While there are many contracting policies that contribute to small business contractor success and growth, there are also numerous areas where the federal government needs to improve to give opportunities for the companies that are the engine of the U.S. economy. Amid a decline in awarding direct contracts to small businesses and contract consolidation, subcontracting is one of the best opportunities for small businesses to enter and grow in the federal marketplace. However, working as a subcontractor comes with its own set of challenges. Too often, small companies that help a prime contractor win a proposal receive little or no work once the contract is awarded. Since the government does not have a relationship with subcontractors, small businesses have very little leverage to remedy this problem. H.R. 7694, Strengthening Subcontracting for Small Businesses Act of 2022, which passed the House in the previous Congress, improves the subcontracting ecosystem to help ensure that federal government contractors are utilizing small businesses in subcontracts. Introducing a similar bill that makes prime contractor performance on their subcontracting plans a more important evaluation factor in winning future work would help this as well.
Additionally, although reports by federal agencies show that dollars are being awarded to small businesses at consistent levels in best in class (BIC) contracting vehicles, the number of small business concerns being awarded prime contracts is shrinking drastically. Category management undoubtedly plays a role. Consequently, subcontracting is now incredibly important for small business concerns. Many small businesses are not prime awardees of BIC vehicles, and many may not have the qualifications to even bid on these contract vehicles.
Included in a recent memo[1] from the Office of Management and Budget (OMB) Office of Federal Procurement Policy (OFPP) was important clarification on the rule of two[2] as it applies to orders. The memo states that besides some limited exceptions, agencies should set aside orders for small businesses when the rule of two criteria is met. This clarification is an important step in increasing awards to small businesses on large contract vehicles. With that in mind, an expansion of the rule of two to require analysis for all acquisitions above the micro-purchase threshold (MPT) would be a game changer for small businesses.
The industrial base has significantly decreased over the past ten years – around a 40% decline in the number of small businesses receiving prime contract awards. The strength of the industrial base is a concern to the entire federal contracting community, in both civilian and defense agencies. The rule of two was created to support the ability for small businesses to compete for federal contracts. This rule has been confirmed by the courts in several cases, including Kingdomware Technologies and Tolliver.[3] In current law, the rule of two only applies to acquisitions above the MPT, but not greater than the Simplified Acquisition Threshold (SAT). In FY2023, the federal government took over 5,700,000 actions that were over the SAT.[4] Given such a large number of contracts above this threshold, a change is critical to ensure that agencies are applying the rule more broadly. While the recent guidance will be impactful, removing the restriction that the rule of two only applies to contracts under $250,000 will be a turning point for small contractors. Agencies already know how to perform market research; therefore, this expansion would not cause an undue burden to the acquisition workforce. By amending the necessary legislation to conform with the court cases cited above, small businesses will have a better opportunity to win contracts and provide innovation and flexibility for federal buyers. H.R. 6320, Increase Small Business Utilization Act of 2023, introduced by Ranking Member Nydia Velázquez (D-NY) accomplishes this goal. It is time for Congress to amend the rule of two to increase contracting opportunities for small businesses.
A leader in providing strategic support solutions to the federal government, Contemporaries was founded in 1991 and continues to provide streamlined and expert services to federal agencies. As a Woman-Owned Small Business, we consistently leverage our experience and expertise to anticipate our clients’ needs and advance their critical programs, realizing the maximum productivity and peak performance for every individual and project. At Contemporaries, every employee, contractor, and client is a part of the family, and for us, family comes first. To learn more, visit www.contemps.com
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1 https://www.whitehouse.gov/wp-content/uploads/2024/01/REV_Increasing-Opportunities-to-Small-Businesses-under-MACs-CATS-Final-Copy-1-25-24.pdf
2 15 USC 644(j)
3 TOLLIVER GROUP, INC. v. USA
4 Pulse of GovCon analysis
