Adverse Business Environment Worries Small Business Execs

By Kutner, Joshua A. | National Defense, March 2000 | Go to article overview

Adverse Business Environment Worries Small Business Execs


Kutner, Joshua A., National Defense


At a time when Pentagon officials are stressing the importance of small business participation in defense contracts, there is widespread discontent among executives as a result of what they call a detrimental business environment.

Among the problems cited by small business officials are tight labor markets, slow payments for contracts and the increasingly common practice of "bundling" multiple projects into a single contract award.

To address some of this issues, the U.S. Army Materiel Command hosted a conference with small business leaders in McLean, Va. Officials from both government and industry generally agreed that communications between the two sectors must improve. Executives also conceded that they need to become more aggressive in pursuing new business opportunities in defense-related work. Army officials, meanwhile, outlined the service's strategy for working with small businesses in the future and offered suggestions on how to better take advantage of so-called small business set-asides.

In Fiscal Year 1999, the Army achieved its preliminary goals in prime contracting with small and small disadvantaged businesses. The service, which allocated approximately $27.4 billion to U.S. prime contractors for procurement, spent $7.2 billion or 26.4 percent on small businesses after setting an initial goal of 26 percent. It gave small disadvantaged firms $2.5 billion or 9.2 percent, crushing its goal of 5 percent. The Army, however, failed to achieve its goal of 5 percent in business from woman-owned small businesses with $856 million or 3.1 percent, according to figures presented by Tracey Pinson, director of the Army's Office of Small and Disadvantaged Business Utilization.

The Army, which spent $1.4 billion on subcontract procurements, exceeded all three of its subcontracting goals in fiscal 1999. As of March 1999, small businesses had received $887 million or 62.8 percent of the service's U.S. procurement dollars with a goal of 50 percent. Small disadvantaged businesses collected $134 million or 9.5 percent with a goal of 5 percent, and woman-owned small businesses cashed in at $119 million or 8.4 percent, also with a goal of 5 percent.

ln fiscal 2000, said Pinson, the Army is committed to turning former proteges into mentors in the Graduated 8(a) Mentor-Proteg@ Pilot program, enhancing participation of small businesses in competitive sourcing opportunities, increasing military installations involvement in Historically Underutilized Business Zones (HUBZones) and assisting small businesses in establishing good past performance records.

"We must take advantage of joint venturing," said Pinson.

Army Focus

The mentor-prot6g6 program provides incentives to prime contractors that train small disadvantaged businesses to perform as suppliers. As of November 1999, the Army had 17 mentors and 24 proteges. The Army works with graduated 8(a) companies, encouraging them to become mentors to current 8(a) firms. In November, the service had authorized 10 mentor-protege teams and approved five under the Graduate 8(a) Program. Prime contractors who take on subcontractors as proteges may be entitled to labor cost reimbursements or credit costs toward subcontracting goals, said Pinson.

The mentor-protege program helps the Army gain access to a wider base of suppliers. Participating businesses gain valuable knowledge of how to compete for government work.

The Army also hopes to court small businesses located in HUBZones, areas that range from 2,000 to 8,000 in population. In order for a small business to qualify for HUBZone contacts, it must be located in that particular zone and at least 35 percent of its employees must reside there.

Another factor that helps firms win contracts is past performance. If a contractor has a positive track record in dealing with the Defense Department, it is more likely to receive additional contract awards. The Army has worked to educate small businesses on how to benefit from past performance evaluation. …

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