The risks of pushing for procurement equity
Without proper oversight, experts warn, a White House plan to steer $100 billion in federal contracting opportunities toward small disadvantaged businesses (SDBs) will likely run into major challenges that pave the way for large corporations to take advantage of set-asides for those historically marginalized firms.
Contracting experts and former federal officials say the new initiative announced last month requires an expanded focus on regulations to avoid significant risks, including fraud and mismanagement, as recent examples have shown.
“This is one of those things that look good on paper and in practice can also bring some positive things,” said Larry Allen, former president of the Coalition for Government Procurement. “But in practice, history has shown it can also bring unintended consequences.”
On the 100-year anniversary of the Tulsa race massacre, President Joe Biden announced a government-wide effort to address the racial wealth gap in the United States. The plan focuses on rooting out racial discrimination in the housing market, providing grants and new funding for community-driven civic infrastructure projects and expanding federal contracting by 50 percent for SDBs.
The expanded contracting opportunities will translate to $100 billion over the next five years for SDBs, the White House said in a fact sheet, in addition to $31 billion for mentoring and other forms of technical assistance for those small businesses.
But money doesn’t always end up in the right hands, and it remains unclear how the administration plans to oversee the robust agency-wide call-to-action, according to former NASA CIO Linda Cureton, who described in a recent interview how larger firms can take advantage of SDBs through initiatives like government mentor-protégé programs.
Under the previous administration, Congress changed the law so larger businesses can take up to a 40 percent stake in SDBs in exchange for technical and management guidance, training and networking opportunities. Those firms can then form a joint partnership to secure contracting opportunities meant for SDBs.
“Let’s say you’re a white-owned company, you see an up-and-coming Black-owned company, so you buy a stake in it and enrich yourself. Now you’re getting richer, and the Black-owned company isn’t necessarily gaining the benefits,” she said, adding: “This needs to be looked at in a more holistic way.”
Opportunities dwindle as the small business contracting market grows
Federal spending with SDBs sharply increased starting in fiscal year 2009, from six to 10 percent, but has since plateaued at those rates over the last four years. Meanwhile, as of June 1, there were 1,185 active participants in SBA’s mentor-protege program — a number that jumped to 1,242 by July.
The small business contracting market has seen continued growth over the past decade, according to Antonio Doss, deputy associate administrator for SBA’s office of government contracting and business development, who said applications are up for SBA’s initiatives targeting smaller firms.
However, Doss acknowledged opportunities “are not as widespread” as in previous years, due in part to an increase in consolidation and bundling, along with a government-wide centralizing of procurement functions within certain departments “and with a small group of preferred contractors.”
“SBA and other agencies will need to redouble our efforts to reach small disadvantaged businesses,” he said, “particularly those that are not currently participating in government contracting.”
As the government doubles down on investments towards SDBs, it must simultaneously ensure marginalized firms won’t be used for “pass-through” work — a term used to describe how big businesses have at times misused mentor-protégé programs when agencies or military branches target specific firms for federal spending — in order to continue expanding federal contracting opportunities for marginalized firms, according to several experts who spoke to FCW.
When the Air Force decided nearly a decade ago it wanted to partner with service-disabled veteran-owned businesses, Allen said he “saw a whole raft of companies calling themselves service-disabled veteran-owned businesses that popped up overnight.” He added: “These were companies that weren’t even companies at all.”
Preventing fraud and misuse is a full-time job
While addressing nationwide racial inequities has become a main focus for the Biden administration, the former Coalition for Government Procurement suggested the goal of expanding federal spending for SDBs “is nothing new under the sun.”
Allen recalled other examples of misused mentor-protégé programs he saw during his tenure with the coalition, noting how some contracting shops may see actions like the recently-announced White House push towards SDBs as obstacles requiring workarounds.