business Administration (SBA) announced that the federal government achieved the government-wide small business goal for FY 2016. However, a trend not covered in the percent of dollars spent is the continued decline in the number of small businesses participating as prime contractors.

For FY 2016, the SBA's report,2016 Small Business Procurement Scorecard Overview, indicated that the federal government beat the 23% goal for prime contract spending with small business by achieving 24.34%.

The scorecard measures achievement vs. the goal based on the percentage of all federal contract obligations awarded to small business.

However, based on Deltek's analysis of federal contract spending, while the percent of contract spending is above the goal, the participation rates by small businesses in prime contracting have been on the decline since 2011. In fact, in 2016, the number of small business prime contractors receiving contract obligations dropped by 3% to just under 107,000 firms. In 2011, 138,000 firms received prime contracts yet in that year just 21.49% of prime contracting was spent with small businesses.

Key reasons for the decline in small business primes appears to be centered around contract consolidation. As government buyers shift dollars to indefinite delivery, indefinite quantity (IDIQ) task and delivery order based contracts, they are narrowing the field of contracts and contractors that they use.

This trend poses an important set of questions for both policy makers and small businesses.

For policy makers, it begs the question to what extent do they care about the participation rate of small businesses vs. just the raw percentage of dollars spent? The data suggests that the current policy and trend favors helping a fewer number of small businesses find a greater degree of success. But that translates into fewer opportunities for small businesses to serve as primes contractors to the federal government.

For small business executives, prime positions are becoming increasingly challenging to obtain. They will have to determine if they are comfortable being relegated to a subcontracting role or make the significant financial investment in pursuing a position on one or more of the IDIQs that agencies are gravitating toward to meet their requirements. Most small businesses prefer the direct relationship with the government to have more control over their role and performance, as well as to improve their leverage for future work.