Federal Investment in Small Business Technology Sees Growth

Published: May 25, 2016

Government agencies’ contracting with small business for information technology products and services increased by 3.7% from FY 2014 to 2015.

The release of the Small Business Administration’s (SBA) federal scorecards for agency performance against FY 2015 small business contracting goals was met with mixed reception. The SBA reported government-wide improvement against targets, but exclusions with in calculations, issues with agency reporting, and dropping actual dollars paint a less rosy picture. Despite overall small business contracting declining from FY 2014 to 2015, government spending on information technology from small businesses grew by nearly one billion dollars during the same period.

The following calculations for information technology contract spending rely on agency reporting through the Federal Procurement Data System (FPDS). Thus, levels are affected by limitations related to FPDS as well as agency and contractor reporting. For example, this approach leverages the primary product or service code (PSC) associated with contract actions rather than attempting to account for those including mix of different products or services. Deltek’s Federal Industry Analysis team leverages around one hundred different PSCs in our IT market analysis. The use of technology related North American Industry Classification System (NAICS) to identify relevant spending in select non-IT PSC categories, such as professional services, relies on the accuracy of company classifications.

Purchases of IT products and services comprised an average of 26.8 percent of reported small business contracting between FY 2013 and 2015. During this period, overall small business contracting in actual dollars has followed the direction of the tide of eligible dollars, increasing from FY 2013 to 2014 and decreasing in FY 2015. The shifts have not matched one to one, though. While the eligible funds have decreased at a 0.9 percent compound annual growth rate (CAGR) over those years, total actual small business contracting has increased at 4.4 percent CAGR. (It’s worth noting that, despite that positive CAGR, actual small business contracting dollars dropped by 800 million dollars between FY 2014 and 2015.)

From FY 2013 to 2015, the portion of total reported contracting directed toward information technology averaged 16.8 percent. On average, actual spending on information technology from small businesses comprises 6.7 percent of small business eligible funds. Contracting for information technology accounts for a growing portion of reported small business contracting, increasing from around 21 billion in FY 2013 to nearly 26 billion in FY 2015 and marking a rise from 25.4 percent to 28.2 percent respectively. Agency reported spending on small business increased during this timeframe from a purely IT contracting perspective as well. Numerous factors including customer service experiences, expertise related to niche requirements, and agency goals are likely drivers behind the increases.