Resilient Supply Chains Require Small Business Contractors

Resilient Supply Chains Require Small Business Contractors
(Nate Guidry/Pittsburgh Post-Gazette via AP)
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One of the previously under-appreciated vulnerabilities of our economy exposed by the COVID-19 pandemic has been supply chain resilience. Now, rightly, it is a shared priority for all policymakers, and America’s small businesses are a critical piece of strengthening that resilience. An important way to strengthen supply chains is by ensuring robust participation of small businesses through government procurement.

Recent trends, however, threaten to undermine small businesses’ role in buttressing supply chain resilience. In our past work as, respectively, Administrator of the Small Business Administration and Chair of the Senate Committee on Small Business and Entrepreneurship, we found the procurement process to always be a mighty challenge for small businesses. That is in spite of concerted effort on the part of many in government to widen contracting opportunities for small business. The Biden administration, in its American Jobs Plan and proposed budget outline, has made clear that expanding the role of small businesses in procurement is a priority. Republicans and Democrats on Capitol Hill share this view.

With a potentially bipartisan deal on infrastructure in the works, Congress has an opportunity in this legislation to adopt reforms to small business procurement processes. Such reforms would increase the ability of small businesses to participate in federal contracting. They would also contribute to strengthening not only the nation’s infrastructure but also our supply chains.

Implementing such reform requires identification of areas where procurement isn’t working for small businesses — and what meaningful actions can be taken.

Annual contract spending by the federal government is today roughly $600 billion. That’s an enormous amount — about the size of the entire Swedish economy — and covers everything from construction to information technology. Every year, 23 percent of federal procurement dollars must be allocated to small business; approximately $138 billion. An infrastructure bill of perhaps $1 trillion would lead to even more small business contracting opportunities.

On the cusp of the pandemic, in early 2020, the Small Business Administration gave the federal government an overall “A” grade in meeting small business-related goals. In fiscal years 2018 and 2019, the government exceeded both the top-line goal and several of the sub-goals for certain types of companies, such as women-owned small businesses. The FY19 goal for prime contracts awarded to women-owned small businesses, for example, was five percent. The government ended up at 5.19 percent, or $26 billion.

But this “A” grade ignores the barriers that keep many small businesses from accessing federal contracting opportunities. A straightforward way to boost supply chain resilience would be to lift the small business participation goals. Yet even as the government has continued to meet the percentage goals for small business, the breadth of participation has been narrowing. Fewer and fewer small businesses manage to win federal contracts.

In 2019, a Bloomberg Government report found that the number of small businesses participating in federal contracts in FY18 was at a 10-year low. From 2009 to 2018, there was a 32 percent drop in participation. That compared to just a four percent drop in the number of large vendors receiving contracts. Overall dollars going to small businesses have been rising and allowing the government to meet its goals. Yet the pool of small businesses to which those dollars are flowing has been shrinking.

Twice in the past year, the House Small Business Committee has examined supply chain resilience. They found that small businesses are key supply chain players for large companies and the government — and that the success of small businesses in many sectors depends on resilient supply chains. Supply chain resilience is not gained, however, when the pipeline of small business participation keeps constricting.

Congress can address this in an infrastructure package in four ways.

First, the top-line 23 percent small business participation goals should be raised to 25 percent or higher. The women-owned goal should go up to 10 percent.

Second, the number of opportunities must be increased for small businesses. This can be done in two ways. Contract bundling must be reduced. Bundling requirements into GWACs — government-wide acquisition contracts — narrows procurement pathways for small businesses. Additionally, request-for-proposal processes must be simplified and made more transparent. Too many small businesses are either not aware of contracting opportunities or are discouraged from even applying because of burdensome requirements.

Third, and particularly important for infrastructure, there should be greater assistance for small businesses with bonding capacity. Bonding is important because it is generally required for small businesses hoping to compete for and win a contract. Yet many small businesses, especially those owned by women and people of color, face difficulties in obtaining such bonds. Lawmakers could lower certain bonding thresholds and also strengthen the SBA’s Surety Bond Guarantee Program.

Lastly, Congress can strengthen oversight and accountability by allocating more resources for the SBA and contracting officers across agencies. Currently, it is difficult for those with responsibility for small business procurement to enforce requirements. More resources would help ensure that the government is broadening overall participation by small businesses.

Small business procurement is often an afterthought for policymakers. After all, $138 billion in small business contracts is comparatively tiny when Congress has been passing trillion-dollar packages for over a year. Increasing that amount, however, is an enormous opportunity for small firms, which are our major job creators; and it would also have the impact of enhancing supply chain resilience for our entire economy.

Maria Contreras-Sweet served as the 24th Administrator of the SBA from 2014-17. Olympia Snowe served three terms as U.S. Senator from Maine from 1995 to 2013, chairing the Senate Committee on Small Business and Entrepreneurship from 2003 to 2007. Both are members of the Board of Directors of the Bipartisan Policy Center.

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