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Thursday, July 15, 2010

Department of Defense: The Black Hole of Small Business Contracts

By: Kevin Baron, ASBL

The federal government has a congressionally mandated goal when it comes to giving contracts to small businesses. The Small Business Act states,

The Government-wide goal for participation by small business concerns shall be established at not less than 23 percent of the total value of all prime contract awards for each fiscal year.” So the government must spend a minimum of 23 percent of all prime contract dollars with small businesses every year.

Each fiscal year, the Department of Defense (DoD) consistently accounts for between two-thirds to three-quarters of our entire governments procurement budget. For example, in fiscal year 2008, it is reported that the government spent a total of approximately $536 billion on prime contracts (not including black-op and intelligence spending, but that is for another post), of which DoD accounted for approximately $392 billion, or 73 percent.

There are several programs that have been set-up through DoD that are supposed to be beneficial for small businesses, but end up doing the complete opposite. One program in particular is the Comprehensive Subcontracting Plan Test Program (CSPTP). The CSPTP was passed by Congress in 1989 and went into effect on October 1, 1990, and is currently set to expire on September 30, 2010 unless reauthorized.

The program was established based on two concepts. The first was to make contracting easier for large prime contractors by reducing their paperwork and reporting requirements on their contracts. The second was to increase the opportunities for small businesses to work with the participating large prime contractors. I am not sure how decreasing transparency on contracts awarded to the biggest defense contractors in the country will increase opportunities for small businesses, but apparently enough members of Congress at the time thought it would work.

About six months ago, I filed a Freedom of Information Act (FOIA) request to DoD asking for the most recent audit, review or evaluation of the program in order to determine if the CSPTP was meeting its stated goals of increasing subcontracts for small businesses, especially Small Disadvantaged Businesses (SDBs), veteran and service disabled veteran owned businesses, woman owned businesses and HUBZones.

I got a phone call a few days later from the Acting Director of the Office of Small Business Programs at DoD, who told me she had received my request and was sending a non-response response, but she wanted to explain. She told me that they had no documents for what I was requesting because the program had never been evaluated. Now, take that in for a moment- a program has been in place for 20 years and has never been evaluated to see if it is working. Essentially, DOD has to conduct an evaluation on the program once it expires, but the program has been reauthorized three times since its inception, and every time it is reauthorized, it kicks back the date of the evaluation.

There are currently 14 participants in the CSPTP, consisting of companies like Boeing, Lockheed Martin, L-3 Communications, Northrop Grumman, and General Dynamics. One of the main problems with the CSPTP is that there is no penalty for non-compliance with the small business subcontracting goals. That means that when a high-dollar contract is awarded to one of these firms, if the small business subcontracting goals that are automatically attached to the contract are not met, or the company fails to meet the small business subcontracting goals as established in their own small business subcontracting plan, there is no punishment or penalties. So where is the incentive for these firms to subcontract with small businesses?

I have filed numerous FOIA requests asking for information on this program and DoD has turned me down on every one to date, although we plan on pursuing legal action if necessary. What we have seen in looking at subcontracting reports on these same firms through other agencies is that often, they are not meeting their small business subcontracting goals. It appears that the CSPTP is nothing more than a loophole to get large defense contractors out of having to meet government mandated small business goals.

The CSPTP needs to be eliminated. DoD accounts for almost three-quarters of the government’s entire procurement budget, and in fiscal year 2009, the 14 firms participating in the program received approximately 18 percent of DoD’s contract dollars. In fiscal year 2009, one out of every six dollars that DoD spent was going to one of the companies that participated in the program. This means that small businesses were losing out on literally billions of dollars in subcontracts every year for the past 20 years.

Now for the kicker, CSPTP reauthorization was not included in the House’s Defense Authorization bill that passed a few weeks ago, however, it is included the in Senate’s version. In S. 3280, a four-year reauthorization of the program is included in Title VIII, subtitle A, section 805.

I have spoken to numerous members of Congress about this program and have not found one yet who was familiar with the CSPTP. Why would this program continue to be reauthorized when no one, including DoD and members of Congress, has any idea as to whether it is working?

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