New OMB Guidance Sets the Stage for Increased Small Business Contracting

On December 2, 2021, OMB released guidance, “Advancing Equity in Federal Procurement” designed to implement this element of Biden’s overall small business agenda.

One of Biden’s first executive actions, “Executive Order on Advancing Racial Equity and Support for Underserved Communities Through the Federal Government”, directed agencies to conduct “equity assessments” to derive insight into barriers to access to federal programs and contracting, engage with underserved communities to inform plans to address barriers, and promote equity in annual budget submissions and resource allocation. This new guidance establishes five requirements intended to help attract and retain small businesses to the federal market.

1. Set New Agency FY 2022 SDB Contracting Goals to Reach a Cumulative Goal of 11%

SBA will work with agencies to develop interim FY 2022 SDB goals, that when viewed government-wide, will result in an increase of SDB awards to 11%. This is not a considerable stretch from the current environment, given that agencies have been exceeding SDB goals for prime contracting for the past several years.

The guidance notes SBA’s plan to incorporate the new goal into agencies’ FY 2022 scorecards, as well as work with OMB, the Domestic Policy Council (DPC) and the National Economic Council (NEC) to come up with ideas to increase spending goals for Women-Owned Small Businesses (WOSBs), Service-Disabled Veteran-Owned Small Businesses (SDVOSBs), and HUBZone businesses in FY 2023.

2. Adjust Category Management Practices to Boost Small Business Opportunity

One of the initial concerns during the rollout of the category management initiative was the potential impact on small businesses. Although the effort has resulted in $33B in savings in 3 years, the guidance acknowledges the challenges that small businesses have faced in accessing the contracts agencies use to meet their category management goals, resulting in a proportionally lower share of small business spending. The guidance requires several revisions to the category management guidelines to drive more equity.

• Develop new Tier 2-Socioeconomic Small Business Spend Under Management (SUM) metrics. SUM reflects the percentage of an agency’s spend that is actively managed using category management principles. Agencies receive “credit” for activity that aligns with SUM goals. The challenge, according to the guidance, is that agencies have primarily sought SUM credit based on their larger, government-wide or agency-wide contracts, many of which are difficult for small businesses to access. This new SUM tier will give agencies automatic credit for all awards made to socioeconomic small businesses. According to the guidance, this new credit will apply to 8(a) and other small disadvantaged businesses, WOSBs, SDVOSBs, and HUBZone contractors.
   
• Remind agencies to incorporate their socioeconomic responsibilities into their category management plans. This is essentially the “you can do both” pep talk for agencies that need a better balance or different tradeoffs between their category management and socioeconomic goals.
   
• Remind agencies not to sacrifice socioeconomic progress for Best-in-Class (BIC) contract spending. The guidance warns agencies to avoid prioritizing the use of BIC contracts – which can often be challenging for small businesses to gain access – over meeting socioeconomic goals. Agencies must work to develop a balance between BIC contracts and other strategies that will provide a more equitable contracting environment for small businesses.
   
• Give SBA and Commerce Voting Rights. The new category management directive will recognize SBA and the Minority Business Development Administration (Department of Commerce component) as voting members of the Category Management Leadership Council (CMLC).  Currently, the CMLC is chaired by the Administrator of Federal Procurement Policy and includes representatives from DOD, Energy, HHS, DHS, VA, GSA, NASA, and SBA.  

3. Increasing New Small Business Market Entrants

One of the first observations I had when entering federal procurement over 20 years ago is that this market is not for tourists or the faint of heart. It is a large and complex environment that can be difficult for small businesses to navigate, and the numbers don’t lie. The guidance notes that data reported in the Federal Procurement Data System (FPDS) shows a net loss of 49,000 small businesses since 2010.  The federal government is instituting several data-driven initiatives to help reverse this trend:

• New entrant management tools – agencies will work with OMB, the DPC and the NEC to establish a common definition for “new entrant” to simplify and streamline tracking and benchmarking.
• Enhanced procurement forecasting – OMB will work with agencies to normalize the availability and quality of procurement forecasting tools, with a focus on early awareness, user experience, and increased information depth.
• Improved data management – OMB, SBA and GSA will work with agencies to provide better analytic capabilities to facilitate deeper observations of industry and sector demographics and geographic information. This data will inform strategies for adjusting procurement practices for more equitable opportunities.
• Better data transparency – OMB will work with Treasury to make USAspending.gov more user friendly for small businesses.
• Agency equity team recommendations – offers guidance to these teams (whose creation was directed by executive order) in a number of procurement process areas, such as:
  • Earlier engagement with agencies’ Offices of Small Disadvantaged Business Utilization (OSDBUs) and Procurement Center Representatives
  • More engagement with program managers of new socioeconomic small businesses
  • Increased use of innovative business practices
  • More data-driven outreach
  • Better tracking of set-aside spending under the Simplified Acquisition Threshold (SAT)
  • Improved oversight of prime contractor subcontracting plans and targets

4. Build Small Business Utilization into SES Performance Plans

To root this effort in accountability, the guidance requires agencies to include small business equity progress in the performance plans for key Senior Executive Services (SES) leaders (such as agencies’ Chief Acquisition Officers (CAOs), OSDBU directors, contracting heads and other SES officials involved in acquisition planning or source selection). The deadline for agencies is January 10, 2022.

5. Normalize OSDBU Directors’ Access to Agency Leadership

Current policy requires OSDBU directors to be responsible to and report directly to agency heads or deputies; however, the guidance acknowledges a lack of consistency across agencies. To ensure that agencies better embed small business goals into their missions and facilitate collaboration with acquisition officials, the guidance requires agencies to report to OMB and SBA whether they meet this requirement.

 

The Biden Administration has been telegraphing the objectives within this guidance since day one. Now that the administration has had the opportunity to conduct data-driven assessments to better under the current “state of the state”, they are better equipped to establish guidelines begins to address some of the issues inhibiting small business contracting. And they’re sharing it. The SBA has publicly shared the racial demographic breakdown among federal contractors. This data helps visualize the story of inequity that is the core of Biden’s small business agenda. The administration will likely use this data as the “stick”, while SUM credit is the “carrot.”

Source: Small Business Administration

The initial goal of 11% is within reach, so small businesses may not view that as a significant gain in the near-term. However, the policies changes within the guidance raise the profile and importance of small business contracting equity. It will not only force deeper conversations and analysis, it adds “teeth” to it by bringing small business representatives to the strategy table and drives accountability among leadership.