Feeling Small

When it comes to dealing with small business, how is the federal government doing? The Senate Small Business and Entrepreneurship Committee held an oversight hearing on the subject yesterday. The panel learned that reality has not caught up with past promises by government agencies.

"Small businesses drive our economy," says Massachusetts Senator John Kerry, the panel's chairman, "comprising over 99 percent of all firms and over half of our Gross Domestic Product."

Before hearing from his witnesses, Chairman Kerry took special note of one scheduled witness, Lurita Doan, Administrator of the General Services Administration, who declined his invitation to testify.

"I'm concerned that Miss Doan pulled out of the hearing at the last minute," said the chairman.

Kerry was not alone in criticizing Administrator Doan. The panel's ranking Republican member, Senator Olympia Snowe from Maine says, "last month, Chairman Kerry and I requested that the GSA refrain from terminating its Office Supply Stock Program, at least until the Government Accountability Office conducts a report of this potential termination will bear on hundreds of small businesses across the country. And that's why I'm disappointed that Lurita Doan was unable to testify before the committee today."

In a statement from her office, Doan said she "was very disappointed she was unable to attend the small business committee hearing arranged on short notice due to a prior long standing commitment."

Kerry says he's concerned about the federal government's performance when it comes to small business, in part, because of promises made through the years by both Congress and the Executive Branch.

Twenty three percent of federal contracting dollars are supposed to go to small businesses. That's not just because it's a nice idea: it's the law. The Administration claims they've met this goal, but it takes some creative math and selective contract analysis to get there. According to Eagle Eye Publishers, the federal government spent more than $412 billion in 2006. Only 20 percent of that went to small businesses, and that meant more than $12 billion didn't go to small businesses that should have.

North Carolina Senator Elizabeth Dole, a Republican, criticized the fact that a very small percentage of government contracts, particularly from the Pentagon, go to disabled veterans of the military. "It's simply unacceptable that in fiscal 2005, only 0.6 percent of government contracts were awarded to service disabled veterans, and they were awarded just 0.49 percent of Defense Department Contracts," said Dole.

Questioned by Chairman Kerry, Anthony Martoccia, Director of the Pentagon's Small Business Program said his agency is making a renewed effort to reach out and award more contracts to veteran-owned small businesses. But Kerry noted that the biggest complaint he gets is that it is always complicated doing business with the Pentagon, and the federal government, noting "It's what drives citizens crazy."

In response, Martuccia explained that it is complicated because "it has to be fair, it has to be competitive, and it has to be fully evaluated," and that the government procurement process requires lots of information from companies that want government business.

Kerry and the panel also explored the controversial practice of bundling, in which groups of small contracts are bundled together and awarded to one large contractor, often cutting out small businesses.

A 2005 report from the Small Business Administration's Inspector General showed that a lack of procurement center representatives meant that 87 percent of small business government contracts were not being reviewed to stop the practice of bundling.

Patricia Rice, director of Maine's Procurement Technical Assistance Center, testified about one small business from her state that was hurt by a Pentagon bundle:

After pursuing government contracts for more than a year and then getting some small contracts, a Maine machine shop was awarded a 5-year multi-million dollar contract to make precision parts for the U.S. Army Tank Automotive and Armaments Command (TACOM). The small business ramped up, hired people, filled orders, and then about 18 months later, the machine parts he was supplying to TACOM were wrapped into a large bundled contract that ultimately went to a very large prime contractor. The company was unable to recover many of the costs of ramping up, and is now not actively looking for government work.

Kerry noted that such bundling practices also adversely affect small woman-owned businesses, and small businesses run by minorities, especially those in poverty-stricken areas. Asked by Chairman Kerry why the Pentagon and other agencies routinely shun dealing with such small businesses, Rice suggested that many government procurement offices, and many large contractors that use small businesses as sub-contractors, are often risk averse, and do not like dealing with small companies they are not familiar with.

Kerry says his committee is planning a second round of hearings on the government and small business before the August recess.

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