Contractors and stakeholder organizations in New Mexico have complained to state and federal legislators about a procurement program in the Department of Energy that they believe is gradually reducing spending priorities for small, local businesses. Some of them worry that a National Nuclear Security Administration program that organizes very large-scale acquisition projects is siphoning jobs and money from the local communities that host two national nuclear weapons labs.
Better deals for NNSA and its prime contractors can mean consolidation of suppliers, fewer businesses involved in larger contracts, and competitive pressures that smaller companies offering savvy local expertise and intangible community benefits may not be able to handle. A business that is downgraded from a prime contractor on a small contract to a subcontractor, for example, might have to settle for a thinner overhead or profit margin, which can impact work and product quality and job security.
New Mexico has barely recovered from the 2007-2009 recession. In a presentation to the state Legislative Finance Committee on Jan. 20, the University of New Mexico Bureau of Business and Economic Research reported that job growth fell from 1.4 percent in early 2015 back down to .5 percent in the last two quarters of the year and is unlikely to exceed 1.4 percent before 2020. Unemployment is at 6.8 percent, compared to the national average of 4.9 percent.
In this economic environment, small business spending from DOE’s national laboratories becomes even more critical. As Andrea Romero, executive director of the Regional Coalition of LANL Communities, said last week, “Without the DOE, there would not be a middle class in Northern New Mexico.”
Some recent numbers provided by U.S. Sen. Martin Heinrich (D-N.M.) to Romero’s organization and the LANL Major Subcontractors Consortium indicated the total procurement expense for Los Alamos statewide fell from $337 million in 2013 to $276 million in 2014 – a drop of $61 million, or 18 percent. Northern New Mexico communities received the lion’s share of $251 million in 2013, but in 2014 that dropped $39 million to $212 million, or 15.5 percent. Beyond the sharp declines reflected in procurements, local businesses fear the bundling strategy will spread to the service sector as well, to include such services as information technology and environmental cleanup.
“There’s a lot of irony in Department of Energy procurement practices,” said Seth Kirshenberg, executive director of the Energy Communities Alliance in Washington, D.C. “On one hand, they want to keep their costs as low as possible; on the other, they want to support local communities.” In New Mexico, he said in a recent telephone interview, DOE is cutting the part that directly supports the local communities. “It’s most obvious in New Mexico, but now other communities are beginning to feel the impact.
The Espanola-based Regional Development Corporation, an economic development organization, has been outspoken and proactive about defending New Mexico contractors. “Northern New Mexico has a right to say, wait a minute,” said Executive Director Liddie Martinez. “We have this laboratory in our neighborhood, and we have had to deal with all the cleanup that goes with that kind of business.” But the pace of cleanup is slower and jobs are disappearing and now more procurement is shifting away, she added. “The question that is begging to be asked is what are the benefits to New Mexico for the lab to remain here?”
The issue has been a growing concern to groups of stakeholders in New Mexico that have mutual interest in community and economic development. Their concerns have focused in the last year on a small private organization managed by Honeywell Federal Manufacturing and Technologies: the Supply Chain Management Center (SCMC), which operates out of NNSA’s National Security Campus near Kansas City, Mo.
SCMC directs a sophisticated nationwide purchasing program called “strategic sourcing,” which leverages the purchasing power of the large contractors that manage and operate major NNSA sites, like the weapons labs and plants. Through SCMC, these contractors spend about $4 billion annually on supplies and commodities, selecting from a pool of qualified suppliers that can do best-in-class work. More savings and efficiencies are gained by electronic bidding tools and reverse-auctions that squeeze extra value from the deal. The center claims to have saved taxpayers $600 million in procurement costs since it started in 2007.
One small business marketing manager who asked not to be named remarked, “Omnibus contracts take opportunities off the table. You get a small business in New Mexico that gets a small contract and suddenly they become a big business and they dilute the pool for everybody else.” Omnibus contracts, which can sweep up an entire supply category, like copiers or lab equipment across large portions of the NNSA enterprise, can capture all the business available at the expense of small providers for whom an occasional sale in a very large, tightly held market would not be allowed. Very small businesses, as many contractors are in New Mexico, with only a handful of employees, are extremely sensitive to gains and losses. A small business can multiply in size with a contract that more economically healthy areas of the country might consider incidental.
Those perceptions may be misunderstood, according to SCMC Director Scott Bissen, who believes the center is evolving and responding to the concerns that have been voiced. “We are always working on improving our approach and specifically how we can more formally work on regional sourcing opportunities,” Bissen said. “There are many ways to be involved with SCMC, as well as the rest of the NNSA and Environmental Management, lots of avenues for them to tie in, plenty of local opportunities with their local prime contractors.”
In a recent telephone interview, Bissen said the commitment to small businesses has not been diminished and that there are tremendous opportunities for business growth within the 22 locations that make up the SCMC enterprise. “Less than 5 percent of the spend of the enterprise by the prime contractors goes through SCMC agreements, so there is tremendous local contractor opportunity,” he said. “One of the things we tried to do from the beginning was to match supplier capability to business opportunity.”
Responding to constituent concerns, Heinrich invited NNSA chief Frank Klotz, along with the state’s U.S. lawmakers and senior SCMC officials, to attend a small business informational conference in Albuquerque last month, the first meeting of its kind that the center has held. The entire New Mexico congressional delegation, Albuquerque Mayor Richard Berry, and hundreds of business representatives were in attendance. Bissen said as many as 100 business people met in one-on–one meetings with SCMC commodity managers.
“It’s appeasement,” said one businessman after the conference, still disappointed that some issues were not discussed. He acknowledged that SCMC awarded its first regional contract to a Santa Fe small business with an estimated value of $200 million for Dell computers at LANL and Sandia. “Why one big contract? Why not two?” said the businessman, who spoke on condition of anonymity.
Since then Heinrich has announced his intention to set up a similar meeting for Southern New Mexico businesses interested in opportunities for the community around the Waste Isolation Pilot Plant, the underground repository that is still under repair following a pair of accidents in February 2014.
Bissen said the center is committed to continue improving its approach, “and specifically how we can more formally work on regional sourcing opportunities and more regularly scheduled regional small business outreach events, and those are going to help drive the enhanced usage of regional suppliers where possible.”
